Selling Your Practice: What You Should Know
- Volume 24 - Issue 10 - October 2011
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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?
To value your practice objectively, hire an outside firm that specializes in medical practice sales and preferably podiatry sales. The more specialized the consultant, the more realistic the practice valuation will be as it pertains to podiatry. The average appraisal will range from $7,000 to $12,000 depending on the complexity of the practice.
When my colleagues and I purchase practices, we will perform our own valuations since we have in-house investment bankers. However, we still tell the sellers to find an outside person to value their practice if they disagree with our valuation. Again, we do this because if we purchase a practice, we want to make sure both parties feel good after the transaction.
I personally will meet with all prospects and review all the due diligence, but I never negotiate the price. This is because you have to be completely unemotional and it is hard even for the buyer to be non-emotional in the negotiations. As a seller, separate yourself from the negotiations but make sure to let the consultant know your expectations. If the consultant is experienced, he or she will tell you if your expectations are unrealistic with current market conditions. Remember, you can have the greatest appraisal in the world but if your expectations are too high, you will never get your price.
Think of this like selling a house. Hire a broker who negotiates for you. In a seller’s market, you get a high price. In a buyer’s market, you will get a lower price. Unfortunately, the prices of podiatry practices have been decreasing in value. In lieu of this trend, there are things you can do to increase your practice’s value. I will address this shortly.
6. Engage A Lawyer And Accountant Early In The Process
It is very important to get an accountant or lawyer involved early on in the process since there could be tax ramifications that can hurt or help you, depending on the way the sale is structured. Position the sale in such a way that there are minimal tax liabilities post-sale. Please note that the buyer wants the same benefits so it is critically important to understand your post-sale obligations, if any, to the IRS. I have witnessed so many physicians who have sold their practices not knowing the tax liabilities post-sale only to find out that they owe the government a huge sum of money in the future when they sell the practice. If you have a good accountant and attorney, this will help you come to a reasonable resolution.
Early on in my career, I made mistakes only to find out later that I would owe the IRS a nice sum of money. When you retire, you cannot afford to make any mistakes.
It is imperative that you hire accountants and lawyers who are leaders in the field of healthcare transactions. This is one area where you do not want to pinch pennies.
Finally, maintain control of the sale by having the attorney prepare the offering documents and all the legal documents rather than letting the buyer write the offer. If you need a reference for an attorney, consult my contact information at the end of this article.
7. Take The Training Wheels Off The Practice
Ensuring your practice can get by without you is not an easy task. To the extent that you can get your practice to the point where you can just replace yourself and it can continue running as a smoothly oiled machine, you will get a lot of points for this from a buyer’s perspective.