How to Sell A Medical Practice in 2022 – A Detailed Step by Step Guide

This comprehensive guide explains how to sell a medical practice. We will review the most important things to consider from our experience. Learn how to buy or sell a practice with the free resources on this page, or relax and let us do the work for you by clicking here.

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Wherever you’re at, you’re not alone. We’re passionate about helping fellow medical practitioners buy or sell a practice. Reach out now. The first call is free.


Table Of Contents



A Visual Guide To Selling A Medical Practice

How to sell a medical practice infographic

STEP 1: PREPARING TO SELL A MEDICAL PRACTICE

You need to get organized before you can sell your medical practice. Learn what you need to do through our pre-sale checklist, and have the right questions answered before you sell.

Consider these three things before you sell your medical practice

Whether you are just considering selling your practice and are curious about what you might need to do, or you are ready to go for it and need to know where to start, you’re in the right place.

There are several ways of looking at how to prepare your medical practice for sale. They can be divided into:

  1. Your internal review (how you feel about selling);
  2. Factors that may make it difficult to sell; and
  3. Factors that may make your practice attractive to buy.

Let's jump into each.

The Psychology of Selling A Medical Practice

Doing An Internal Review

Before and during my time as a newly-minted practitioner, like most of us, I focused exclusively on how to build my practice. I’d think through all the ways I could improve it; all the ways I could build in efficiencies so I could do a better job and make more money while working less. I attended practice management and billing seminars. You know how it is.

But after ten years of a successful practice, I started to realize two things:

-->1. At a certain point, you may be successful enough that you no longer want to keep building your practice.

You don’t want to keep growing in size and complexity. There also comes a point as a practitioner of diminishing returns: you only have so much time and energy as a practitioner, and as a manager. Along with this...

-->2. As much as you may love what you are doing, there may come a day in the not-too-distant future when you may want to do something else.

As that second thought gradually crept into my conscious mind, it scared me. I had no idea what I would do if I wasn’t practicing medicine. But I knew at some point I had to consider it.

As the founder of one of the first practice management software companies, I used to run around the country on weekends not only talking about medical practice software, but also teaching medical practice management to medical students and practitioners. In those classes, I started to ask my students, many of them just on the cusp of starting their own practices:

I was asking as much for myself as I was for them. And I was somewhat surprised to find that 95% of my students had never considered the “after” part.

If you’re still reading this, you are likely smack in the middle of considering the “after,” and chances are that you haven’t thought too far down the line beyond the sale of your practice.

Here are some questions you may wish to ask yourself:
  • Why are you selling? Is it because you’re burned out? Having issues with a business partner? Something more simple, or more ethereal?
  • Are you ready to be done with your practice, to let go of control completely to another person?
  • Are you ready to retire? Or will you just be moving somewhere else and doing the same thing?
  • How does your family feel about it? Have you discussed your hopes and an exit strategy with them?
  • If you imagine for a moment that your practice has sold to the perfect buyer and you are no longer involved with it, how does that feel? What are you doing when you imagine that scenario? Where are you doing it?
Beyond the personal questions, there are the larger “what-ifs” to think through.

Imagine some of these scenarios, how you might feel and what you might do, if:

  • You can’t get as much money for the practice as you think it’s worth.
  • You have installment payments going with a buyer and, some time in, they stop paying. Would you be willing to enforce your agreement by repossessing the practice? What else might you be willing to do?
  • You have less money coming in after you sell your practice?
  • You need to find another way to make a living after you sell your practice?

These questions should be thought through carefully and discussed with those closest to you. If you and/or your family are of two minds about the answer to any of these questions, we recommend you work though those issues before you endeavor to sell your practice.

Even when everything goes well, your practice sells for an amount you are happy with, and you can move on with your life, many of us have not fully thought out what happens next.

The time to start thinking about this is before you ever start down the road of selling. The time is now.

Factors That Make It Harder To Sell A Medical Practice

Before you go too far down the road to selling your practice, consider the following factors and how you may remedy or explain them to a potential buyer. Remember that a buyer will be scanning for any kind of danger to their investment in what would be their new investment, and the following are issues to review:

  • Are there any kind of ongoing or recent legal issues related to the practice?
  • Are you leasing or do you own the space you are in? If you are leasing, is it a long-term lease and is it transferable to a new owner? Are you sure?
  • Is your place of business in a funky neighborhood, or is the office itself in disrepair?
  • Could someone else put in the amount of money you are asking to sell your practice (or even less) and start up a successful new one, from scratch, just down the road?
  • Have you been working at a loss, or do you have debts for equipment or other things that a buyer would have to take over?
  • Has your bottom line been going down over the past year or more?

A buyer of any sophistication will be looking at all of these variables, both tangible and intangible, as they decide if your practice is worth pursuing.

If any of these questions can be answered as “yes” or “maybe,” think of how you’d answer a potential buyer before you even start to search for one.

Factors That Make It Easier To Sell A Medical Practice

In our experience, the following are variables that make a practice more attractive and a relatively easy sell:

  • A long history in one location. This goes to goodwill, often the highest valued part of a practice. (For more details on goodwill, check out our full article on the subject here.) 
  • Owning the building or having a long-term, transferable lease.
  • Having very little or no history of legal disputes.
  • A great online reputation on sites like Yelp and Google.
  • Employees who are long-term, happy, and well-trained.
  • A specialty that you are a known expert in, but one that someone else could learn from you or get or have had prior training doing.
  • Other modes of income outside of procedures. For instance, perhaps you sell supplements or medical equipment in addition to doing treatments.

Having your paperwork in order before you start the process will go a long way to a successful sale.

  • Having a well-organized patient filing system.
  • A large number of patients, current and past
  • Having a large database of patient files online, including billing and chart notes.
  • Showing efficiencies over time, such as a diminishing costs of doing business, and an expanding bottom line.
  • A practice that has a large population of cash-paying patients.
  • Insurance billing that would easily allow another practitioner to be empaneled or otherwise able to bill.
  • Years of excellent accounting records in a bookkeeping program like QuickBooks that can both easily produce Profit & Loss (P & L) statements and Balance Sheets. The data from these programs can also be easily transferred over to a new buyer.
  • At least 3 years (preferably 5) of P & Ls and tax returns that show consistent and hopefully increasing revenue, profits, and efficiencies over time.

In the end...

Of course, this is not an exhaustive list, but these are some of the factors that buyers will find attractive and those which you will want to focus on in the process of finding a buyer for your medical practice.

If you find any of these factors missing or lacking, think about how you can remedy them in advance of even beginning the process of selling your practice.

Having as much of these issues thought through and prepared before you get your first call from a prospective will go a long way to establishing early on that you are a savvy practitioner with a valuable practice—one that a well-qualified buyer will want to know a lot better.

While this post may give you a lot to think about, we’ve also created a free Presale To-Do List that you can download and go through in order to prepare for your sale. It goes through very specific tasks that you should have completed before you even start looking for a buyer. If you’d like to get it, let us know.

Other Useful Resources

  • And if you need any help with any of this, please drop us a line (below). We're always happy to help!

A Medical Practice Pre-Sale To Do List

The Essential Guide To Getting Organized Before You Sell Your Practice

In the process of preparing to sell a medical practice, the most important variable, and most valuable asset, is time.

The more time you have to prepare your practice for sale, the more attractive it will appear to a buyer, and the more options you will have for correct marketing to find the perfect buyer.

If you have ever bought something big, like a house or a car, you know how important it is that you check out every possible thing that could go wrong, to be sure you aren’t missing something that could come back to bite you later.

With the complexity of the purchase and sale of a medical practice, the same is true. 

So let’s get specific:

If you are preparing to sell your medical practice, what are some of the specific issues you need to address?

First, if you haven’t already, I highly recommend you read our post on “3 things to consider before selling your practice."

Next, let’s consider what buyers want to see.

Consider the following list-- a “To-Do List” of things you need to address to make your practice as attractive as it can be for a buyer. If you're not sure why any one of these items is important, let me assure you that each one has led to the end of a potential sale, or at least a very big bump in the road.

For each item below, decide whether or not it pertains to you, and if it does…ACT!

Legal

  • Resolve any legal issues that are outstanding. May include malpractice, employee issues, or anything else that can be mediated or negotiated to resolution in advance of putting your practice up for sale.
  • Prepare confidentiality/non-disclosure agreements to have potential buyers sign in advance of sharing information about the practice.

Accounting

  • Prepare adjusted Profit & Loss (P & L) statements for the past three years, minimum (preferably last five years). Electronic copies are best.
  • Get electronic copies of the last three years (preferably five years) of tax returns. If you are a C-corp, this will be Form 1120; S-corp, Form 1120S; Partnership or LLP, Form 1065; Sole proprietor or single-member LLC, this will be Schedule C from your personal tax return
  • Prepare explanation or highlighted spreadsheet of reasons for differences between tax returns and adjusted P & Ls.
  • Prepare financial statements for the past three (preferably five) years.
  • Clean up accounts receivable. If you have many outstanding accounts that have not been collected, either send them to collections or write them off.

Corporate

  • Be sure your company is up-to-date on any and all legally-required forms that are annually due from your state.
  • Make copies of all documents used to incorporate your corporation, such as Articles of Organization for an LLC, or Articles of Incorporation for an S- or C-corp. DBAs should also find and make copies of the original filings. If you don’t know where to find the originals, you can likely go back to the original state or local agency where they were filed (Secretary of State or county clerk).
  • Records/minutes of corporate meetings (annual shareholder meetings, directors’ meetings, etc.).
  • Any contractual agreements between the company and shareholders, employees, or anyone else.
  • Copies of any real estate agreements, whether a lease or ownership.
  • Licenses and permits, such as business licenses and/or state board licenses for practitioners.
  • Proof of ownership of intangibles, such as domain names, or any intellectual property owned by the company or dba (such as trademarks, copyrights, inventions, etc.).
  • If you plan to sell your company, try to resolve any outstanding debt owed by the company before putting your business up for sale.

Other Considerations

  • Get copies of or otherwise document any kind of awards or recognition for you, your staff, or your organization.
  • If you are leasing, talk to your landlord about the transferability of your lease, and/or check into the way your lease is written to see what the rules are. If you are restricted from assigning the lease or subleasing, you may want to renegotiate this piece with your landlord so a new owner can take over with a new lease. You may also wish to get an extended, transferable lease so that the new owners feel secure knowing they will have plenty of time left.
  • Be sure all inventory and office equipment is current and in working order.
  • Be sure your premises are clean and attractive. Clean up closets and other spots in the office that may not have gotten much attention or use in some time.
  • Create an Executive Summary that you can share with potential buyers. This is an important 1- to 2-page document that shows the buyer all they need to know about your business. We can help with this and have blog posts about it here.
  • Clearly document 3-5 ways that a potential new owner could create new efficiencies or otherwise grow the business beyond where it is now. Ideas could include hiring, using more currently-unused rooms, more Web presence, email marketing, etc.
  • Have a good, concise, convincing story of why you are selling your practice.

Note the boring, puke-y colors I used to outline these items. Most people don't consider this stuff very fun. But for many people who are looking to sell their medical practices, this is the hardest part. Once you've addressed the items above, you'll have created the necessary momentum to get your practice sold. 

How Do I Keep Track of All of This Stuff?

Great question! There is a heck of a lot to keep track of when preparing to sell your medical practice.

Our secret weapon? Project management software.

For those of you who are not familiar with project management software, its intention is to help teams of any size stay organized and on task. A good project management software package will be shared among several people, and will usually have one person who is more or less in charge of assigning tasks and checking them off as completed over time. When used correctly, most of the tasks remaining in your transition will be organized from within the software, down to texts, emails, and related documents that can all be shared. Think of it as an ongoing conversation between one another related to specific tasks.

We have a whole post on this subject. So, if you're interested in learning more about how to stay organized with project management software, click here.

In Summary...

There are undoubtedly more items that you could add to this list. However, these are the things that we most often see overlooked before a practice goes up for sale. Having most or all of the items above dealt with before you even look for a buyer will go a long way to not only finding a buyer, but easing your mind about what comes next.

