How to Sell a Medical Practice
The need for medical care will grow rapidly in coming years, and this trend makes a medical practice attractive to potential buyers.
By 2030, the U.S. Census Bureau projects that older adults will outnumber children, due to the aging baby boomer generation. This generation will need more medical care for chronic diseases, including obesity, diabetes, and high cholesterol.
If you’re wondering how to sell your medical practice, start the process by having a conversation with a business broker. They understand the industry, and will help you position your practice for sale.
Understanding a Medical Practice’s Value
Larger clinics, hospitals, and larger medical practices may have an interest in buying your business. Here are some factors that a buyer will consider:
Size of Patient Base, Recent Growth Trends
Your base of patients drive sales and profits, and a purchaser will focus on the total number of patients, and if the base of patients is growing or shrinking.
Business Operations
Delivering patient care is complex, and medical practices must comply with a number of regulatory bodies. Practice management includes compliance, operating the facility, accounting, and human resources.
If you have a veteran staff and you document routine policies and procedures, a transition to a new buyer will be much easier.
Practice Structure
The structure of your practice determines the complexity of a sale. Many practices are limited partnerships formed by a group of doctors, and the partnership owns the assets. The number of doctors is also a factor, because the group must agree on the details of a sales transaction.
Marketing the Medical Practice
A business broker can use the information about your practice and produce marketing materials. Brokers maintain an extensive network of accountants and attorneys who work on business transactions, and brokers network with investors. Your broker can target potential buyers who have the financial means to buy your practice.
Accounting and Financial Considerations
A broker can work with your accountant to generate financial statements and other data for potential buyers. These are factors that may impact your medical practice sale:
Practice Valuation
Your advisors may adjust the value of assets and liabilities to fair market value for the purposes of a sale. The valuation includes tangible (physical) assets, including equipment, supplies, and furniture.
The sale may also include intangible assets, including goodwill, which is the amount paid for the practice above fair market value. A buyer may be willing to pay goodwill, based on the number of patients, practice location, and business reputation.
Your broker can help you obtain a certified business valuation, so that you can learn exactly how much your company is worth. An accredited valuation appraiser gathers information, analyzes business data, and delivers a report.
The valuation is a starting point for the sale price negotiation. Buyers and sellers use certified valuations, because this unbiased process removes subjectivity.
Other Financial Issues
The accounts receivable balance may be retained by the seller, and not included in the sale price calculation. The sales agreement needs to address the purchaser’s obligation to collect receivable balances after the sale is closed. A sale may also exclude property owned by the seller, and a buyer may set up the practice in another location nearby.
The seller’s lease on office space, and leases on medical equipment may also be excluded from the sale negotiation. In many instances, the buyer will negotiate lease agreements for the practice location, and for equipment.
Working Through Due Diligence
Once you find an interested buyer, you can start the due diligence process. The buyer’s documentation must comply with the regulatory requirements for practicing medicine.
Due diligence can be time consuming, but a broker can keep the process moving on your behalf. The broker can handle additional record requests, so you can focus on managing your practice.
When due diligence is completed, your broker will use the valuation and other data to negotiate a sale price.
Managing the Closing Documents
You must address a number of issues to close a medical practice sale:
Patient Notification Letter
Both parties must agree on a process for notifying patients, in order to create a smooth transition to the buyer. Patients have the right to choose another doctor, and to have their medical records sent to a new physician.
Staff Communication
How will you notify your staff? Which team members will work for the purchaser after the sale? These issues must be addressed and communicated to the staff, and clear communication will make the transition smoother.
You’ll need an attorney to address legal issues. The purchaser needs legal protection against any misrepresentations made by the selling physicians before the sale. The sales agreement typically has an indemnification provision to protect the buyer.
Finally, the sales agreement must address medical record retention, and any transfer of records must be clearly stated in the agreement.
Providing quality patient care requires a large time commitment, and selling a medical practice is complex. Work with the medical practice brokers at Raincatcher, so you have a trusted advisor throughout the sale process. A broker can help you find a buyer in less time, and negotiate an attractive price for your medical practice.
Contact the brokerage specialists at Raincatcher today for a free valuation.
