The First Steps
Okay, let’s assume that you have decided to at least take the first few steps to actually sell your medical practice.
Before you even think about placing your practice for sale, there are some things you should do. The first thing you have to do is to gather information about the practice.
Here's a checklist of the items you should get together:
Okay, let’s assume that you have decided to at least take the first few steps to actually sell your medical practice.
Before you even think about placing your practice for sale, there are some things you should do. The first thing you have to do is to gather information about the practice.
Here's a checklist of the items you should get together:
- Three years' profit and loss statements
- Three year's federal income tax returns for the practice
- List of fixtures and equipment
- The lease and lease-related documents
- A list of the loans against the practice (Amounts and Payment Schedule)
- Copies of any equipment leases
FAQs for Sellers
What can I do to prepare my practice for sale?
Preparing your practice for sale should ideally begin three to five years prior to selling. Updating the technology in the practice is a must. That does not mean spending hundreds of thousands of dollars on the latest and greatest gadgets. It does mean having updated equipment, computers, and software. Those are the minimum items you need for buyers to consider your practice “updated”.
Aesthetically, consider having an outsider come into the office to give an opinion on how the practice looks. Do you still have the original carpet from 1980? Do you have orange laminate countertops? Is the paint on the walls chipped, or dated? If you answered yes to any of these, spend a few thousand dollars to update the look.
To increase the value of the practice, you need to improve the cash flow of the practice. A good start is to have your practice valued to determine if the value is where you expect or want it to be. If it is not, you will need to analyze the profit and loss statements. Have you continuously given your staff raises every year even though production has dropped by 20, 30, and even 50%? How do your ratios look? Consider the advice of your accountant, medical consultant or advisor to guide you on the appropriate profit and loss statement and ratios expected. If your cash flow is not where it has been, or should be, identify opportunities in the practice to help improve the cash flow and thus the value.
What is the first step when I'm ready to sell my practice?
Have your practice valued. You will need to gather a number of documents: three years of tax returns, income statement, a depreciation schedule on equipment, and a few practice management reports. With these documents, a seasoned transition consultant trained in medical practice valuations can provide the value of your practice.
Do I need a Broker, or can I sell my practice myself?
There are no state or federal laws that require you to hire a broker. You can sell the practice yourself. However, be aware of what it takes. The process involves includes valuing the practice, preparing a prospectus or offering memorandum, placing ads in all the publications throughout the United States, organizing the documents, taking calls from potential buyers answering their questions, sending them non-disclosure agreements, showing the practice on nights and weekends, answering more questions about the practice, reviewing letters of intent, assisting with due diligence, assisting with the second and third rounds of due diligence, taking more questions from the buyers CPA, advisor, consultant, father, brother… and on and on and on. It’s an exhausting process, amounting to over 200 hours, on average. According to bankers and attorneys, if a broker is not involved, the sale falls through approximately 50% of the time. A Broker will save you time and headaches.
What happens when there is a buyer for the practice?
When a buyer is sufficiently interested in your practice, he or she will, or should, submit an offer in writing. This offer or proposal may have one or more contingencies. Usually, the contingencies concern a detailed review of your financial records and may also include a review of your lease arrangements, or other pertinent details of the business. You may accept the terms of the offer or you may make a counterproposal. You should understand, however, that if you do not accept the buyer’s proposal, the buyer can withdraw it at any time. Your broker will assist you in analyzing the offers. It is important to look at all offers carefully, even if you're not pleased, because while it may be lacking in some areas, it might also have some pluses to seriously consider. There is an old adage that says, “The first offer is generally the best one the seller will receive.” This does not mean that you should accept the first, or any offer — just that all offers should be looked at carefully.
Once you and the buyer are in agreement, the buyer will perform due diligence in the practice. The broker will work hard with you and the buyer to satisfy and remove the contingencies in the offer. It is important that you cooperate fully in this process. You don’t want the buyer to think that you are hiding anything. The buyer may, at this point, bring in outside advisors to help them review the information. When all the conditions have been met, your attorney will draft up the purchase agreement for signing. Once the closing has been completed, money will be distributed, and the new owner will take possession of the practice.
What can I do to help sell my practice?
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If using an attorney, ensure they are specialized in medical practice sales and are familiar with the closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on short notice. Time is of the essence in any practice sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal.
How long will it take to sell my practice?
On average, it takes between five to eight months to sell most practices. Keep in mind that an average is just that. Some practices will take longer to sell, while others will sell in a shorter period of time. The sooner you have all the information needed to begin the marketing process, the shorter the time period should be. It is also important that the practice be priced properly right from the start. Some sellers, operating under the premise that they can always come down in price, overprice their practice. This theory often “backfires,” because buyers often will refuse to look at an overpriced practice.
Will I be expected to work in the practice after closing?