Once you have these tasks under control, check out our posts on how to find a buyer, as well as the five steps to take before your first buyer call. You’ll find it all at https://www.sellingapractice.com.

If you’ve already got all your ducks in a row and are ready to look for a buyer, click here to learn how to do it.

And if you need any help with any of this, contact us. We're always happy to help!


Why An Executive Summary Is Essential To Sell A Medical Practice

What Is An Executive Summary?

Imagine that you want to sell your practice, and you have a party that is interested in buying it. They want you to send them a document that summarizes everything about your business. It's kind of a business plan, but one in which you are trying to sell the reader on the viability of your practice. In this case, your business plan is to sell the business! This is where the executive summary comes in.

Ultimately, all that you are doing with an executive summary is keeping your potential buyer's attention by leading them through a series of facts that make their decision to buy your practice seem like a very good decision indeed.

To put it in business-speak:

An executive summary, or management summary, is a short document or section of a document, produced for business purposes, that summarizes a longer report or proposal or a group of related reports in such a way that readers can rapidly become acquainted with a large body of material without having to read it all.

It usually contains a brief statement of the problem or proposal covered in the major document(s), background information, concise analysis and main conclusions.

It is intended as an aid to decision-making by managers and has been described as the most important part of a business plan.

Four Advantages of An Executive Summary

By the time many of you are reading this article, you may already have taken advantage of the option of a free call with us. In those calls, for sellers, we often recommend that those who are at the very beginning of the process of selling their practice should write an executive summary.

reating an executive summary has many advantages, not the least of which include:

  1. Creating a concise statement about the what, why, when, and how of your sale and the assets that you are selling.
  2. The possibility of repeatedly repurposing and reusing the content for placement in marketing as part of the process of selling.
  3. It gives you something that you may easily email or snail mail when an interested buyer wants to know more about your practice. This way, if you do some advertising and get a bunch of leads, you can send them all the same document and lead them to your website or other advertising without without having to speak to each person and say the same things over and over again. 
  4. Perhaps most importantly, an executive summary helps you to organize your thoughts and get all of your ducks in a row for the sale of your practice. The elements of the executive summary require you to do some accounting work, to figure out the value of your practice, the way that you plan to sell it, the potential growth that may be involved, and otherwise orient a sale to a potential buyer so that they can see, on one sheet of paper, that this looks like a good deal for them.

What Are The Essential Elements of an Executive Summary?

There is no exact, perfect formula for the way that one puts together an executive summary. That said, there tends to be some common elements to them. Generally speaking, they tend to include the following elements (note: these were sourced from a template you may want to check out from Qlutch):

The Hook

This is a compelling statement of why your practice is exceptional. Make it concise and concrete. Do not lead with a description or your team or environment. Buyers are more concerned about about making safe bets than almost anything else.

The Challenge

Clearly describe the problem that you are going to solve for them. Describe the pain and how you’re going to solve it. Could be how challenging it is to start from scratch, how long it takes to start a practice and organize it.

The Solution

Introduce your practice as the solution here. Use straightforward language and describe exactly what you have and how it solves the problem you have identified above. This could be how consistently you’ve been successful, and other language that assures them that your practice would be easy to take over and profit from.

The Opportunity

Describe the market here – the size, lifecycle and dynamics of your patient population and referral sources. How fast is it growing? What’s driving growth? Are there other ways to grow that you haven’t adopted yet, but the buyer could? Be specific.

Your Competitive Advantage

Do you own any intellectual property? A patent? Exclusive distribution of some product? Clearly describe what makes your practice unique.

Your Business Model

Describe your revenue here. What are your monthly grosses and costs (on average, over the past 12 months)? It’s best if these are predictable, repeatable costs that any new person would take on, such as monthly rent, utilities, employee costs, cost of goods sold, etc. No need to include anything here other the essentials that the new buyer would have to take over to succeed as you have.

The Promise

You’re selling an investment opportunity, so use your financial projections to quantify what success you expect to show. Your projections should be defendable. Be wary of general hockey stick curves; you will lose credibility if they’re not believable. At the minimum, include a year or two of annual projections for revenue, expenses, net income or loss, based on the average of your last five years.

The Ask

How much are you asking for? Don’t ask for too little – a good buyer will expect that you’ll be willing to negotiate whatever you list here.

While all of the above elements need to be in an executive summary in some fashion, they don't have to be formally divided up as they are above. Basically, as long as those elements are contained in the document in one or two pages, you've got your executive summary. 

Making An Executive Summary for a Medical Practice Sale

To make an executive summary specific to a medical practice, be sure it contains:

  • Your financials--those that a new owner would likely have if they took over.
  • The advantages of your office's location and even decoration and organization inside.
  • Your asking price and how you justify it.
  • Of course, don't forget to include your contact info!

Where Do I Go From Here?

You could make a run at doing your own executive summary using the information above, do some Googling around to find some templates, and/or ask us for some help.

We can even do all of the work for you, if you'd like. That's part of what we are here for. Give us a call, let us ask you if you simple questions, and we can whip one of these guys out for you in no time flat! Contact us now.


STEP 2: MEDICAL PRACTICE VALUATION

The true value of a practice isn't a simple formula; rather, it's what a buyer is willing to pay. Learn about the different standards of valuing a practice and how to set the right price. (And if you'd like someone to do a valuation for you, we can! Click here to reach out now.)

The Four Methods of Medical Practice Valuation, Explained

Before we get too mired in the details of practice valuation, I want you to do something, real quick.

If you're considering selling your practice:

Off the top of your head, what do you feel your practice is worth? What do you think you deserve?

If you’re considering buying a practice:

Knowing what you know, what does your gut say the practice is worth? Not “how much can I afford,” but how much do you believe it is worth?

Keep those numbers handy as you read through this article.

In the process of researching medical practice valuation, you are likely to find that there are a number of “experts” out there who will tell you that they have a formula they use related to your income and expenses, and they may try to make the process opaque.

They’ll tell you that they have special certifications and patented methods that they would be happy to reveal and print up and put in a binder with your picture on it after you pay them a retainer.

But let’s get right to the truth of the matter:

The true value of a practice is not the amount you think it is worth, nor the amount someone tells you it’s worth based on gross, net, multipliers and the like. Rather, it's how much someone is willing to pay.

Practice Valuation Methods

There are many methods to consider in fleshing out the value of your practice. Some of the most common include:

1. Using a Multiplier, or the "Rule of Thumb" Method

Years ago, I ran and later sold one of the first medical billing and practice management software companies. At the time of the sale, there was this idea that one could value a company at anywhere from 1.5 to 3x the gross annual revenue of the business. And that’s what we did. That 1.5-3x is the multiplier.

When it comes to medical practices, ten or fifteen years ago, the “rule of thumb” was that the value of a practice was 1.5-2 x revenues. But, given large-scale changes in healthcare, medical billing, back office costs, more physicians working in groups rather than solo practices, and a host of other causes, most practices tend to be sold for a price at or below their annual revenues.

2. The Market Approach

This is a lot like the way a house is sold: You compare your practice to what other similar practices in your area and of a similar size have sold for. You find “comparables” (comps). The thing is, there is no generally recognized source of medical practice comps. The exception to this is where selling a building is concerned.

When selling a practice along with ownership of the office itself, we have very specific ways of valuing each, together and separately, and we’d be happy to discuss these methods with you.

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3. The Income Approach

The income approach values the business based on the underlying asset plus the income it produces after expenses. So, using a house as an example, if you owned a house worth $100,000, but it rented at $5,000/mo, the asset (the house) is worth more than its base value of $100,000 because it also generates $5,000 per month.

The higher the income stream, the more valuable the house becomes, and future earning potential (which really is goodwill) becomes part of the equation for valuing it.

While this seems an obvious, positive approach, in reality, it usually doesn’t pencil out for medical practices, as the income from a practice is produced only at the time the practitioner performs the service, and is usually taken home as “profit” as soon as it’s paid. There is no additional, residual, passive income generation from most medical practices.

4. The Asset Approach

This is the tact we most often prefer to take. It allows asset classes (tangible, intangible, goodwill) to be clearly separated out and assessed, and it also helps in the final accounting come tax time, as buyer and seller can divide up what assets are taxed in the manner they choose. 

More formally, this breaks down into the following subjects to consider in an evaluation of the practice’s selling price. How much are the following worth?

Tangible Assets

This is the stuff in the office. The furniture, fixtures, medical equipment. Even the decorations, books, chairs in the waiting room. Whatever objects and equipment the seller intends to let go as part of the sale. As a seller, you would quite literally go through the whole office(s) and itemize everything.

When I sold my practice, I was advised by my accountant to price each asset as if I would be selling it in a garage sale, not so much based on “what I thought it was worth.”)

The itemization of assets has a significant tax implications. See our post on the tax implications of the sale of a medical practice, and definitely talk to your CPA for more advice.

Revenue

How much does the practice bring in before expenses? For this number, most buyers will want to see consistency of both revenue and accounts receivable.

Revenue is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure from which costs are subtracted to determine net income.

Net Income

This is basically the business’s profit, the amount left over when you subtract expenses and operating costs from revenue. 

How To Present Expenses

How you show expenses is a subject that gets a lot of attention. Assuming you are using some kind of finance software such as Quickbooks or somesuch, you should be able to generate a profit and loss / income vs. expense report. Better still if you can do this for the past several years. This way, a potential buyer can see the consistency of expenses and income.

The thing is, many of us have expenses that a buyer may not be inheriting, such as certain staff, equipment expenses, and stuff like continuing education that is put against the revenue for the purpose of reducing one’s tax burden. 

What’s more, the numbers on one’s tax return may not match up with the profit and loss statement. And, while we expressly do not advocate this, there are some businesses that do not report cash payments from patients. This presents complications as, in the end...

A seller will want to show maximum net income (profit after expenses) and minimum expenses.

Thus, you may need to set up an Adjusted Profit and Loss statement for a potential buyer that shows expenses they would be inheriting, leaving out the expenses they would not need to keep in order to keep the business humming along. 

Dealing with these kinds of complications is what our consulting arm specializes in. If you’re wondering how to rectify differences between your tax returns and profit and loss statements, give us a free call.

How To Calculate Goodwill

As one popular finance website puts it, 

The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill.

To further clarify, I’d add to this definition:

The value of your website, phone number, and any other intellectual property such as parked web domains your practice owns. It also includes your business’s history, online reputation, and even its location.

Think about the goodwill of Nike. It’s been around for decades, has a reputation for its technology and functionality where athletic clothing is concerned, a huge number of trained employees around the world, and a logo that most people recognize without needing to even see the word “Nike.” This is all goodwill.

Now imagine that someone wants to create a new brand of athletic clothing to compete with Nike. They won’t just be competing on the quality of their clothing; the hardest part may be going up against the goodwill of Nike. And if they wanted to buy Nike, the whole company, the value of Nike’s goodwill would represent much more than their tangible assets—it would have to include the company’s goodwill.

Just as a lot of goodwill is a barrier to entry for competition, and an asset for a buyer to inherit, it can also be an impediment to a sale if valued too highly.

When Facebook first started getting popular, Yahoo, Viacom and others offered well over $1 billion for it long before it started to be a profitable company. 

As we now know, those offers were turned down. At the time of this writing, Facebook is said to be worth half a trillion dollars. Too high a valuation for anyone to afford!

So while you may not be selling a practice that equates with the goodwill of a Nike or Facebook, you will need to be careful that you don’t price your goodwill (and practice) higher than the market could possibly bear.

Understanding Goodwill Is Tough

Given that goodwill is intangible (not a real thing you can objectively see or touch), it is often the part of the valuation equation that is most difficult to calculate. That said, with the sale of a medical practice, in the final analysis, it often accounts for the largest amount of the value of the business.

Goodwill only exists and is determined when a business and/or its stock is being considered for sale. Otherwise, it doesn’t really exist.

These days, our experience is that buyers are paying less for goodwill and basing most of the value of the practice on past numbers and the perception of being able to continue or increase profit.

