How to sell a medical practice: Key steps to prepare for a successful sale
How to sell a medical practice | Where to start?
There are many reasons why people look to sell their medical practice. Perhaps it’s because you have been approached by an interested party, or maybe you are looking to retire sometime in the future and want to be prepared. Otherwise, with the backdrop of the pandemic, we have seen that many doctors simply wish to concentrate on being a doctor. They are looking to move forward in their career without the additional pressure of being a practice owner and all that comes with it.
Regardless of the reason for your interest in selling, there are a number of key considerations to be aware of, when planning to prepare a practice for sale.
1. Determine current practice value and ‘desirables’
The first place to start is with having the practice valued. Additionally, you may wish to determine what is desirable for buyers, so you can take steps to action some changes before going to market, with a view to increasing the sale price.
When buyers have options, they will be looking for more than just a profitable practice.
Consider:
What is it about your business that will appeal to a buyer?
Do you have an established, busy and growing medical practice?
Is the practice in an excellent location with easy access to parking?
Does the practice have complementary services such as a chemist or pathology services nearby?
What else might a potential buyer be interested in?
Other aspects of your practice that buyers might consider are whether your financials are in tip-top condition or whether your policies and employee and service agreements are in place and up-to-date. A potential buyer may want to assess whether this would be a turnkey purchase, or whether they have a lot to fix to get everything up to scratch -all of which will contribute to the sale price.
Before you share any information, you will be better protected if all parties sign a Confidentiality Agreement or Non Disclosure Agreement.
You will need to get a current valuation of the practice. Your accountant can assist with this.
As you may be aware, medical practices are structured in different ways, based on the needs of the owners. You may need to consider a change in structure in anticipation of the sale, to reduce tax consequences. We have had clients who decided not to sell after working out the tax benefit of the practice, so reach out if you need a referral to an accountant experienced in working with medical practices as we can point you in the right direction.
You may also wish to speak with your accountant and/or a broker to get a sense of what the market is looking for in a practice.
With those insights, you may wish to put some steps in place to optimise your sale price.
2. Preparing for sale
You should review the terms of your lease and all arrangements you have in place with your staff. You should also begin reviewing financial information, with the support of your accountant.
There are a number of documents that you will need to collate and have ready for inspection:
Profit and Loss statements (preferably for the past 3 years);
Tax returns for the past 2 years
List of Doctors and their Agreements
Fee schedule
Summary of full-time employees & their Agreements
An inventory of major medical equipment (including any leasing agreements)
Leases on the premises (whether leasing to another entity or to external party)
Photos of the practice
A floor plan of the premises
All of the elements are required for a buyer to do their due diligence.
3. Sale types and documents
There are two main types of sales for medical practices:
A corporate or all-out sale where all owners/partners are bought out
Sale of your share of the business to existing partners or a new person coming into the practice
It is good to have a clear idea of the process and documents that may be required, as these differ depending on the sale type.
Corporate/All-Out sale process
A corporate sale is a sale where all the stakeholders are bought out by an independent third party.
The first document is a Heads of Agreement. This is before any contract of sale. This document summarises all the key terms of any agreement between you. For example, it includes information about how long you will work for the independent buyer, after the sale, on what basis, and for how much money. You need to have thought about what you are open to in regards to this.
The Sale Agreement comes next and details the terms of the sale and what will happen to the assets, units or shares.
Next, a Practitioner Service Agreement may be required. It sets out the terms if you intend to work for the practice as an independent contractor. You need to have thought about whether this is something you want.
A New Lease Agreement or a Sub-lease Agreement
What happens with any lease you have depends on the terms of the lease and the agreement you come to with the buyer. There may be an entirely new lease coming into play, or you may be assigning or transferring your current lease to the new owner of the practice.
If you own the property where the practice operates, then you may be leasing it to the new owner of the practice. Alternatively, if you are selling the premises as part of the sale, then you will need other agreements - exactly which will vary depending on the state or territory the property is located. You will need to have thought about whether you are prepared to sell the property if that is a requirement of the buyer.
Internal sale process
An internal sale is where you will be selling your part of the practice to the other stakeholders or
bringing in a new stakeholder to replace you, which may be another member of the team or someone completely independent.
It might be that your foundation documents, such as your Owner’s Agreement, cover this process, so these foundation documents will need to be reviewed and complied with.
You will need an Exit Agreement. Other governance documents will also need to be prepared, and the content of these will depend on the way the business is structured. We help our clients by reviewing existing agreements and providing advice about what is required to complete the terms of the sale.
Leverage expert advice
We recommend that you consider seeking advice as early as possible from the following professionals:
Your accountant
A broker that specialises in medical practice sales
A lawyer experienced in medical practice sales
An expert in each of these fields will bring insights, ideas and solutions that you may not have thought of, and can talk you through any concepts that you are unfamiliar with.
Finally, be patient with yourself and your chosen experts. This process takes time. It is important that you prepare thoroughly for the process of selling. You need to be certain that selling the practice is what you want to do, and that your practice is ready to be examined by buyers.
Thorough preparation for a sale minimises the risk that anything will go wrong down the track (where it can prove to be a lot more costly). If the process is rushed, significant elements can be overlooked which can hamper progress with an interested buyer, or give them a reason to provide a lower offer.
Starting this preparation early allows you to take action to maximise your chances of getting the sale price and the outcomes you are seeking.
Related Articles: Thinking of bringing in a Partner to your medical practice? 5 elements to consider
Our team has extensive experience in providing advice and insights into best practices for preparing your practice for sale. We have assisted in many practice sales, from selling shares in a partnership to corporate sales. To discuss your potential sale, reach out, and we will connect you with the best professional to match your needs. Connect via this page here.