In general, buyers want you to stay around to assist with the transition. Doing so helps facilitate a smooth transition and makes the staff and patients more comfortable with the new doctor. The length of that ranges from a few days to up to six months. A specialist will usually be asked to stay on and introduce the buyer to the referral sources.
What can I do to prepare my practice for sale?
Preparing your practice for sale should ideally begin three to five years prior to selling. Updating the technology in the practice is a must. That does not mean spending hundreds of thousands of dollars on the latest and greatest gadgets. It does mean having updated equipment, computers, and software. Those are the minimum items you need for buyers to consider your practice “updated”.
Aesthetically, consider having an outsider come into the office to give an opinion on how the practice looks. Do you still have the original carpet from 1980? Do you have orange laminate countertops? Is the paint on the walls chipped, or dated? If you answered yes to any of these, spend a few thousand dollars to update the look.
To increase the value of the practice, you need to improve the cash flow of the practice. A good start is to have your practice valued to determine if the value is where you expect or want it to be. If it is not, you will need to analyze the profit and loss statements. Have you continuously given your staff raises every year even though production has dropped by 20, 30, and even 50%? How do your ratios look? Consider the advice of your accountant, medical consultant or advisor to guide you on the appropriate profit and loss statement and ratios expected. If your cash flow is not where it has been, or should be, identify opportunities in the practice to help improve the cash flow and thus the value.
What is the first step when I'm ready to sell my practice?
Have your practice valued. You will need to gather a number of documents: three years of tax returns, income statement, a depreciation schedule on equipment, and a few practice management reports. With these documents, a seasoned transition consultant trained in medical practice valuations can provide the value of your practice.
Do I need a Broker, or can I sell my practice myself?
There are no state or federal laws that require you to hire a broker. You can sell the practice yourself. However, be aware of what it takes. The process involves includes valuing the practice, preparing a prospectus or offering memorandum, placing ads in all the publications throughout the United States, organizing the documents, taking calls from potential buyers answering their questions, sending them non-disclosure agreements, showing the practice on nights and weekends, answering more questions about the practice, reviewing letters of intent, assisting with due diligence, assisting with the second and third rounds of due diligence, taking more questions from the buyers CPA, advisor, consultant, father, brother… and on and on and on. It’s an exhausting process, amounting to over 200 hours, on average. According to bankers and attorneys, if a broker is not involved, the sale falls through approximately 50% of the time. A Broker will save you time and headaches.
What happens when there is a buyer for the practice?
When a buyer is sufficiently interested in your practice, he or she will, or should, submit an offer in writing. This offer or proposal may have one or more contingencies. Usually, the contingencies concern a detailed review of your financial records and may also include a review of your lease arrangements, or other pertinent details of the business. You may accept the terms of the offer or you may make a counterproposal. You should understand, however, that if you do not accept the buyer’s proposal, the buyer can withdraw it at any time. Your broker will assist you in analyzing the offers. It is important to look at all offers carefully, even if you're not pleased, because while it may be lacking in some areas, it might also have some pluses to seriously consider. There is an old adage that says, “The first offer is generally the best one the seller will receive.” This does not mean that you should accept the first, or any offer — just that all offers should be looked at carefully.
Once you and the buyer are in agreement, the buyer will perform due diligence in the practice. The broker will work hard with you and the buyer to satisfy and remove the contingencies in the offer. It is important that you cooperate fully in this process. You don’t want the buyer to think that you are hiding anything. The buyer may, at this point, bring in outside advisors to help them review the information. When all the conditions have been met, your attorney will draft up the purchase agreement for signing. Once the closing has been completed, money will be distributed, and the new owner will take possession of the practice.
What can I do to help sell my practice?
A buyer will want up-to-date financial information. If you use accountants, you can work with them on making current information available. If using an attorney, ensure they are specialized in medical practice sales and are familiar with the closing process and the laws of your particular state. You might also ask if their schedule will allow them to participate in the closing on short notice. Time is of the essence in any practice sale transaction. The failure to close on schedule permits the buyer to reconsider or make changes in the original proposal.
How long will it take to sell my practice?
On average, it takes between five to eight months to sell most practices. Keep in mind that an average is just that. Some practices will take longer to sell, while others will sell in a shorter period of time. The sooner you have all the information needed to begin the marketing process, the shorter the time period should be. It is also important that the practice be priced properly right from the start. Some sellers, operating under the premise that they can always come down in price, overprice their practice. This theory often “backfires,” because buyers often will refuse to look at an overpriced practice.
Will I be expected to work in the practice after closing?
In general, buyers want you to stay around to assist with the transition. Doing so helps facilitate a smooth transition and makes the staff and patients more comfortable with the new doctor. The length of that ranges from a few days to up to six months. A specialist will usually be asked to stay on and introduce the buyer to the referral sources.