We have also found that, the way to give a buyer the greatest confidence that they will be able to replicate the seller’s success (and retain its goodwill) is to put incentives in place to minimize attrition, as well as show that the practice can make even more through a few simple tweaks. 

The “how to” of reducing attrition and maximizing and increasing potential future earnings for the buyer are subjects we love talking about, and we’d be happy to share some of our ideas with you.

You may also want to check out our articles on transitioning a medical practice from one owner to another for some examples of how to do it. 

Other Factors In Your Valuation

The Economy

Regardless of how or how much you calculate your business to be worth, the state of the economy will impact your final price and how easy it is to sell. I don’t think I need to go into too much detail about why—quite obvious, this one.

Terms of the Deal

The terms of payment you are willing to agree to as a buyer or seller will certainly have an impact on the final price. While the dream is to have your asking price paid in cash upfront, the reality in most cases is that it will be partially or wholly financed.

The terms of the financing may help determine the price, as a motivated seller may agree to a discount in exchange for more cash at the time the sales contract is signed, or for a year or two of monthly payments instead of four or five years.

As a seller, paying in installments may also benefit you from a tax perspective. And as a buyer, interest on a loan may also be a write-off. More on taxes below...

Tax Considerations

The way you justify your price will usually break down into the asset classes listed above, and the IRS has different ways of handling each. The amounts allocated to tangible assets, goodwill, and even a non-compete can all significantly impact the amount left in your pocket when all is said and done.

(For more on the tax considerations of your salesee our post on that here.)

For instance, in an asset sale, a buyer will usually want to max out on tangible assets they are buying as a percentage of the total value of a practice for tax reasons, whereas a seller will want to put more weight into goodwill. We talk more about this in a special post weighing the benefits of an asset sale versus an entity sale, here.

I won’t go into great detail on the reasons why here, as I am not a tax professional. So when you get serious, find a good one. (If you need help, let us know.)

Timing

The way a sale is timed can have a major impact on its valuation and final sale price.

We recently helped a woman sell her acupuncture practice for about 1/10 of our assessment of its value due to her personal situation. While the business had been doing well for several years, her husband had just been informed that he was being transferred to another location in 6 weeks. She and her family had to relocate in that time span, and thus needed to sell as quickly as possible for whatever she could get. She was thankful to find a buyer at all, given the circumstances.

In another case, a large and very profitable complementary medical practice in the Bay Area suddenly had to shudder its doors when its owner and lead practitioner took ill and died three weeks after his diagnosis. His wife has been left to pick up the pieces, selling off each part of the practice as she was able.

While the above stories are extremes, the bottom line is that, the longer you have to prepare your practice for sale without a hard deadline, the more likely you are to get close to your ideal asking price.

We are aware of many unique ways of preparing a practice for sale, and would be happy to help! You can also check out a post or two on it here

The Dangers of Overpricing

Think about selling something simple, like a bike. I recently had one on Craigslist. I had bought it for about $800, and a year later, after not having ridden it much, I tried to sell it for $599. And then $450...

Craigslist shoppers can be a haughty bunch, and I was immediately assuaged by people telling me it was overpriced. So I had to keep lowering the price until someone would take if off my hands ($300, if you’re curious. Ouch.).

Of course, selling a medical practice is a much more complicated proposition, and there’s a lot more at stake.

There are many reasons why you want to be sure to figure out a value for your practice that will drive demand rather than sit there and stale out on the market.
Unlike an object on Craigslist, if a practice is overpriced, a seller will not necessarily be able to keep lowering the price until it sells.

Many professional appraisers like to compare themselves to appraisers of houses, so let’s use that as a more a propos example.

Much like a house, once you set your desired price, the marketing begins. Someone looking for a house like yours will see it when it gets listed, and their curiosity will extend only as far as their ability to afford it, and perhaps even more importantly, their feeling that it is worth the amount being asked for it.

Anyone who has bought a home knows that, when you see a home advertised that appears to be what you’re looking for, but has been on the market a long time and the price keeps going down… you’ll think something must be wrong with it.

It’s shopworn.

As a buyer, you’ll either stay away from it, or lowball the hell out of it on the assumption that, by now, the seller must be desperate to sell.

In Summary

At the beginning of this post, I asked that you pick a number quickly off the top of your head for what you feel the practice you are considering buying or selling is worth. Return to that number now that you have read this far.

How does that number look and feel now? Still seem reasonable? Has it changed at all in light of the information you have taken in?

In the end, there are many ways to determine the value of a medical practice, and however complicated the analyses may appear, they usually boil down to the most important things that any buyer will be considering:

A buyer wants to be sure that a practice has a steady income, is profitable, and has a great reputation.

Even more fundamentally: That in purchasing the practice, they will make money, and have the opportunity to continue to do so.

Price your practice in a way that it will lead to a sale, based on defensible assumptions. After all the work you’ve put into preparing your practice for sale, all the stress of talking to the relevant stakeholders, and planning your post-practice life, it could all be for naught if you stumble on this first, critical step.

Summary Outline

  • There is no magic formula for practice valuation. 
  • The true value of a practice is the amount someone is willing to pay.
  • We believe the Asset Valuation Method to be most appropriate for valuing a medical practice.
  • Have a trusted accountant check your asset allocations before you sign a sales contract.
  • The terms of your deal are a major negotiating point and can have a big impact on the final sales price of a practice.
  • Be careful not to overprice your practice so it does not become shopworn.

Action Items for Sellers

  • List and value your tangible and intangible assets.
  • See if there have been any recent sales in your area with which you can compare prices.
  • Figure out ways that a buyer could increase their revenue if they wished.
  • Consider whether the sales price and terms would allow a buyer to make a living from the outset of the purchase.
  • Find a trusted accountant to go over final terms and their tax consequences for you.

If you have questions about how to do this or want some assistance figuring out what a practice is worth, we’re here to help. Reach out and let us know where you’re at, and we’ll be happy to share our knowledge with you.


STEP 3: FIND A BUYER FOR YOUR MEDICAL PRACTICE

Simply listing your practice for sale on a website doesn't get you a buyer. Learn the dos and don'ts of and some unique methods to find that needle in the haystack, the perfect person to take over. And if you'd like help with marketing, click here to reach out to us now.

A Complete Guide to Finding A Buyer for Your Medical Practice

Common Mistakes to Avoid

When I used to run my own practice, after years of trying to find the right way to market our services, I found that the most effective method was to tell other allied physicians and practitioners that we specialize in people who are hard to treat. That we want the people who have already tried everything else first. We want the most “difficult”patients.

Many doctors, physical therapists, chiropractors and the like would ask why we would want the patients they least enjoyed seeing, patients who had not responded well to other modalities or who just did a heck of a lot of complaining.

The way I saw it, it was a win-win-win:

The physician had a new idea for what to do for their patient, and was happy to refer them out with a new plan;

The patient usually was at their wit’s end and didn’t think anything would work for them; and,

Worst-case scenario, we met the patient’s expectations. Doing any better than their low expectation would be considered a significant win for all involved.

Why do I bring up this story in a post about finding a buyer?

Because most of the people who call us to help them find a buyer have already tried doing it themselves, using a broker, or have almost had a sale and it fell through. It feels very familiar.

The number one reason we hear from people who want to sell their medical practice is because they want help finding a buyer, and we love to help those who have tried everything else first.

The Two Factors of Failure

Why is it that so many people have a hard time finding a good buyer for their medical practice and consummating the sale?

In our experience, it comes down to two factors:

  1. Not being properly prepared to sell; and
  2. Not marketing their practice correctly in order to find the right buyer.

Of those two factors, the second one is that which will be covered in this post.

But first, a note about being properly prepared to sell...

Preparing to Sell

Before you even consider looking for a buyer, you need to have prepared your business to sell.

This post focuses on finding a buyer, so rather than going into all the details here on the essential steps to prepare your practice for sale, we want to direct you to check out the following free resources here on our website:

Once you have gone through these resources and done the stuff recommended therein, only then are you ready to move forward and begin looking for a buyer.

Stuff That Doesn't Work When Trying To Find A Buyer

Anyone with any experience selling a medical practice will tell you that they have proven ways to find buyers. The most common include:

  • Advertising in trade publications
  • Putting flyers up at schools associated with your profession
  • Brokers who have their own websites where they put a blurb about your practice
  • Putting classified ads on websites relevant to your profession.

Many of those we work with have already tried these methods before contacting us, and found them ineffective.

For our part, we have rarely found any of these methods effective either!

Thus, we recommend that, if you are looking at hiring someone to help you sell your practice, ask him or her what methods they employ to find a buyer. If it starts and ends with the list above...good luck.

We prefer other methods.

A Five-Step Plan for Marketing the Sale of Your Medical Practice

What we have found most effective in selling a medical practice is to get properly organized; create a business summary; create a “buyer avatar”; design a hidden web subdomain (yes, hidden); and do a demographically-targeted direct mail and/or email campaign. All of these need to happen in a specific order.

Let’s get into more detail below:

1. Get Properly Organized

It may seem I am repeating myself, but I cannot emphasize this enough. Before you look for a buyer, you need to get organized and make some decisions, including:

  • Have non-disclosure forms at the ready for anybody with whom you wish to talk about the sale.
  • Decide how much your practice is worth. We have a great post on valuation of a medical practice right here.
  • Will you sell your company or just its assets? (We have a whole post on this topic alone. Click here to read it in a separate window.)
  • Will you and/or your employees stay on and work for the new owner? Here's an article on that. 
  • Are you willing to sign a non-compete? (Learn more here.)
  • How will you be paid? What percentage up-front and how much over time? Will you hold the note (be the banker for your buyer)?

Follow some of the links herein or contact us for more information on how to get organized.


2. Create An Executive Summary

An Executive Summary is a short (1-2 page) document that is typically created for the purpose of selling a business. It is a concise statement about the what, why, when, and how of your sale and the assets that you are selling. (We thought it was important enough to write a whole post on it, here.)

Creating this document can be challenging, because it forces you to think like a buyer. You will need to have your numbers ready, including the amount that you want to receive for your practice. It talks about why your medical practice is a good deal to buy; it justifies why you priced it as you did; and also tells the buyer about the kind of rosy future they could have if they were to buy it.

Aside from organizing the key selling points of your practice, the Executive Summary can be repeatedly repurposed for the advertising you will be doing. It gives you something that you may easily email or mail out when an interested buyer wants to know more about your practice.

We have a more detailed post on what goes into an Executive Summary in this post. We are also frequently asked to write them for our clients. Reach out to us if you’d like some help with yours.

Once you have your Executive Summary, you should...


3. Create A Buyer Avatar

Put simply, you want to take a moment to think about what the ideal buyer of your medical practice looks like. You want to flesh this out as completely as possible.

This may seem like a silly exercise, but it is absolutely essential, as it will save you countless hours and a ton of money by allowing you to demographically focus your marketing.

The essential elements that go into thinking about the perfect buyer include:

  • What are their goals and values?
  • What are their sources of information? New York Times? Annals of Internal Medicine? Acupuncture Today? What conferences or symposia would they go to? Think online and offline. Get as specific as you can here.
  • What are their demographics? Does it matter if they are male or female? Above or below a certain age? A certain number of years in practice? This isn’t a job interview, you won’t be sued if you get specific here. You’re just imagining who this person is in the world, giving them a look and feel. 
  • What are his or her challenges? Fears? Scaling their practice? Finding good help? Do they want to move to a new, beautiful area with more (or fewer) people? Better schools for their kids? You’ll use these to push your potential buyer to action later on. 
  • What is his or her role in purchasing your practice? Are they the decision maker? What are they most concerned about in buying a medical practice

This process is used every day by the best marketing people in the world. They will build not just one, but several customer avatars, and then focus their marketing accordingly. 

If you Google “customer avatar”, you will find plenty more on this topic, as well as many worksheets that you can use to create your own avatars.

One example may be found here at Digital Marketer.com, but there are many, many more online.

Once you have a sense of your ideal buyer, the next thing we usually do is:


4. Design A Sales Webpage or Subdomain Hidden From Google

A domain is just the location of your website, a web address like https://www.sellingapractice.com.

