What You Need to Know About Selling Your Practice
Preparing to sell your practice
Selling your medical practice is a significant milestone that requires careful planning and preparation. Whether you’re retiring, pursuing new ventures, or the timing feels right, this article will provide you with valuable insights and steps to put you in the best position for a successful sale or succession planning.
This guide covers the essential legal aspects, including:
How to determine the value of your practice for sale or succession planning;
The steps involved in selling a practice;
Strategies to maximise value when exiting a practice with multiple stakeholders and
Understanding the rights and responsibilities of fellow owners/shareholders when you are moving on.
Consider this as your comprehensive guide to navigating the sale of your practice.
Step 1 – Maximising Value
Before you embark on the journey of selling your practice, it is crucial to understand your practice’s value. Understanding the value serves various purposes for both owners and non-owners. For owners, this knowledge will assist with retirement planning, borrowing capacity assessment, wealth planning, investment decisions, and succession planning. Contrastingly, non-owners can leverage practice valuation for career planning, evaluating opportunities to buy a practice, considering practice startups, exploring wealth creation options, and keeping various career options open.
What do buyers look for?
Buyers, in general, are drawn to practices with;
Engaged principal doctor or doctors;
A busy and thriving medical centre;
Ideal practice location, with easy access and parking;
Established patient base
Loyal team of nurses, practice management and support
Appropriate IT infrastructure
Consistent operations processes
What do advisors look for?
Advisors evaluating the practice’s value often emphasise;
Strong historical financial performance
Consistent growth (or no unexpected decline)
Expenditures within industry benchmarks
The existence of robust legal agreements and compliance with those
Security of premises
No outstanding ATO lodgments or payments
Understanding and addressing these aspects are key to optimising the value of your practice in the eyes of potential buyers and advisors.
Step 2 – Process of Valuation
Valuing your medical practice is a critical step towards a successful sale. It is more than merely securing a buyer; it is about finding the right buyer at the right price. To achieve this, you need to understand what might make your business appealing to a buyer. Think about it like you think about selling a house: if you consider what a buyer might find attractive and take the time to proactively implement any changes to enhance the value of the asset before entering the market – that is a smart move.
When buyers have options, they will be looking for more than just a profitable practice. You may wish to consider;
What sets your practice apart? Consider what unique qualities your practice possesses that would appeal to a prospective buyer;
Is your practice established and thriving? A well-established, busy and growing medical practice is often more attractive to buyers;
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? Try to see your practice through the eyes of a potential buyer.
When someone purchases a medical practice, they’re making an investment. Valuation hinges on anticipated future maintainable earnings and business ownership risk. To navigate this process, you should consider engaging an accountant to review financial information, structuring advice (in conjunction with the lawyer) and cashflow forecasts, a lawyer to review agreements and establish structures, and a bank/financer to assist with finance applications and debt structuring.
How?
Maximising profitability is the key goal. This involves not only improving returns but also ensuring reliability and consistency to minimise risk for potential buyers.
You should also examine the consistency of revenue, patient fees, services fees, pathology/allied health sub-leases, and any incentives. It is also worth noting the financial landscape may have been affected by factors such as the COVID-19 pandemic and the changes in payroll tax that have occurred in recent years, so ensure you are considering these variables.
In addition to financial considerations, it is essential to gather and present vital practice information, including location details (urban, suburban or regional), patient numbers (including growth and turnover statistics), MBS Billing Numbers, billing methods (private vs bulk billing), utilisation of incentive payments, capacity for growth, service fee percentages, and the terms of your premises lease.
Before sharing any sensitive information, it is advisable all parties involved sign a Confidentiality Agreement or Non-Disclosure Agreement. This helps safeguard these confidential details of your practice during the selling process.
Step 3 – Steps to Sale
There are two main categories of sales for medical practices, each with distinct processes and legal document requirements.
Corporate Sale
A corporate sale, often referred to as an all-out sale, occurs when all owners or partners are bought out by an independent third party. This type of sale typically involves several crucial documents;
Heads of Agreement: The initial document before any contract of sale summarising all the key terms of the agreement between you and the buyer. It outlines details like your post-sale involvement, basis of work, and financial agreements.
Sale Agreement: Outlines the terms of the sale and what will happen to the practice’s assets, units or shares.
Practitioner Services & Licence Agreement: If you are a practice owner (and doctor) who intends to continue engaging with the practice after the sale, this agreement sets out the terms of your engagement.
A New Lease Agreement or Sub-Lease Agreement: Depending on your lease terms and agreements with the buyer, there may be a need for a new lease or the assignment or transfer of your existing lease to the new practice owner. If you own the property and are selling it as well, additional agreements will be necessary, varying by state or territory laws, especially if selling the premises is a requirement of the sale.
Internal Sale
An internal sale involves selling your share of the practice to existing partners or introducing a new stakeholder to replace you. The critical considerations for an internal sale include;
Foundation Documents: Your practice’s foundational documents, such as your Owner’s Agreement, may already cover this process. Ensure they are reviewed and adhered to.
Exit Agreement: Essential for outlining the terms of your departure and the transfer of your ownership stake.
Take a look at You Legal’s Fast Track Solution for Term Sheet for Sale of Practice for advice about what is required to complete the terms of the sale.
Step 4 – Getting Ready
Preparation is key to a successful sale. Several steps should be considered;
1. Review Lease Terms and Staff Agreements
You should begin by closely examining the terms of your lease agreement and all arrangements you have in place with your staff. This helps to identify any potential hurdles that need to be addressed during the transaction.
2. Financial Review
Collaborate closely with your accountant to initiate a comprehensive financial review. Key elements of this review include;
Financial Statements: Gather financial statements spanning the past three years, along with year-to-date (YTD) reports. These documents offer insights into your practice’s historical performance and current financial standing.
Tax Returns and BAS Reports: Provide tax returns for the past two years and Business Activity Statements (BAS) for the last four quarters. This documentation ensures transparency regarding your practice’s tax compliance.
3. Further Documentation Collation
To streamline the sale process, you must have readily accessible various documents that prospective buyers may request as part of their due diligence process. This documentation may include;
Your Fee Schedule
Summary of FTE’s & their Agreements
List of Doctors and their Agreements
Leasing Documentation of Medical Equipment
List of Major Medical Equipment
Leases on the Premises
Photos of the Practice
Floor Plan
📋 Download the Comprehensive Sale Checklist - Equip yourself with this essential tool to ensure no detail is overlooked as you move closer to achieving a successful and rewarding sale of your practice.
Step 5 – Leverage an Expert
Engaging professionals with expertise in medical practice sales can provide benefits, including;
New ideas
Best practice
Accountability
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 and
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 essential that you prepare thoroughly for the process of selling. You need to be sure that selling the practice is what you want to do and that your practice is ready to be examined by buyers.
Starting this preparation early allows you to take proactive steps to enhance the sale price and achieve your goals successfully. Selling your practice is a big decision, and thorough preparation ensures a smooth transition for all parties involved.
Our team wishes you the best in the sale of your medical practice. We trust you have found this resource helpful. To seek our advice and support, the earlier, the better is truly the best approach. We have helped countless practice owners with the sale of their practice over the last 10 years. We look forward to assessing you to ensure a smooth sale process. To discuss your potential sales, contact our team here, and we will put you in touch with the best professional for your needs.
To Your Success,
Sarah Bartholomeusz
Disclaimer: This resource is for general guidance only. Legal advice should be taken in relation to taking action on specific issues.