Getting Ready to Sell Your Practice

Apr 08, 2014 at 12:00 am by Staff

The healthcare industry is experiencing dynamic changes as it relates to declining reimbursements, healthcare reform and increasingly stringent regulations; thus, physicians are considering selling their practice, merging with other practices, integrating with hospitals, or liquidating their practice.  During this transformational period, it is imperative that physicians develop a strategic plan that will allow them to attain the maximum value for the practice.  This is best achieved by creating an exit plan well in advance and then continually monitoring the practice’s performance over time.

It is also true that in these times of regulatory change, it takes almost every waking minute just to keep up with day-to-day operations of a practice.  In most cases, you seldom have time to survey where you are, where you are headed, and what you should be doing to improve and meet your future goals.  Nonetheless, it is important to create and implement a high quality practice valuation plan to ensure a profitable and seamless experience.  This article will address strategic methods to get the most value from your practice, while having the least amount of impact on your time.  Even if you are not currently planning to sell, by actively managing the value of your practice each quarter, you will be prepared if an offer to purchase is made to you at an unexpected time.

Phase I – Discovering Current Values – note the plural: values.  Your practice does not have an inherent value that will be the same without regard to the type of buyer.  Stark laws and Anti-Kickback rules can transform a practice worth $1M to an independent buyer into a practice worth $0 to a tax exempt hospital if enough revenue is generated between you and the buyer through referrals.  The most prudent strategy to get the most defensible valuation with the least time, effort, and real cost, is to hire a licensed business appraiser who specializes in healthcare – ideally one which specializes in your type of practice.  However, to achieve an accurate and beneficial valuation, you must ensure that your practice’s documentation (i.e. financials, operating statistics, etc.) are in good order.  If you have determined the type of buyer you would like to target, advise your appraiser, so they can tailor the valuation to the specific prospect. If your target market is more general in nature, then negotiate for a valuation that can apply across a broad spectrum of potential prospects.  There are people who will prepare an assessment for free, but the money spent on a professional appraisal could be worth its “weight in gold” in terms of increased price or lower legal expenses later.  (The cost of settling with the IRS over a sale to a tax exempt buyer could make the “free” assessment the biggest expense in the sale.)

The valuation of your practice will be a blend of methods over a set of inputs.  Furniture, fixtures, equipment, etc., will be valued using one of the cost appraisal methods.  The building and real estate will be assessed based on a comparative market valuation method.  It is the valuation of the intangibles that requires the highest level of expertise.  Intangibles tend to be worth the present value of future cash flows they will generate.  The valuation of intangibles is what draws the most scrutiny from the government and astute buyers.  The logic and data used here must be bulletproof.

Phase II – Value Optimization – Analyze the valuation report with the appraiser to identify which elements are increasing the value and determine the strength with which they are doing it.  Conversely, identify which elements are driving the value down and determine how significantly they are eroding value.  Decide the most appropriate plan to maximize the value until the time of sale.  Managing to the best business model may not be as simple as drive revenue up and costs down.  A full analysis of value optimization is beyond the scope of this article, but is critical to getting the best deal when you exit the practice.

Value Retention – There is an old saying: “It’s not what you make that counts, it’s what you keep.”  Engage a financial and tax professional that specializes in your type of practice to determine which strategy will yield the best post-sale result and build that into the plan.

Plan Management and Execution - Knowing what to do and how to do it is necessary, but not sufficient, to succeed.  Having a knowledgeable third party help you stay on track can be invaluable.  Here in the Orlando area, the Florida Small Business Development Center at UCF provides experts, and advisory boards, at no charge.  Working with them to keep the plan up-to-date and to ensure excellent execution can be the key to achieving your dream without getting sidetracked in the day-to-day urgent distractions.

Phase III – Selling – When the time is right, engage a business broker to help you find and close with the right buyer.  Selling any business is not like selling a house.  A business can lose substantial value if its employees, clients, or vendors learn it is up for sale.  Business brokers are experts in marketing without disclosing the seller.  They are also experts in managing the nuances and intricacies of a purchase and sale transaction.  Hiring a professional can save a lot of time, effort, and money.  Besides, it is always worthwhile to have an objective view of any proposed deal.

The best time for a business owner to start planning for, and working towards, a sale is the day the business opens its doors.  The second best time is today.

Jim Neumann is a small business advocate who provides services: to entrepreneurs as a business intermediary with Florida Business Exchange helping facilitate the buying and selling of businesses (; starting franchises and other opportunities as owner of Best Franchise Choice (; and providing funds for entrepreneurs to buy and grow businesses as owner of Commercial Funding Services (

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