A subdomain is another location on that site, which may look like this: http://buyme.sellingapractice.com. The bold, underlined part is the subdomain, and it is just a webpage you create which is found at that subdomain address.

The reason we call it a “hidden” subdomain is that we often put it up under your own domain (your clinic’s website), and only those who know the subdomain address will know that it even exists. (Otherwise, you may unwittingly be revealing to patients and others that your practice is for sale.)

What goes on that subdomain page? Your Executive Summary. You can pour that info into the webpage to which you can direct interested parties, and have a Contact section so that potential buyers can find you.

(We design and install these subdomains all the time, and would be happy to do the same for you.)

So why do you need a subdomain with what amounts to your executive summary on a hidden page? Because you will next direct the right eyeballs to your subdomain.


5. Do a Demographically-Targeted Direct Mail or Email Campaign

With the other four steps in place, you can now use pieces of your Executive Summary to create mailers and/or a mass email which directs people to your subdomain, where they can get more extensive information about the sale of your practice.

We also think about what that ideal buyer is looking for and why they might be interested in the opportunity to buy your practice. 

For instance, maybe your practice is in a beautiful area in a small town in New Hampshire. You imagine that your ideal buyer might be someone in a big city who vacations in a place like the area where you work. They want to get out of the big city and relax, yet aren’t ready to retire.

So why not work where you vacation? The marketing would target practitioners in New England, perhaps all the way down to New York City, who we feel fit the demographic of your ideal buyer. 

Where do these people come from? How do you find them?

You use the information you gathered about the buyer avatar exercise you did to decide who you want to target and how you will find them. Remember the step of figuring out what kinds of magazines or online resources that ideal person would read? That’s one clue.

We also use many other specific ways to target your ideal buyer with direct mail and email. Feel free to contact us for more on that.

Finally, what ties it all together is that, on your direct mail and/or emails, they may go to your subdomain (http://buyme.yourclinicname.com) for more extensive information and methods of contacting you.

Other Ideas To Find A Buyer

Needless to say, there are many other methods of finding a buyer for your medical practice. The above five steps are those we have found get the most immediate and appropriate traction.

Here are a couple of other ideas, which assume that you have, at minimum created an Executive Summary first...

Offer Your Practice to Employees, Colleagues, and Complementary Buyers

It may just be that your perfect buyer is just down the hall, or around the corner. 

Employees As Buyers

If you employ other practitioners or people who already have extensive knowledge of your business, and you trust them, you may wish to broach the subject with them. (Of course, have them sign a non-disclosure first, no matter how much you may trust them!)

Employees are often the easiest, and smoothest transitions out of a practice, and may have already been considering buying or investing in a medical practice of their own.

Colleagues & Complementary Buyers

The last clinic I ran was on “medical row” in a medium-sized San Francisco-area town. We had all kinds of modalities within a block of our office, including several practitioners who did the same work that we did.

Approaching a colleague, someone in the same business who you already know and who may be looking to expand their practice, may be a great option. They may be looking for what you have, and, like selling to an employee, it may save you a lot of time, energy, and money to just take a walk down the street.

A complementary buyer would be someone who has a vision of expanding their business to include yours. For instance, if you have a physical therapy clinic and a busy orthopedic surgeon has been referring you all of their post-surgical rehab patients, perhaps that surgeon would like to have your practice as a profit center under their own roof?

Or perhaps you are an acupuncturist specializing in fertility. If you have a great relationship with an OB/Gyn who specializes in fertility, perhaps s/he would like to have your practice as part of their offerings.

Think about what kinds of practices might be a complementary fit with your own, and go from there.
A word of caution:
Approaching a colleague, referral source, or competitor can be touchy. If a good referral source finds out you are leaving, they may redirect their referrals. And you don’t want to give up too much information too quickly to someone who could use that information against you.

The same goes for employees who may think their days are numbered and start looking for an out. More on that in our posts about your first buyer call here.

A Word On Brokers

The word: No.

First, no, we are not brokers. We work by the hour, on a project-by-project basis. (Click here to reach out and find out more about how we work.)

For many of you, by time you’ve gotten to this post, you have already tried using a broker. Many brokers are fine and do a good job, but by and large, we’re not huge fans for several reasons.

Generally, we just don’t feel they go the extra mile to get your practice sold. They work on commission, taking a percentage of your sale, so their vested interest is in getting your business sold, not at selling at the price you want. And beyond the fact that they take a non-refundable retainer up-front, some may also charge you beyond that whether or not they succeed in selling your practice.

Rather than go into all the details of how we feel, let’s present a case study.

A Case Study, Us Versus A Broker

One simple way to understand the difference between the way we help buyers and sellers and the way a broker works is to analyze the potential cost difference between a clinic selling for, say, $100k. Let's say you use a broker who asks for a relatively low retainer of $1,000 and a bargain-basement fee of 10% of your final gross sales price, payable upon signing a sales agreement with a buyer.

Let's also assume that you have a successful sale at $100,000. The broker may have put up to 15 total hours into your deal (putting your practice in the template listing on their website; using a sales agreement template for the contract; and talking you through some speed bumps).

In the end, the retainer is wrapped into the final fee you pay the broker. They get $10,000 (10% of your gross sale price) for 15 hours of work. That works out to roughly $666 per hour for them. Given that many brokers take much more than 10% (sometimes up to 30%), and many practices sell for much more than $100k, the hourly breakdown could go much higher. 

Contrasting that same deal with the way we work:

If we're doing the whole deal, start-to-finish, from organizing a practice for sale to finding a buyer; from creating the sales contract to helping in the transition out of the practice, the average total cost in our experience comes to about $3,000. So in the example above, using us, you'd pay 70% less and get an additional 30+% of time and energy from us as well.

A lot more bang for a lot fewer bucks.

In fact, that's less than one-third the price for 30+% more hours spent on your deal.

Keep in mind that those numbers assume you're having us do a deal from start to finish. Many of our transactions involve having us do only a small portion of a deal, such as helping find a buyer, or create a sales contract. Note that a broker will only get involved if they get to participate in the entirety of the sales process.

The Final Analysis

There are many different methods one could use to sell a medical practice. What we’ve summarized here are those that we feel are most appropriate and most effective in our experience.

While the five-step plan we outlined above works well, it also contains many micro-steps, such as the details of an Executive Summary; the technical aspects of creating a subdomain; and the art of demographically targeting a buyer, among other things.

We have done these things for our clients countless times, and feel we’re pretty good at it. If you would like to know more or need some help find a buyer for your practice, well… that’s our purpose in life. Let us know how we can help.

If you are ready for the next step, evaluating a potential buyer, click here


Five Essential Steps To Take Before Talking To A Potential Buyer Of Your Practice

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.

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.

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 Summarieswhich 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 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.


STEP 4: CREATING A SALES CONTRACT

Your purchase contract needs to reflect the uniqueness of your practice. Asset or Entity sale? How much will be paid up-front? What about employees? Learn some of the key questions to ask in order to create a contract that's right for you. And if you're looking for someone to draw up a contract for you (or review one as a buyer), we can do it! Click here to reach out now.

Five Essential Questions To Ask Before Creating A Sales Contract

Get These Big-Picture Questions Answered Before You Start on the Fine Print

Creating a sales contract is a complex process that requires the answers to many important questions. So rather than just showing you what a contract can and should look like (which is basically impossible given that each deal is unique), we’ll instead go over many of the most important considerations that need to be dealt with in order to put together a solid contract for the sale of a medical practice.

In the bigger picture of selling a medical practice, the following issues will need to be thought through and likely negotiated by both the buyer and the seller before you can even consider putting together a contract.

1. What Kind Of A Sale Is It?

With few exceptions, you will either be selling your corporate entity (S-Corp, C-Corp, LLC, etc.), or you will be selling the assets of your practice. Thus, you are either doing an Asset Sale, or an Entity Sale.

The assets consist of tangible assets such as furniture, fixtures and the like; and intangible assets, such as intellectual property and goodwill.

If you are selling the parts that make the practice run, the assets, but perhaps retaining your company name or some parts of the business, you will likely do an “Asset Sale.”

If you are a sole proprietor, you will be doing an Asset Sale, though practices set up as corporations can also do Asset Sales and keep their corporate name after the deal is done, or choose to simply dissolve the corporate post-sale.

If you are selling the company, this is usually referred to as an “Entity Sale.” You are selling the business entity itself.

There are big advantages and disadvantages to each kind of sale, depending on your individual situation. These usually boil down to questions of legal liability and how taxes are calculated, so we highly recommend you get the advice of a trusted accountant and attorney when it comes to answering the questions inherent in the form your sale takes.

  • For more on the definitions of terms like "tangible assets", "intangible assets", "revenue", and "goodwill", see our post "The Be-All, End-All Post on Medical Practice Valuation" 
  • You may also wish to read the following post we wrote on understanding Goodwill, "Goodwill In The Sale of a Medical Practice."
  • The decision to go with an Asset or Entity sale is so huge, we have another post on that subject alone. To understand the significance of this decision in greater depth, see our post, Asset vs. Entity Sales: Three Things To Consider.
  • Understanding the potential tax consequences of an Asset versus an Entity sale is an essential part of preparing your sale. To understand the difference, see our post on the tax considerations inherent in Asset versus Entity sales here.

Whether you are considering buying or selling a medical practice, we are also happy to help you think through some of the legal and tax questions inherent in this decision.

2. Show me the money! How will the practice be paid off?

When asked the question of whether the seller of a medical practice prefers to be paid up-front or over time, most would of course prefer to be paid the full balance as soon as the papers are signed.

But like most large purchases, such as cars and homes, the reality is that you will most likely arrange to have some part of it paid upfront as a sort of down payment, and the rest paid over time in installments.

And unlike buying a car or a house, which are both arm's-length transactions with guarantees made by manufacturers and possibly involving middle-men or women (escrow agents), the sale and transfer of a medical practice is something that requires trust between the parties and will take time. Time to transition patients and employees and leases and utilities, and time to minimize attrition.

(We have whole posts dedicated to these subjects. Click here for more on those.)

Among our many recommendations for buyers is that they get as much of the payment up-front as possible. We have many other suggestions we’d be happy to talk about when it comes to payment structures, and we go into further detail on the details here.

In the end, the way that the practice is paid off will be a significant defining quality of the final sales agreement.

3. Dealing With Employees

As I write this, we are in the process of finalizing a deal for a very large practice in the Pacific Northwest. The sale involves both the sale of a medical practice, as well as the building it is housed in, and the practice has several key, loyal, long-term employees who play important roles in keeping the practice profitable.

If you are buying a practice that has loyal, competent employees, an important question will be whether you want to keep those employees, or start anew with your own.

Selling a medical practice may necessitate keeping employees, perhaps incentivizing them to work for your successor as part of a smooth sale. Like all of the other questions outlined here, the answers to these questions will form an important part of your sales contract.

If you're not sure what to do about employees, check out our special article on that subject here.

4. Does The Seller Stay Or Go?

Related to the question above, the buyer of a medical practice may wish to have the seller stay on for a while as an employee or consultant for a given length of time.

There are several considerations here, from the timeline during which the seller stays (months, years?), to the reasons why (help smooth the transition, pacify patients and assure employees).

Depending upon the situation, the seller may want to get out ASAP, or, perhaps in the case of a larger entity like a hospital taking over a smaller practice, the buyer (the hospital) may want the seller (the practitioner) to stay for a while.

For more on this, see our post on working after the sale.

5. Will You Have A Non-Competition Agreement?

Most medical practitioners who have developed a solid practice will have a consistent stable of patients with whom they have created exceptional relationships. As practitioners, we know that our return patients form the backbone of our clinics, providing us with everything from word-of-mouth marketing to financial stability to the very pleasure we get out of the practice of medicine itself.

So when it comes time to sell the practice, if you’re not staying with the newly owners as an employee, will you want to keep practicing? And if so, where?

