In every business, there comes a time when the owner is ready to move on. And that holds for Nurse Practitioners in private practice.
Maybe the practice owner wants to retire, start a new business, or pursue other interests. The bottom line, it is time to sell!
Now, selling a business can be complicated. But when it’s a medical practice, it’s guaranteed to add another level of complexity to the process.
You see, selling a professional practice presents unique challenges that are different from most other businesses. Here’s what I mean:
- Most providers want to ensure the quality and continuation of care for their patients.
- Often, patient loyalty is with the provider, you, and not with the “business.”
- In most cases, the owner, you, provides the core services of the business. In a sense, you are the “product, the business!”
- Goodwill, even though an intangible, is the real asset for most professional practices. That’s unless the practice owns real estate, high-ticket equipment, or other assets.
Now, these challenges take on more weight, depending on who will buy your practice.
A chain of clinics or a big provider group probably won’t worry too much about these issues. However, if you sell to a solo provider or small partnership, it may be a different story.
Chances are the provider wonders:
- Is there enough goodwill, and can it be transferred to me?
- Will I be able to retain the established patient base?
- Will patients accept me?
- Will the practice be a good fit for me?
To help the buyer calm any fears about being accepted by patients, you may agree to provide some form of assistance during the transition period. This would be detailed in the buy/sell agreement.
You may decide to help the new provider by working alongside for some time. Alternatively, you may opt for introducing and endorsing the new provider to your patient base.
In either case, providing some form of seller assistance as part of the sale will help the transition go much smoother.
But beyond concerns over goodwill, any buyer also wants to know:
- What is the patient base?
- What is the current insurance mix?
- Is the practice sound?
- Is it profitable?
- What are the assets of the business?
- What does the AR look like?
- Have all obligations been met?
- Are there any outstanding debts?
- Have there been any lawsuits?
And this is where the “5 steps…” come into play…
Before you even think about listing your practice for sale, there are a host of things to review, clean up, and put in place. You want to make sure you position your business so you can ask the best possible price for it.
Here are what I consider the five most important tasks to complete when preparing for the sale of your practice.
Step #1 Clean house
When you sell your house, you don’t just put it on the market. Usually, you’d make some repairs, spruce up the house and yard, and touch up with fresh paint here and there.
Why? Because a clean and clutter-free home sells faster and may demand a better price!
Well, the same is true for business! Nobody wants to buy a messy business or a practice that looks bad. Nobody wants a practice that looks bad to the eye or looks bad on paper.
Here are some of the areas to examine and get in order, preferably months ahead of listing your practice for sale.
- Remember first impressions count!
- Go through your office with the eyes of the buyer.
- If necessary, clean up and brighten your office.
- Remove any non-working, broken furnishings, and equipment.
Step #2 Medical Records
- Make sure all medical records are up to date and current. All electronic records should be complete, with appropriate imports of prior records, referrals, insurance information, etc.
- If you still use paper charts, make sure they are well organized. However, consider making the switch to an EHR system. While converting paper to digital can be an immense undertaking, it may be worth the effort. You may achieve a quicker and more profitable sale. At the very least, check into the feasibility of converting to an EHR.
Step #3 Accounting & Tax Records
- Your accounting must be up to date, complete, and maintained in that manner.
- Make sure your accounts receivable (AR) is actively worked on and current. If there are outstanding disputes, try to resolve them as much as you can.
- All tax records must be complete, up to date, and organized.
- Verify all reports have been filed, and all taxes have been paid. If necessary, resolve outstanding tax issues, including employment, federal, state, and local taxes.
Step #4 Office
- Review and if necessary, update your office policies & procedures, all employment, training, and safety manuals. Make sure all documentation is up to date and complete.
- Organize and inventory your medical and office supplies and equipment.
- Post and/or update required employment posters.
- Are permits and licenses current?
- Review and if necessary, update OSHA and HIPPA compliance programs.
- Review training manuals, safety procedures, and protocols.
- If you have open staff positions, try to get them filled.
Step #5 The Sale
Before listing your practice for sale, consider what you want from the sale. And it’s not just about the price:
- The type of sale: do you prefer a clean sale or a transition? Do you want to sell your practice and be done with it? Or do you want to stay on for some time, either as an advisor or even an employee? Or perhaps, you want to find a partner who will buy you out within a year or two?
- The terms of sale: think about what terms you are willing to accept.
- Do you expect to get all cash for your practice?
- Are you willing to provide seller financing if the buyer asks for it? Be careful here; you don’t want to get burned!
- Will you require financing arrangements through a bank?
- Determine what you’ll include in the sale?
- If you’re in your own building, will you sell both, your practice and building?
- Or will you keep your building and lease the space to the buyer?
- What’s included in the sale? Everything in the office, or will you sell specialized medical equipment separately?
And Here’s A Bonus Step…
Yes, it’s time to deal with the elephant in the room!
- How are you going to find a buyer for your practice?
- And how will you figure out what price to ask for your practice?
Finding a buyer for your practice may not be as difficult as you think; setting the price is a different story.
You could start with approaching a colleague or your local hospital.
You could also contact some of the medical groups where you have established relationships with some of the providers. Let them know that you’re thinking about selling your practice.
Get the word out!
Let your colleagues know. Place an ad with your state organization, in NP Facebook groups, and online market groups. Also, be sure to let your accountant and other advisors know it too. They may know someone who might be interested in buying what you have to sell.
Of course, you can always retain the services of a business broker to facilitate the sale; there are business brokers who specialize in working with medical businesses.
If you decide to go that route, get professional references and check them out via the Better Business Bureau and Chamber of Commerce, where they’re headquartered.
Also, ask them for a list of practices they have brokered in the past year, similar to your own. If possible, talk to at least three, both buyers and sellers about their experiences with the broker.
Before you retain the services of a business broker, be sure to do your due diligence!
How much can you get for your practice?
Of course, before you can list your practice, you must first set a price for it. And the price you choose must be supported by the financial data of your practice… not your opinion, your beliefs, and not because you need a certain amount of money from the sale.
As you may suspect, determining the sale price for a professional practice is not an exact science. Many factors go into the equation.
Practices are sold based on fair market value; for multiples of available cash flow, annual net earnings, annual gross collections, or any number of formulas.
Since this topic is beyond the scope of this article, it’s essential to get assistance from your accountant and other advisors. You may also retain the services of a healthcare appraiser and get a professional appraisal for your practice.
Again, be sure to do your due diligence before deciding to work with a company.
To facilitate the future sale of your practice, it’s essential you prepare for it; just like you would prepare for the sale of your home.
There is much to get done before listing your practice for sale. Be sure to allow enough time to get everything done and be patient with the process.
You may want to consider retaining the services of professions to facilitate the sale of your practice. Search for business brokers and appraisers that specialize in healthcare. If you choose to go this route, be sure to research the business and complete your due diligence.
We’d want to hear from you… join the conversation by leaving a comment or question below!
By Johanna Hofmann, MBA, LAc; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.“