Selling Your Practice: What You Should Know
2. Clean Up Your Practice’s Financial Statements
It is very common for physicians who are in solo or small group practices to run personal expenses through the practice to reduce personal income taxes. Although this might be saving money in taxes, it actually decreases the value of the practice since practices, just like other businesses, are valued on profitability. Therefore, one should avoid this accounting method if he or she wants to maximize the practice’s value.
In addition, in the current banking climate, banks are often unwilling to add back personal expenses when validating the value of your practice. Try to change your practice accounting at least two to three years prior to putting it on the market. This will not only allow you to maximize your sale value but will limit your liability exposure to the Internal Revenue Service (IRS).
If you want more information of what is allowable in terms of business versus personal expense write-offs, you can go to the IRS Tax Manual, Section 179 (property).
3. Keep Important Documents Organized
When putting a practice up for sale, it is common for appraisers, buyers and other consultants to request the same documents. The more organized these documents are, the more perceived value and confidence the buyer will have when evaluating your practice. You will also save some money in legal and accounting fees if you are very organized.
Some of the most common documents to include in the presentation portfolio include: three years of financial statements and tax returns; a detailed payer mix by revenue for the past three years; updated accounts payable and receivable reports; articles of incorporation; company bylaws; and a copy of the corporate minutes book if you have one. In addition, I would include any liabilities with current or past employees, worker’s comp claims and pending litigations.
Finally, you should prepare a separate book including all managed care contracts because a buyer will want to make sure those contracts are transferable. If a buyer decides to purchase your practice and finds out that he or she cannot get on managed plans you are currently on, this could be a very negative factor and lower the value of the practice.
Some other documents needed in the preparation process will be copies of all leases and contracts for real estate, equipment, and physician and non-physician employment contracts. Most likely, any buyer will want you to pay off all debts at closing.
4. Provide Info On Billing And CPT Code Analysis
I would provide a separate report showing how you bill by Current Procedural Terminology (CPT) code in the form of some type of charge/paid tracking analysis report. This serves a couple of purposes and is very important in being transparent in your transaction. A buyer will want to make sure that the practice’s revenue is accruing in an ethical and legal manner, and will want to see if you are under-coding, over-coding or incorrectly coding.
When my colleagues and I evaluate practices, it is not uncommon to see physicians who bill the same way they billed 20 years ago and have not changed due to pure ignorance. This complicates the entire process. This can work either to the buyer’s or seller’s advantage. Either way, this will be assessed prior to a final offer or commitment.
5. Do Not Negotiate Sales On Your Own
A consultant is going to be your best investment since you need to detach yourself from the sale. This will take the emotional part out of the equation. Many physicians have spent 30 plus years building a practice and treat it like their own child. How do you put a value on your child?