Most shrewd buyers are aware that your popularity as a practitioner is part of the value of your practice, and it’s a reasonable assumption that they will want to have signed an agreement not to compete to preserve their investment. These agreements (covered in more detail in this post)

 usually specify both a distance and length of time during which the seller will not compete with the practice they just sold.

These agreements also have a value when tax time arrives, so be sure to check with your accountant to see how you can allocate the value of the non-compete as part of your deal.

In Summary

Of course, there are many other considerations when it comes time to buy or sell a medical practice, but we find that most are subsets of the five big-picture items we discuss in this post.

We recommend that you address these issues as early on in the process of buying or selling a practice as possible—even before you have an interested party on the other side. Having done so will help organize your thinking and get you ready to negotiate the finer points that lead to a successful, signed agreement, and a sale that closes.


Asset Sales Vs. Entity Sales: Three Things To Consider

There are usually only two structures that the sale of a medical practice can take: selling some or all of the assets (an asset sale), or selling the actual corporate entity (Corp, LLC, LLP, etc.), an entity sale.

If you are a sole proprietor, not incorporated, your only choice is to do an asset sale, as you have no corporate entity to sell.

That said, a corporate entity such as an S-Corp or LLC can sell its assets and do an asset sale between it and an individual or another company.

If you’re considering buying or selling a medical practice and want to know which type of sale is most appropriate for you, it’s important that you (1) understand what assets are; (2) how liability pertains to each kind of sale; and (3) get to know the tax consequences of an asset vs. entity sale.

1. Understanding Types of Assets

Whether you are selling your company (an entity sale), or are a sole proprietor or company selling the assets of your company (an asset sale), the value of almost any medical practice boils down to its assets. Let’s go into a bit more details about how assets are classified.

Tangible Assets

This is the stuff in the office. The furniture, fixtures, medical equipment. Even the decorations, books, chairs in the waiting room. Whatever objects and equipment the seller intends to let go as part of the sale of their medical practice. When it comes time to sell, a seller will quite literally need to go through the whole office(s) and itemize the estimated value of everything.

 

Intangible Assets

These are the highly valued parts of the business that are not so easily quantifiable but are quite important, such as any intellectual property associated with the business (copyrights, trademarks, websites, web domains, etc.), as well as the value of the business name, address and assignability of the lease, retained employees, contracts with insurance companies, and other goodwill. In fact, when you hear the term, “Goodwill,” it is often just a simple word used to cover many of the intangible assets that lie outside of easily identified intellectual property. This is also part of what makes the practice continue to grow over time, it’s reputation. (If this is still confusing, we’d be happy to explain it in more detail over the phone or through email.)

2. Liability

Liability is loosely translated as any kind of legal claims or debts owed by the practice. The degree to which the buyer of a medical practice takes on the liabilities of a practice depends to a large extent upon what type of sale you are doing.

Liability In An Entity Sale

Because a corporate entity shields its owner(s) from personal liability, any liabilities are liabilities of the corporation itself, and thus usually transfer over to the new owner in the sale of a medical practice.

In short, the company being bought will need to resolve its claims and debts regardless of who is behind the corporate veil (regardless of who owns it).

Because of this, a buyer who is interested in buying the corporate entity will want to know all liabilities ahead of time.

Buyers may also ask that the sales contract include provisions that all known debts are paid down or paid off before closing.

And because a company may later be sued for actions taken before the entity was sold to a new owner, many potential buyers of a practice will ask that the sales contract include a provision that the seller be responsible for any claims related to any undisclosed or unexpected liabilities that may show up after closing related to issues that started before closing. 

If the buyer of a medical practice feels that the valuation (price) of the practice is too high relative to its liabilities, they may use the liabilities as a negotiating tool to lower the valuation of the practice and buy it for less.

(For more on valuation / valuing a medical practice, see our big post on the subject here.)

Liability in an Asset Sale

In the vast majority of cases, liability does not follow an asset.

Further, part of any good sales contract will contain a provision that all assets are in good working order before the sale to the best of the seller’s knowledge. 

For example, if you possess an asset, such as a couch in your waiting room, and you sell it, you would not normally be held liable for the injuries or issues created by the couch once it is owned by a new party.

As my wife (an attorney) is fond of saying, anything can be litigated. But, alas, this is considered quite rare.

And when a sole proprietor or company sells its assets (but not the actual company), the new owner is not held responsible for any existing debts or claims related to the practice, except as written into the sales contract.

3. The Tax Consequences in an Asset Versus Entity Sale

Another major consideration when choosing how you will organize your sale is to know something about the tax consequences of each kind of sale.

Okay, let’s keep it simple…

Most of us know that ordinary income tax rates can vary and go north of 35% depending upon your individual tax situation. The long-term capital gains rate tends to hover around 15%.

Long-term capital gains are taxed at more favorable rates than ordinary income. The current long-term capital gains tax rates are 0%, 15%, and 20%, while the rates for ordinary income range from 10% to 39.6%.

Most of us of course would prefer to be taxed at as low a rate as possible, and most entity sales will be taxed at the long-term capital gains rate.

In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. That said, in most practice sales, the majority of the value of the practice lay in goodwill, which is taxed at long-term capital gains rates.

In the first example, an entity sale, the stock of the company is trading hands, and the gain is like a long-term stock gain for the sellers (long-term capital gains rate).

In an asset sale of a medical practice, let’s say you, the seller, have made a list of all the furniture and fixtures that are part of the sale. You bought that couch in the waiting room for $1,000, depreciated it over the last five years on your tax returns, and then valued it at $200 on your list of assets when you sold the practice. The difference between the value of the fully depreciated asset ($0) and the sale price ($200) is taxable at ordinary income tax rates. Multiply that out over all your fixed assets, and you can see where this can lead.

It should be noted that goodwill and other intangibles such as intellectual property may be taxed differently (in fact, more favorably) for a buyer. For this reason, during negotiations, a seller will want to minimize the value of tangible assets and amplify the goodwill, while the buyer will seek to do the opposite. 

(Check out this link for more on the details of goodwill.)

Another consideration for C-Corp sellers: While above I wrote that one corporation can sell its assets to another, if the seller is organized as a C-Corp, doing an asset sale exposes the shareholders to the specter of double-taxation. Whereas, if the entity is sold in its entirety, the sale of the stock of the corporation results in only one tax bill.

A Quick Comparison of Asset & Entity Sales

Asset Sale

-Sell all assets of a medical practice.

-Only choice for sole proprietors.

-Can be done as an individual or as a corporate entity.

-Liability for assets only.

-May be easier to deal with for smaller businesses tax-wise.

-Overall, may be more advantageous for both parties, as they can  negotiate the value of each asset class with one another for tax purposes.

Entity Sale

-Sale of entire corporate entity (S- or C-Corp, LLC, etc.).

-Can only be done entity-to-entity, no sole proprietors.

-Liabilities carry over to new owner unless exceptions are made.

-May be more advantageous for seller liability-wise. Less so for a buyer, who may be taking on the liabilities (risks) of the corporate entity they are purchasing.

So Which Should I Do? An Entity or Asset Sale?

The key is in how you frame it.

In entity sale, even if the buyer is able to have some exceptions made in the sales contract to accepting certain liabilities, they are accepting all others.

In an asset sale, it’s kind of the opposite: a buyer can pick and choose which assets they want and which they don’t, likely cherry-picking the most valuable assets and leaving the others behind. They will probably have zero liabilities related to the assets they acquire, and will receive a more favorable tax treatment from an asset sale, getting write off big parts of the sale once it’s over.

Given the points covered above, the bottom line is that a corporate entity with no liabilities will most likely want to sell the whole entity, while an asset sale may be more advantageous for both parties, as they can  negotiate the value of each asset class with one another for tax purposes. This is why we usually recommend most clinics do an asset sale.

And if the seller is a sole proprietor, there’s no choice: it will be an asset sale.

The Mandatory Disclaimer

It is important that you consult a CPA before making a final decision on how you transfer the business. The advice we give here is based on our knowledge and experience, but we’re not CPAs, and we want you to know that.

If you’re still wrestling with what kind of sale would be best for your individual situation, we’d be happy to discuss the pros and cons with you. Reach out to us. The first call is free.


Tax Considerations in the Sale of a Medical Practice

A major consideration when choosing how you will organize your sale is to know something about the tax consequences of each kind of sale. We generally talk about Asset Sales versus Entity Sales, and we've written a bunch about the differences between the two in other posts. (See this one if you don't know the difference.)

Assuming you do know the difference, let's jump in and let’s keep it simple… 

Most of us know that ordinary income tax rates can vary and go north of 35% depending upon your individual tax situation. The long-term capital gains rate tends to hover around 15%.

Long-term capital gains are taxed at more favorable rates than ordinary income. The current long-term capital gains tax rates are 0%, 15%, and 20%, while the rates for ordinary income range from 10% to 39.6%.

Most of us of course would prefer to be taxed at as low a rate as possible, and most entity sales will be taxed at the long-term capital gains rate.

Taxation in Asset Sales 

Most entity sales will be taxed at the long-term capital gains rate.

In contrast, in an asset sale, at least some of the assets will be taxed at ordinary income tax rates. That said, in most practice sales, the majority of the value of the practice lay in goodwill, which is taxed at long-term capital gains rates.

In the first example, an entity sale, the stock of the company is trading hands, and the gain is like a long-term stock gain for the sellers (long-term capital gains rate).

In an asset sale of a medical practice, let’s say you, the seller, have made a list of all the furniture and fixtures that are part of the sale. You bought that couch in the waiting room for $1,000, depreciated it over the last five years on your tax returns, and then valued it at $200 on your list of assets when you sold the practice. The difference between the value of the fully depreciated asset ($0) and the sale price ($200) is taxable at ordinary income tax rates. Multiply that out over all your fixed assets, and you can see where this can lead.

It should be noted that goodwill and other intangibles such as intellectual property may be taxed differently (in fact, more favorably) for a buyer.

For this reason, during negotiations, a seller will want to minimize the value of tangible assets and amplify the goodwill, while the buyer will seek to do the opposite. (Check out this link for more on the details of goodwill in a medical practice.)

Asset Sales: Allocating Assets for Tax Purposes

As inferred above, for tax purposes, asset sales can be broken down into different asset classes such as goodwill, tangible assets, intangibles like intellectual property, non-competition agreements and the like. The way that the total purchase price is allocated among these categories, each of which is taxed differently by the IRS, can be a major point of negotiation between a buyer and seller.

Once both parties have agreed and the sales contract is signed, a section in the agreement will need to spell out the allocations. Both the buyer's and the seller's accountants will then look at the allocations agreed to in order to file Form 8594, the Asset Allocation Statement. The IRS will expect the allocations to appear the same on the buyer's and the seller's tax returns! 

For more on how different kinds of asset classes are taxed, of course you will need the help of a CPA. We also highly recommend you check out this whitepaper from Raymond James. 

A Quick Comparison

Asset Sale

-Sell all assets of a medical practice.

-Only choice for sole proprietors.

-Can be done as an individual or as a corporate entity.

-Liability for assets only.

-May be easier to deal with for smaller businesses tax-wise.

-Overall, may be more advantageous for both parties, as they can  negotiate the value of each asset class with one another for tax purposes.


Entity Sale

-Sale of entire corporate entity (S- or C-Corp, LLC, etc.).

-Can only be done entity-to-entity, no sole proprietors.

-Liabilities carry over to new owner unless exceptions are made.

-May be more advantageous for seller liability-wise. Less so for a buyer, who may be taking on the liabilities (risks) of the corporate entity they are purchasing.

So Which Should I Do? An Entity or Asset Sale?

The key is in how you frame it.

While one corporation can sell its assets to another, if the seller is organized as a C-corp, doing an asset sale exposes the shareholders to the specter of double-taxation. Whereas, if the entity is sold in its entirety, the sale of the stock of the corporation results in only one tax bill. And In an entity sale, even if the buyer is able to have some exceptions made in the sales contract to accepting certain liabilities, they are accepting all others.

