Avoid these pitfalls when selling your medical practice.
Often, private practitioners make serious mistakes when selling their medical facility and lose thousands of dollars in the process. All their hard work and long-term investment went to waste.
But these mistakes are usually easy to avoid. As small business owners, these doctors once dreamed of owning their own medical practice and building success. Over time, they hope to be rewarded in the form of successful commercial sales. Sounds like a great plan! But making a sale isn’t as easy as it seems.
Proper planning can mean thousands of dollars in your pocket. Here are four tips to help you avoid medical practice sales traps, disappointments, and losses.
Mistake 1: Not planning ahead or waiting too long to sell
Waiting too long, or not planning ahead, can cause many physician practice owners to miss their window of opportunity. Preparing and executing a medical practice sale takes a considerable amount of time, so long-term planning is key to any successful medical practice sale. Physicians looking to retire quickly and sell their clinics within 12 months are far behind the power curve, often a long-term endeavor. It pays to plan ahead; you never know when that perfect buyer will approach you with an offer you can’t refuse.
As I’ve written in several other articles, succession planning is a major consideration, especially for independent physician practices. Again, waiting until the last minute (less than 12 months) to plan for your exit puts you at a serious disadvantage. Also, for the doctor to “succeed” you need to be set to succeed. If they see that you’ve been planning and thinking about it for a long time, and it’s not a quick “I’ve had enough” sale, your price will be much higher. Beyond that, buyers will feel confident buying a medical practice if they see a sales strategy and are not out of desperation.
Mistake 2: Not finding the right person to help you
Finding the right transaction advisor to help you with your succession planning and assist you in selling your medical practice is critical to your success. Often, physician practice owners go with the first person they meet just to “list their practice” and let the process continue. This can cost you time and money in the long run. For a few months, you may not see any results and have to do your search again. Taking the time to interview professionals and see what realistic outcomes to expect will get you going in the right direction. Also remember that no one is more motivated, passionate and knowledgeable than you.
Mistake #3: Asking for too much or too little
Setting very high or unrealistic price tags in medical practice can lead to dead ends. Expecting the highest yield from practices that generate little or no profit is just using bad business sense. When pricing your practice, consider your specialty, similar practices, the current economy, and your market. I’ve also written several articles on medical practice valuation that can help you through this thought process. Remember this is business so don’t take it personally. Find the most rewarding opportunities for your medical practice.
Another mistake is to underprice medical practices. Sometimes physician bosses price their practices low because they’re exhausted, sick, or not getting good advice. Do your homework first. Get advice from your professional, such as a deal advisor. Before jumping in with your feet, research what other medical practices are selling.
Mistake #4: Selling to the wrong person
Accepting the first offer may not be a wise choice, as it may not necessarily be your best offer. Selling your clinic at a premium price with little or no money and extending your contract can cost you everything. Sales of the medical practice may deteriorate after a new owner takes over. The new boss may be inexperienced in business, closed-minded or poor leadership. . . the list goes on. A successful healthcare facility owner makes it seem easy, but changing the mix and disaster can happen. When this happens, the new owner could quickly be in the red. This is why you want to get all or most of your funds up front with little to no escrow.
Evaluate your options and make the best long-term choice. Ask yourself, is this the best doctor to buy and run my practice? Or, can they quickly connect with my patients and referring physicians and learn how to market effectively? When medical practice sales go according to plan, it creates a huge opportunity for physician owners, and success continues.
Running a healthcare facility is a tough business—much harder than people realize. The more plans you put into the sale, the higher the price you get. Remember that potential buyers will be very skeptical of your reasons for selling. Make plans and strategies to eliminate any fears. Just as you start your medical practice with a strong plan, sell it with a strong plan.
Nick Hernandez, MBA, FACHE is the founder and CEO of ABISA, LLC