Be Ready For Your First Call Before It Comes
In the process of selling a medical practice, so much time and energy is used trying to find a buyer that you may overlook preparing for the moment when you begin getting calls or emails from someone who is interested in getting more information.
While a lot of people choose to just wing it on their first calls, we prefer to hew close to that old saying that luck happens when preparation meets opportunity. The opportunity is borne out of your marketing of the practice, whether online, through snail mail, or word of mouth.
And while we do a lot of work for people to create those opportunities through our marketing campaigns here at Sellingapractice.com, this post is more about some simple steps, a roadmap of sorts, to prepare you in speaking to a potential buyer.
What follows are five important steps to consider when preparing to sell your medical practice, before you talk to a potential buyer for the first time.
The Big Five
1. Prepare A Non-Disclosure
Before you start talking details, you need to be prepared with a non-disclosure agreement (NDA). There are many different levels of “security” in an NDA, and we’re happy to create one for you that you can use with your potential buyers.
It may seem awkward to ask a stranger to sign an NDA, but it is common practice when selling a business of any kind.
Your practice is valuable, and asking for an NDA is further proof of that. The easiest way to do so is to tell the potential buyer that you would like to email them an NDA, and make an appointment thereafter for a time to talk on the phone or in person.
If someone refuses to sign an NDA, you don’t want him or her to be your buyer. Plenty more important signed documents will be coming after that NDA if you’re to have a successful sale, so anyone who shies away from it is…someone you should shy away from.
Ancient Chinese Philosopher
2. Interview Them
Once you are talking to someone (likely on the phone first), be sure to ask a lot of questions about them, their goals, what they want their lives to look like.
You're not just being interviewed; you're interviewing them so you don't waste time with the wrong person.
Assuming they sound ok on the phone, you may wish to ask if/when they might like to come up and spend a day shadowing you (or perhaps half a day). One or two days max. That should be enough to give them a sense of how you do things before you take it to the next level.
3. Give Them A Time Constraint
Let them know you have other potential buyers, and you’d like to be in contract by a certain date, perhaps a month out. A time constraint is important so that you’re not left hanging waiting for a potential buyer who may not come through—time perhaps better spent looking for more buyers!
4. Prepare A Profit & Loss Statement (P & L)
This is a standard report that most any financial tracking software, such as QuickBooks and the like, can easily spit out for you.
If you’re organized as a corporation, it will be a P & L for your corp. lf you’re a sole proprietorship, hopefully you’ve kept your books clean enough that you can create a P & L that’s specific only to your business. We recommend you do this before your marketing begins so you’re prepared.
The P & L lets the potential buyer get a glimpse into how your business is run, see any efficiencies you have created, check out a (hopefully) ever-increasing bottom line, and look for things they could do to make even more money if they take over.
A serious buyer will ultimately want to see more than just this year's P & L, regardless of your situation. I think 3 years is reasonable, but in the beginning, going a year back, or providing just the current year if you are at least 6 months into the year, should be sufficient. Expenses change over time, and a potential buyer needs to see current expenses so they get a sense of what they could expect if and when they take over.
We often find that sellers are hesitant to print a P & L, as it’s quite a vulnerable experience to show it to a potential buyer. Further, many of the categories in the report may not make sense to a buyer.
We have specific tools and techniques we employ when we work with clients to make this part of the experience go as smoothly and easily as possible. Let us know if you’d like some advice on this stuff.
5. Prepare Three Years of Tax Returns
In addition to your P & Ls, a serious buyer will want to see how you were taxed, and square your tax returns you’re your P & Ls. Three years of returns is a reasonable request, and with more complex sales, we’ve seen buyers request five or even seven years.
Just as we said above regarding your entity (corporation vs. sole proprietorship), a corporate entity should only need to provide corporate returns.
A sole proprietor may be uncomfortable giving out their personal tax returns, but the Schedule C should suffice.
6. But Wait, There's More...
Prepare An Executive Summary
I know this is titled “5 Steps…”, but an important sixth step is to have prepared an Executive Summary that you can show to a potential buyer.
An Executive Summary is like a very short (1-2 page) business plan that lays out all the important details about your practice: revenues, price, justification, and potential future growth.
We have a formula we use to create these and would be happy to help you do so. We use them on websites, in advertising materials, as well as in simple PDF form to send to potential buyers. We wrote a whole post on Executive Summaries, which you can find here.
Some Final Notes
Know that you won’t usually share your financial information with a potential buyer until they’ve signed an NDA; they have come to shadow you or meet you in the office; and they have continued to show interest. It’s best to have the financial documents password-protected and in a format that you can e-mail to potential buyers as needed.
Being prepared in advance for your first interaction with a potential buyer will save you from experiencing a lot of time, energy, and needless anxiety later on when the phone starts ringing and the emails begin to arrive. Once you have these bases covered, you should feel a lot more free and open about your practice, and spend more quality time figuring out if your potential buyer is someone with whom you’d like to move forward in the process.
And of course, if you need any further help or advice about selling your practice, we’re here to help. Reach out to us and we’d be happy to get on a call and focus on your needs. Contact us below.