In an asset sale, it’s kind of the opposite: a buyer can pick and choose which assets they want and which they don’t, likely cherry-picking the most valuable assets and leaving the others behind. They will probably have zero liabilities related to the assets they acquire, and will receive a more favorable tax treatment from an asset sale, getting write off big parts of the sale once it’s over.

Given the points covered above, the bottom line is that a corporate entity with no liabilities will most likely want to sell the whole entity, while an asset sale may be more advantageous for both parties, as they can  negotiate the value of each asset class with one another for tax purposes. This is why we usually recommend most clinics do an asset sale.

And if the seller is a sole proprietor, there’s no choice: it will be an asset sale.

The Mandatory Disclaimer

It is important that you consult a CPA before making a final decision on how you transfer the business. The advice we give here is based on our knowledge and experience, but we’re not CPAs, and we want you to know that.

If you’re still wrestling with what kind of sale would be best for your individual situation, we’d be happy to discuss the pros and cons with you. Reach out to us. The first call is free.


The Two Types of Payment Arrangements in the Sale of a Medical Practice

When it comes to selling a medical practice, there are basically two different kinds of payment arrangements: Lump Sum Payments and Installments.

In most cases, the two are mixed in some fashion.

There are also earn-out and stock swap deals, which we’ll touch on at the end of this article, but let’s stick to what’s most common for now.

Two Types of Payments

Lump Sum

A lump sum payment, in the purest form, means that the buyer is paying for the whole cost, the whole price of the business, all at once at closing.

For most sellers, this is the dream scenario, not having to be concerned about getting the full payout for the business over time. Getting paid all of the total up-front is so desirable that, if your buyer is even considering it, the allure may be incentive enough to reduce the total price of the practice in exchange for getting the money all at once.

Installments

A more common and more realistic expectation for most of us is that the buyer will pay a down-payment due at closing in the form of an account transfer or cashier’s check, and pay the rest in installments, with interest, over time.

Regardless of the situation, the truth is that installment payments are inherently risky, as, until you have all of the money in-hand, there always exists the risk that the buyer could walk away before the payment period is over.

In order to balance the risks of installment payments, there are many things you can consider doing before the sale and as part of your sales contract. What follows are some of our most important recommendations.

Before The Sales Contract

Get a personal guarantee

If the buyer of your medical practice is a corporate entity (LLC, S-Corp, C-Corp, etc.), it may be that their corporation was just formed to buy your practice or otherwise doesn’t have a lot of resources or history behind it. In this situation, in addition to having the corporate officer signing the installment agreement in your sales contract, you should also have it personally guaranteed (signed) by the individual seller. In many instances, this is the same person, but it would show up on the contract as two separate signature lines. 

Get a credit report on the buyer and their mate

This is what any lender would normally do, and you should as well. A credit report will allow you to get a sense of someone’s history of paying their debts, and will give you a snapshot of what your future may look like when you’re holding the bag. Say no to anyone with a funky credit history!

For more on how to obtain someone’s credit report, check out this simple article.

Financial statements

Get personal financial statements and/or the last few months of bank statements to prove that the buyer not only has the funds to pay the down payment, but also has reserves to keep them and their family in the black after the sale.

Get a third-party guarantee

If the buyer doesn’t have a lot of assets to back them up, you may wish to have them find a third-party. This is also something banks frequently do, get a co-borrower. In this case it may be someone with a lot more assets, such as a parent or relative, a spouse, or even a friend. Someone who is willing to sign on the dotted line such that, if your buyer defaults, the third-party’s ass(ets) are on the line.

One note here: Just as you are checking out the credit and financial history of the buyer, you should also obtain a credit report and financial statement from the guarantor.

Keep a legal interest in the business

This means the buyer doesn’t really own the business until all payments are made. In the mean time, if they default in their payments, you can have it written into your sales agreement that you can repossess the practice if they fail to pay. You see this all the time when financing a car or a house: If you fail to pay, the bank can repossess the asset, even if you’ve paid off 90% of it.

A sample UCC statement. Easy to find if you Google "UCC".

To make the repo option legally binding, most states will have you file a Uniform Commercial Code (UCC) financing statement with the Secretary of State. Check your Secretary of State’s website page for details on how to get and file a UCC in your state.

Use an acceleration clause

Putting this clause in your Promissory Note (the part of your sales contract that relates to the installment payments) means that, if the buyer does not make a payment (or a certain number of payments) on time, the whole unpaid balance of the Note is immediately due. This should help motivate a buyer to keep abreast of their payment responsibilities, especially if you have also taken the precautions listed above.

Put the fees on the other party

You can also add a clause to your Promissory Note that, if they fail to pay, the cost of your needing to collect from them (including collection agents, attorneys’ fees, etc.) falls on them. Though of course, if they have no more assets and that’s why they stopped paying, you may still be stuck with a bill!

In The Sales Contract...

Go for as large a down payment as possible

The larger the down payment, the less the remaining monthly payments will be, and the more commitment the buyer is showing to purchase the practice.

Be sure to charge interest

You’re not getting the full use of the financial value of your medical practice as long as it is being paid off, so it makes sense that you would charge interest.

You should charge interest regardless of whom you are selling to, even family. This also makes the buyer more motivated to pay you earlier to avoid interest.

The amount of each payment, with interest, is simply the amount remaining after the down payment + interest. 

Amortization calculators are available online to help you out with this. Check this one out.
Make the payoff time at or under five years

Two to three years is preferable. The longer the payment period, the higher the risk. That said, it needs to be realistic for the buyer such that their profits will easily be able to accommodate that monthly payment.

No pre-payment penalty

If the buyer wants to pay you out early, more power to them (and you)! Again, less risk, more up-front reward.

Give your buyer a runway

Make the first payment due one or two months after they’ve taken over the business so they have some time to gather financial momentum.

This strategy can also be a card you hold in the pre-sale contract negotiations. They want something from you, and you may refuse or reduce their demand in exchange for the opportunity to have their first payments due a few months after they start running the business.

A Note on Earn-out and Stock-swap Deals

Earn-outs

This is when a buyer with little money offers to pay the seller back for the price of the medical practice over time as they earn money, based on their volume in most cases. We see this a lot with small acupuncture practices and sellers who are desperate to sell. They’ll take a small down payment and then, say, $30 per patient seen per month.

There are a couple of problems inherent in these types of arrangements. They include:

1. Trust. As a buyer you have to trust that the amount of patient visits you are being paid for are accurate.

2. The buyer may fly the practice into the ground. No patients means no earn-out.

The only conditions under which we’d be ok with an earn-out arrangement would be if you were still running the business until it’s paid off; you get additional money if the business grows; and you’re getting a great price for the practice.

Otherwise…well, we don’t recommend these arrangements unless you’re a desperate seller and you have no other time or options.
Stock Swaps

Occasionally a business will buy another business and will be paid in stock of the buyer’s business. We’d say, unless the stock the seller is offering is already public (on the stock exchange) and from an established company, say no. You may be left with nothing.

In Summary

There are many ways of looking into how to buy or sell a medical practice, and hashing out the details of the payment arrangements are a key part of the sale.

We hope this information is helpful. At the same time, we’d love to talk about your individual situation. Contact when you’re ready and we’ll get on a free call to talk about it.

The Mandatory Disclaimer

It is important that you consult a CPA and a good attorney before making a final decision on how you transfer the business. The advice we give here is based on our knowledge and experience, but we’re not CPAs or attorneys, and we want you to know that.


How To Calculate Goodwill In The Sale of a Medical Practice

As one popular finance website puts it, 

The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill.

To further clarify, I’d add to this definition:

The value of your website, phone number, and any other intellectual property such as parked web domains your practice owns. It also includes your business’s history, online reputation, and even its location.

Think about the goodwill of Nike. It’s been around for decades, has a reputation for its technology and functionality where athletic clothing is concerned, a huge number of trained employees around the world, and a logo that most people recognize without needing to even see the word “Nike.” This is all goodwill.

Now imagine that someone wants to create a new brand of athletic clothing to compete with Nike. They won’t just be competing on the quality of their clothing; the hardest part may be going up against the goodwill of Nike. And if they wanted to buy Nike, the whole company, the value of Nike’s goodwill would represent much more than their tangible assets—it would have to include the company’s goodwill.

Just as a lot of goodwill is a barrier to entry for competition, and an asset for a buyer to inherit, it can also be an impediment to a sale if valued too highly.

When Facebook first started getting popular, Yahoo, Viacom and others offered well over $1 billion for it long before it started to be a profitable company. 

As we now know, those offers were turned down. At the time of this writing, Facebook is said to be worth half a trillion dollars. Too high a valuation for anyone to afford!

So while you may not be selling a practice that equates with the goodwill of a Nike or Facebook, you will need to be careful that you don’t price your goodwill (and practice) higher than the market could possibly bear.

Understanding Goodwill Is Tough

Given that goodwill is intangible (not a real thing you can objectively see or touch), it is often the part of the valuation equation that is most difficult to calculate. That said, with the sale of a medical practice, in the final analysis, it often accounts for the largest amount of the value of the business.

Goodwill only exists and is determined when a business and/or its stock is being considered for sale. Otherwise, it doesn’t really exist.

These days, our experience is that buyers are paying less for goodwill and basing most of the value of the practice on past numbers and the perception of being able to continue or increase profit.

We have also found that, the way to give a buyer the greatest confidence that they will be able to replicate the seller’s success (and retain its goodwill) is to put incentives in place to minimize attrition, as well as show that the practice can make even more through a few simple tweaks. 

The “how to” of reducing attrition and maximizing and increasing potential future earnings for the buyer are subjects we love talking about, and we’d be happy to share some of our ideas with you.

Other Valuable Resources


Non-Competes In The Sale of a Medical Practice

What You Should Know Before You Sign A Non-Compete

Most medical practitioners who have developed a solid practice will have a consistent stable of patients with whom they have created exceptional relationships.

As practitioners, we know that our return patients form the backbone of our clinics, providing us with everything from word-of-mouth marketing to financial stability to the very pleasure we get out of the practice of medicine itself.

So when it comes time to sell the practice, if you’re not staying with the new owners as an employee, will you want to keep practicing? And if so, where?

Many states frown upon non-competition agreements or anything like them that would prevent or limit a person’s ability to make a living. But if those agreements have certain limiting elements, a judge may see the reasoning of why a buyer wouldn’t want to purchase a business if the sellers were going to be in immediate, direct competition after the sale.

Some of the most important elements to have in a non-compete agreement include:

  • The length of time that the agreement is in force
  • The geographical area included in the agreement (usually listed as a certain number of miles from the practice)
  • The specifics of the kind of work covered by the agreement

If the person/people selling a medical practice plan to retire or no longer work in that field of medicine, a broad non-compete is no big deal. For instance, I sold my practice in California, and I now live out of state and plan to for many years, so I had no problem with a strict non-competition agreement.

But if you hope to keep working in the same field and do not plan on moving, the terms of a non-compete can be a point of contention, a point of negotiation. You can negotiate the length of time, the distance, and/or the actual specialty or kinds of patients seen.

Money & Tax Consequences of a Non-Competition Agreement

If your medical practice sales agreement includes a non-competition piece, it will need to be spelled out as a separate document, perhaps an addendum, to the agreement. In order for it to be legally enforceable, you will also be required to attach a monetary value to it.

Asset Sale

If your sale is an asset sale, the value will be taxed at ordinary income tax rates, so you will want to keep the value of the agreement as low as possible.

Entity Sale

Generally speaking, when it comes to an entity sale, for a C-corp, the seller will want the monetary value assigned to the non-compete to be as high as possible in order to avoid double taxation.

For more on the difference between entity sales and asset salessee our post on it here.

Most shrewd buyers are aware that your popularity as a practitioner is part of the value of your practice, and it’s a reasonable assumption that they will want to have signed an agreement not to compete to preserve their investment.

The details—when, where, how much it’s valued at; these are the areas that can get sticky and are usually negotiated between the parties. These agreements also have a value when tax time arrives, so be sure to check with your accountant to see how you can allocate the value of the non-compete as part of your deal.

