Legal experts advice physicians to start preparing for the sale of their practice several years in advance. Careful planning ensures accurate valuations so that physicians are not compelled to sell their practice during unfavorable market trends. Retaining a team of professional appraisers, accountants and attorneys who specialize in medical practice transactions is also advisable. Entities that commonly express interest in purchasing a practice include other physicians, larger group practices wanting to expand and hospitals. As you prepare to sell your practice be sure you’ve taken the following steps.
Compare your practice to recent market trends by preparing an internal practice assessment. Benchmarks that should be considered for comparison purposes include:
- Physician compensation
- Number of patients actively utilizing the physician’s services
- Number of yearly patient visits
- Average amount of cash collection per patient
- Mid-level provider and doctor productivity (measured in RVUs, or “work relative value units”)
- Sophistication of Practice Management Softwareand billing services
Benchmarking crucial metrics enables physicians to accurately evaluate operational levels of their practice against functioning metrics of other practices in the U.S.
Perform a SWOT analysis of your practice. SWOT is an acronym for “strenghts, weaknesses, opportunities and threats” and helps identify the integrity of operational and financial soundness. Examples of strengths detected by SWOT analyses of a physician’s practice are:
- High levels of staff dedication, patient satisfaction and patient loyalty
- Limited or controlled competition
- Referral sources that are significantly diversified
- Increased ancillary utilization
- Level of technology within practice
When planning to sell their practice, physicians should not attempt to disguise their weakness. Instead, they should remain aware that practice buyers realize that no business is perfect and that continual improvement is an essential component of all businesses. Additionally, potential buyers may see your weaknesses as improvement opportunities.
Determine one-time, discretionary and owner expenses. When hospitals are buying physician practices, they often concentrate on historical compensation, which is similar to profit but many physician practices choose to distribute profit that is available. Physicians should be aware that “historical compensation” amounts influence the practice’s purchase price as well as the compensation packet provided to the doctor or doctors selling the practice. This is also included in the post-acquisition arrangement dealing with employment.
Normalize operating expenditures to obtain a fairly accurate measure of compensation. Examples of discretionary expenses include travel, vehicles, entertainment and meals. Non-recurring expenses are atypical legal fees, consulting fees and various capital improvements. If physicians involved with the selling of practice own real estate, the lease rate covering the practice would have to be adjusted to reflect market rates, since many practice owners opt to move profits to real estate agencies for tax purposes.
Develop a financial forecast sheet. Physicians offering potential buyers documented proof of strong and consistent financial results will encounter buyers inclined to pay more than expected. Financial forecasts also show how a physician’s practice takes advantage of opportunities and addresses threats that have been described in the internal practice assessment.