If you’re in the dark about non-competition agreements and would like some help, please reach out to us and allow us to provide it. We can provide you the guidance you need, or refer you to the appropriate legal or accounting people if more assistance is needed. Reach out now.


Liability In The Sale of a Medical Practice

What Is Liability?

Liability is loosely translated as any kind of legal claims or debts owed by the practice. 

The degree to which the buyer of a medical practice takes on the liabilities of a practice depends to a large extent upon what type of sale you are doing--an Entity Sale or an Asset Sale.

(If you aren't sure of the difference between these two types of sales, please read our post on them here.)

Liability In An Entity Sale

Because a corporate entity shields its owner(s) from personal liability, any liabilities are liabilities of the corporation itself, and thus usually transfer over to the new owner in the sale of a medical practice.

In short, the company being bought will need to resolve its claims and debts regardless of who is behind the corporate veil (regardless of who owns it).

Because of this, a buyer who is interested in buying the corporate entity will want to know all liabilities ahead of time.

Buyers may also ask that the sales contract include provisions that all known debts are paid down or paid off before closing.

And because a company may later be sued for actions taken before the entity was sold to a new owner, many potential buyers of a practice will ask that the sales contract include a provision that the seller be responsible for any claims related to any undisclosed or unexpected liabilities that may show up after closing related to issues that started before closing. 

If the buyer of a medical practice feels that the valuation (price) of the practice is too high relative to its liabilities, they may use the liabilities as a negotiating tool to lower the valuation of the practice and buy it for less.

(For more on valuation / valuing a medical practice, see our big post on the subject here.)

Liability in an Asset Sale

In the vast majority of cases, liability does not follow an asset.

Further, part of any good sales contract will contain a provision that all assets are in good working order before the sale to the best of the seller’s knowledge. 

For example, if you possess an asset, such as a couch in your waiting room, and you sell it, you would not normally be held liable for the injuries or issues created by the couch once it is owned by a new party.

As my wife (an attorney) is fond of saying, anything can be litigated. But, alas, this is considered quite rare.

And when a sole proprietor or company sells its assets (but not the actual company), the new owner is not held responsible for any existing debts or claims related to the practice, except as written into the sales contract.

A Quick Comparison

Asset Sale

-Sell all assets of a medical practice.

-Only choice for sole proprietors.

-Can be done as an individual or as a corporate entity.

-Liability for assets only.

Entity Sale

-Sale of entire corporate entity (S- or C-Corp, LLC, etc.).

-Can only be done entity-to-entity, no sole proprietors.

-Liabilities carry over to new owner unless exceptions are made.

The Mandatory Disclaimer

It is important that you consult a CPA and a good attorney before making a final decision on how you transfer the business. The advice we give here is based on our knowledge and experience, but we’re not CPAs or attorneys, and we want you to know that.

If you’re still wrestling with what kind of sale would be best for your individual situation, we’d be happy to discuss the pros and cons with you. Reach out to us below. The first call is free.


How to protect yourself as a seller Before You Sign A Sales Contract

Until you have all of the money for the sale of your practice in-hand, there always exists the risk that the buyer could walk away before the payment period is over.

In order to balance the risks of installment payments, there are many things you can consider doing before the sale and as part of your sales contract. What follows are some of our most important recommendations.

Before The Sales Contract

Get a personal guarantee

If the buyer of your medical practice is a corporate entity (LLC, S-Corp, C-Corp, etc.), it may be that their corporation was just formed to buy your practice or otherwise doesn’t have a lot of resources or history behind it. In this situation, in addition to having the corporate officer signing the installment agreement in your sales contract, you should also have it personally guaranteed (signed) by the individual seller. In many instances, this is the same person, but it would show up on the contract as two separate signature lines. 

Get a credit report on the buyer and their mate

This is what any lender would normally do, and you should as well. A credit report will allow you to get a sense of someone’s history of paying their debts, and will give you a snapshot of what your future may look like when you’re holding the bag. Say no to anyone with a funky credit history!

For more on how to obtain someone’s credit report, check out this simple article.

Financial statements

Get personal financial statements and/or the last few months of bank statements to prove that the buyer not only has the funds to pay the down payment, but also has reserves to keep them and their family in the black after the sale.

Get a third-party guarantee

If the buyer doesn’t have a lot of assets to back them up, you may wish to have them find a third-party. This is also something banks frequently do, get a co-borrower. In this case it may be someone with a lot more assets, such as a parent or relative, a spouse, or even a friend. Someone who is willing to sign on the dotted line such that, if your buyer defaults, the third-party’s ass(ets) are on the line.

One note here: Just as you are checking out the credit and financial history of the buyer, you should also obtain a credit report and financial statement from the guarantor.

Keep a legal interest in the business

This means the buyer doesn’t really own the business until all payments are made. In the mean time, if they default in their payments, you can have it written into your sales agreement that you can repossess the practice if they fail to pay. You see this all the time when financing a car or a house: If you fail to pay, the bank can repossess the asset, even if you’ve paid off 90% of it.

To make the repo option legally binding, most states will have you file a Uniform Commercial Code (UCC) financing statement with the Secretary of State. Check your Secretary of State’s website page for details on how to get and file a UCC in your state.

Use an acceleration clause

Putting this clause in your Promissory Note (the part of your sales contract that relates to the installment payments) means that, if the buyer does not make a payment (or a certain number of payments) on time, the whole unpaid balance of the Note is immediately due. This should help motivate a buyer to keep abreast of their payment responsibilities, especially if you have also taken the precautions listed above.

Put the fees on the other party

You can also add a clause to your Promissory Note that, if they fail to pay, the cost of your needing to collect from them (including collection agents, attorneys’ fees, etc.) falls on them. Though of course, if they have no more assets and that’s why they stopped paying, you may still be stuck with a bill!

In The Sales Contract

Go for as large a down payment as possible

The larger the down payment, the less the remaining monthly payments will be, and the more commitment the buyer is showing to purchase the practice.

Be sure to charge interest

You’re not getting the full use of the financial value of your medical practice as long as it is being paid off, so it makes sense that you would charge interest.

You should charge interest regardless of whom you are selling to, even family. This also makes the buyer more motivated to pay you earlier to avoid interest.

The amount of each payment, with interest, is simply the amount remaining after the down payment + interest. 

Amortization calculators are available online to help you out with this. Check this one out.
Make the payoff time at or under five years

Two to three years is preferable. The longer the payment period, the higher the risk. That said, it needs to be realistic for the buyer such that their profits will easily be able to accommodate that monthly payment.

No pre-payment penalty

If the buyer wants to pay you out early, more power to them (and you)! Again, less risk, more up-front reward.

Give your buyer a runway

Make the first payment due one or two months after they’ve taken over the business so they have some time to gather financial momentum.

This strategy can also be a card you hold in the pre-sale contract negotiations. They want something from you, and you may refuse or reduce their demand in exchange for the opportunity to have their first payments due a few months after they start running the business.

A Note on Earn-out and Stock-swap Deals

Earn-outs

This is when a buyer with little money offers to pay the seller back for the price of the medical practice over time as they earn money, based on their volume in most cases. We see this a lot with small acupuncture practices and sellers who are desperate to sell. They’ll take a small down payment and then, say, $30 per patient seen per month.

There are a couple of problems inherent in these types of arrangements. They include:

1. Trust. As a buyer you have to trust that the amount of patient visits you are being paid for are accurate.

2. The buyer may fly the practice into the ground. No patients means no earn-out.

The only conditions under which we’d be ok with an earn-out arrangement would be if you were still running the business until it’s paid off; you get additional money if the business grows; and you’re getting a great price for the practice.

Otherwise…well, we don’t recommend these arrangements unless you’re a desperate seller and you have no other time or options.
Stock Swaps

Occasionally a business will buy another business and will be paid in stock of the buyer’s business. We’d say, unless the stock the seller is offering is already public (on the stock exchange) and from an established company, say no. You may be left with nothing.

In Summary

There are many ways of looking into how to buy or sell a medical practice, and hashing out the details of the payment arrangements are a key part of the sale. (For more on the essentials of a sales contract, check out this link.)

We hope this information is helpful. At the same time, we’d love to talk about your individual situation. Contact when you’re ready and we’ll get on a free call to talk about it.

The Mandatory Disclaimer

It is important that you consult a CPA and a good attorney before making a final decision on how you transfer the business. The advice we give here is based on our knowledge and experience, but we’re not CPAs or attorneys, and we want you to know that.


STEP 5: TRANSITIONING AFTER THE SALE

Transitioning a buyer into a practice is a delicate process for you, your patients, and employees.

Learn the Keys to a Successful Transition After the Sale of a Medical Practice

One of the biggest concerns of a potential (and actual) buyer is simply this:

If I buy this practice, will I be able to do as well or better than the prior owner? 

When it comes to a medical practice, this question comes down to management and patient attrition.

Keeping the business humming through the transition from one owner to another is in the best interests of both parties.

From the prior owner’s perspective:
  • The lower the attrition and the smoother the transition, the more likely you are to head off any buyer’s remorse.
  • If the buyer is paying you out over time, you’ll also be much more assured that they will not default on the payments.
  • It reduces the likelihood of any kind of legal action coming from the other side.
  • A smooth transition also keeps your patients and staff happy. And if you’re like most of us, happy patients and staff mean a happy doctor and a lasting legacy.
From the new owner’s perspective, a smooth transition:
  • Minimizes attrition so that worries about paying the bills are minimized.
  • Keeps staff happy and secure so that they continue doing an exceptional job for the buyer, just as they did for the seller.
  • Assures that, moving forward, you can grow the practice and realize what you hoped to achieve by buying the practice in the first place.

So, how is it done? What steps can be taken in the sale of a medical practice to assure a smooth transition with as little attrition as possible?

Let’s jump right in.

Transitioning Patients to a New Practitioner

When it comes to selling a practice, making sure the patients move over makes up a big and vital part of both the pre- and after-sale activity. Here are some suggestions for a smooth transition:

Set expectations for your buyer

We like to say that, getting 70% of patients to move over (30% attrition) is a realistic goal, while we actually expect to have 85+% transition successfully if providers follow our advice (much of which is found below).

Setting an expectation for 30% attrition with your buyer is a good first step, and they may be pleasantly surprised to find that they have a much lower number.

Do everything you can to transition your patients

Let your buyer know that you will do everything you can in order to help reduce attrition and maximize their potential to do well their new practice. Some ideas that we’ve used successfully include:

Creating A Runway

If the buyer gave you a deposit at closing, and you are going to train them and have them shadow you for a month or two, consider making all money made from the date that they own the practice forward be “their money.”

Basically, they are earning from day one. You can sweeten this even further by making their first installment payment to you due two or three months after signing. Car dealers do this all the time (graphic of “zero interest and no payments due until 2018”). You’ve undoubtedly seen ads like this. 

We call this a runway. By giving the buyer a bit of a runway, you are helping to calm their nerves and let them know that you are primarily interested in assuring their success.

Telling Patients In Person

From the moment of signing, you need to begin the delicate process of informing your patients what’s happening in your practice. As you see patients, you will need to let them know that you are turning the practice over to another person; the reasons why you’ve decided to do this; why you chose person you did; and that there will be no interruption in their care. If the new owner is present, we recommend having a moment alone with the patient, telling them at the end of their appointment with you, and then offering to have you meet the new owner/practitioner. You may have become quite close with some patients, and many will have unpredictable reactions ranging from sadness to sometimes even anger. Factor a bit of time in to absorb their potential reactions as well!

We also recommend having a sort of introductory fact sheet on the new provider. Have it available for you or your staff to hand to the patient before they leave.

Telling Patients By Mail & Email

If you keep records of your patients’ email addresses, and especially if they are accustomed to receiving email from your office, you should create a mass email to send to let them know about the transition. Let them know about a month or six weeks in advance, but no more, and certainly no less. Describe when, why, and whom, and give some good details, including pictures.

Aside from a mass email, you should also send a postcard with the news to all of your current patients, and preferably those whom you have seen within the past three years. This may seem onerous, but your buyer wanted to see financials for the past 3-5 years or more, and a large part of what they are buying is your goodwill. It is also only fair to let your patients know what’s going on, and many do not have or check their email.

But wait, there’s more! The most successful practice transitions also include…

Inviting Patients to a "Hello/Goodbye" Event

This is an informal get-together, in your office or at another location like a restaurant, where patients can come say goodbye to you and say hello to the new person/people. The meet-and-greet should happen within a week or two of the end of your tenure, perhaps on a weekend, and can be advertised in the above-mentioned email and postcard announcing your departure.

Doing an event like this tempers the shock of your departure with the option of closure for those patients who feel closer to you, and again shows the new owner how serious you are about helping them get started.

Be sure to bring your family, maybe some close friends, and your staff to such an event. The buyer should also be there, of course, as you will be introducing them as you say goodbye. And at a certain point in the event, you may wish to give a little speech thanking your loyal patients, and introducing your new buyer as your more-than-complete replacement.

If you choose to go this route (and we highly recommend that you do), you may wish to work out costs with your buyer. Though, truth told, the buyer will most often expect the seller to do this for them. And while, again, it seems like quite a lot, it will go a long way to proving to the buyer that you have gone beyond the call of duty to be sure that they retain your patients and the goodwill of your practice.

Put these things into your sales contract

If you plan on going to go to the lengths we suggest above, stipulating that you will do so in your sales contract will further assure your buyer that you care about their success as well as the continued treatment of your patients. 

Your contract should also talk about the minimum amount of time per week you plan to spend showing the new buyer your processes and introducing them to your patients, as well as for how long. A month? Two months?

Talking To Referral Sources

In addition to telling your patients about the sale of your practice, you will also want to let your key referral sources know about it. You can do this by:

  • Visiting them with or without the buyer. If they buyer is not with you, be prepared with the buyer’s introductory fact sheet (see above under patient transition).
  • Assuring your referral sources that your policies, procedures, and quality of care will remain the same. As will your phone number and other contact information.
  • Include your referral sources in the mass email and/or postcard you send out about the transition, and even invite them to the above-mentioned meet-and-greet so they can meet the new owner. If you do these things, we still recommend letting the referral source know in advance of getting a surprise email or postcard!

Taking a few basic, thoughtful, pro-active steps to assure that both your patients and your referral sources are properly informed of your plans will go a long way to reducing attrition and increasing the odds of your buyer’s success.

A Note On Employees

If you have employees, letting them in on the fact that you are selling your practice can be a delicate matter.

From their perspective, they are usually looking for security, continuity. So whether or not your employees are staying with the new owner’s practice, they need to be informed of what the plans are in a timely and sensitive manner. Tell them too early, and they may opt to leave early. Tell them too late, and they may leave out of spite, perhaps taking valuable business information (and goodwill) along with them.

They key is letting employees know that they are valued, and showing them that their lives will not only stay pretty consistent with the new owner, but they may actually have some up-side.

When it comes time to tell employees of their fate, we recommend doing so without the new owner present. Give them time to digest what’s happening without forcing them to paste on a smile for the new guy.

And if you or the new owner will be letting people go or otherwise reorganizing the management of the practice, this, too, will require some notice.

If this is how things will go, be sure as the seller that you do not have employment contracts set up that you will be violating (and thus inviting potential litigation from those employees).

We also have a post on some of the intricacies of what happens to employees, and you can read that here.

Employment law is a complex legal specialty with rules that differ in each state, and sometimes each county. If you will be dealing with employee issues that you anticipate may become at all complicated, you should consult a good attorney who specializes in employment law in your geographical area.

How Do I Keep Track of All of This?

Great question! There is a heck of a lot to keep track of during the transition from one owner of a medical practice to another

Our secret weapon? Project management software.

For those of you who are not familiar with project management software, its intention is to help teams of any size stay organized and on task. A good project management software package will be shared among several people, and will usually have one person who is more or less in charge of assigning tasks and checking them off as completed over time. When used correctly, most of the tasks remaining in your transition will be organized from within the software, down to texts, emails, and related documents that can all be shared. Think of it as an ongoing conversation between one another related to specific tasks.

We have a whole post on this subject. So, if you're interested in learning more about how to stay organized with project management software, click here. 

Finally...

If you’re reading this post, it’s likely that you are close to closing, or have already closed on, the sale of your practice. If that’s the case, congratulations!

And of course, if you would like some help following up on any or all of the suggestions for a smooth transition for your patients as part of the sale of your medical practice, we’re here to help.

We can prepare the emails, create the postcards, find you a mailing house, and give suggestions on how to organize the meet-and-greet. Let us know how we can help you today! Just reach out to us.


The Secret to Staying Organized When Selling a Medical Practice

In the process of advising buyers and sellers of a medical practice on how to effectively transition from one owner to another, we are often besieged by questions of organization. “How can we possibly figure out everything that needs to be done, and do it efficiently and effectively, in the time allotted?” “What’s the secret to staying organized in this maelstrom of to-dos?”

The purpose of this post is to assist you in answering those very questions by explaining what we advise in respect to staying organized and effective through the transition.

We spend so much time trying to find the right buyer (or seller), going through due diligence, and negotiating the terms of the deal, most of us rarely think of the time, energy, and organization necessary to make the transition to a new owner once the practice is effectively sold. And there’s a lot to think about!

For the sake of example, here is a very partial list of some of the tasks that needed to be accomplished for a recent transaction that we managed, in no particular order:

  • Update all current charts to show which patients are current versus those who should be filed off-site.
  • Change signage on front of building and throughout practice to reflect new owners names.
  • Modify all forms to show new owners names.
  • Change ownership of electronic patient management and charting systems.
  • Modify website to eliminate old owners and put in information for new owners
  • Spend time showing new owners or their representatives how to modify website, add blog posts, etc.
  • Contact landlord in order to transfer lease and get original deposit back.
  • Contact utility companies to place invoices and payment information in the names of new owners by the day after the sales contract is signed.
  • Get new owners set up with their credit card processing.
  • Check that new owners are preferred providers for relevant insurance panels.
  • Develop and get approval from new owners on mailer that will go out to all patients about new ownership and transition.

Of course, this is only a partial list of the many things that are required once the big picture items of finding a new owner and signing a contract have been finalized. The list above does not include complications such as dealing with employees, and all of the attendant issues with Worker’s Compensation, insurance, payroll and the like.

You’ll also note that each one of the items above will often require many smaller steps. For instance, to change the utilities, someone needs to call each one of the utility companies, preferably with the new owner standing by. A sub list of all of the different utilities, such as phone, Internet, gas, electric and the like, will need to be part of each to-do list item.

This is all further complicated by the fact that you and your seller (or buyer) will need to be coordinating many of these tasks together.

So what’s the secret to staying on top of it all?

The answer may lay with a not-very-sexy term that you may find quite sexy indeed once you have used it for a while:

Project Management Software

For those of you who are not familiar with project management software, its intention is to help teams of any size stay organized and on task. A good project management software package will be shared among several people, and will usually have one person who is more or less in charge of assigning tasks and checking them off as completed over time.

When used correctly, most of the tasks remaining in your transition will be organized from within the software, down to texts, emails, and related documents that can all be shared. Think of it as an ongoing conversation between one another related to specific tasks.

And though learning a new software package may seem onerous at this stage, these products are designed to be simple and intuitive enough that you could be up and organized in no time flat.

Features

When you are looking to choose software for this purpose, we recommend that it has the following features:

  • The ability to add multiple team members with different levels of access or security. For instance, some people may have the access rights that would allow them to change or delete tasks or lock them complete. Others may only have the security clearance to view tasks and perhaps write notes or memos or attach documents related to a given task.
  • The ability communicate with other team members through the program rather than just through email.
  • It’s cloud-based. This means that the software is based on the Internet, so that it can be accessed anywhere and anytime that one is online. It is possible to be off-line with many of these as well, and then as soon as you are back online, data will be synchronized.
  • The ability to attach documents to your to do list. Often times, your to do list items will have to do with a lease, or a document that must be signed, or something else that you may need to attach to that item in order it to be completed.
  • It should have an app version that you can access from a smart phone or tablet.
Choosing The Right Package

There are many different options out there. If you Google “Project Management Software”, you may be quite overwhelmed by the choices. 

There are many sites that review project management software. Here's an article from PC Magazine on their choice of top 10 project management applications in 2017.

If you already have Microsoft Office, you may be pleasantly surprised to find that Microsoft Project is already included as a part of the package. Microsoft Project has been around a long time and has many of the features most requested by users of this kind of software. 

Other companies include TrelloJiraPodioProworkflowSmartsheetZohoAsanaBasecamp, and Dapulse among many others.

Our Three Favorites

Many of our clients are do-it-themselves types who like to do as much of their purchase or sale as they can on their own. We love to cater to these people, and to them and most of our clients, we are currently recommending AsanaBasecamp, or Dapulse (soon to be renamed "Monday" or whatever reason).  While there are many other options out there that may be just as good, these are the three with which we have the most experience. 

How To Get Started

Once you have signed up with one of these packages, the first thing you want to do is go to the administrative area of the program, and add the names and email addresses of the key person or people to whom you are transferring your business. You will be sharing the program with them, and using it to help you both transition the business, so we recommend giving them full administrative access or something just below that level of security so they may add and modify and check off to-do list items as they see fit. Normally, each person who is added will have the ability to log in themselves once you set them up in the program.

Next, start adding your to do list items. For each item, you will be given the option of writing as much or as little detail about the item as you wish, along with the ability to attach any relevant documents or pictures or whatever. You will also be given the option of a signing or sharing this item, each item, with the others that you have added to the program (the people to whom you’re transferring the business). You can also set dates and deadlines for any given to do list item.

From this point forward, all of your to do list items for your transition can be entered into and managed from this software package, rather than keeping random notes on your phone or on slips of paper. Given that both parties can access it from apps on their phone, tablet, or computer, it is a great, centralized method of keeping organized and appraise of what items are still outstanding, which items are coming up in the near future, the details of any given transitional item, and/or a timeline of when and how stuff needs to get done.

Updates

A newer article on project management software covers the latest updates and newer cloud-based options. Check out the article here

Need Help Getting Started?

If you are unsure how to proceed or how to set up one of these packages, we can set it up for you! Let us know if you’d like some help by contacting us below. We’ll call or email you back, figure out what your needs are, and get you moving.


What Happens To Employees When You Sell A Medical Practice?

A valuable medical practice has several key components, and whether the practice is being sold as an asset or an entity sale.

If employees are a key part of the success of the practice, their future will also play an important part of the sale of the practice.

When selling a practice, there are some basic options where employees are concerned:

  • Some or all employees stay with the practice
  • The employees leave the practice
  • The buyer is undecided

The Employees Stay

If the buyer of the practice is interested in keeping some or all of the team intact, one way the seller can attempt to ensure a seamless transition is to set up employment contracts with those employees in advance of the sale. The contracts would include:

  • How long the contract is in force
  • The wages and benefits the owner will provide
  • If it will last more than a year, it may be good to add provisions for salary increases, and perhaps a bonus at the end of the contract period
Once the contracts are set up, the way that they are transferred over to the buyer largely depends upon what type of sale you are doing.

If it is an entity sale, the any contracts that the existing corporation has will automatically be transferred over to the new owner unless specifically excluded as part of the agreement.

If it is an asset sale, the contracts themselves are assets and need to be specified as part of the assets being sold.

(For more on the difference between Asset and Entity salessee our post on that here.)

The sales contract should also obligate the buyer to keep to the letter of the contracts (wages, benefits, etc.) and indemnify the seller in case the employees later have some problem or decide to initiate litigation based on the way they were treated by the new owners.

Two final notes here:

  1. When the seller creates the initial employment contracts, they should have as part of them a stipulation that they are transferable.
  2. The buyer or seller may wish to have a non-competition clause written into the employment contract. This way a key employee cannot leave with valuable information about your business and work for a competitor nearby. Note that not all states will enforce non-competes.

For more on non-competition agreementssee our post on them here

Setting up contracts like these is something we specialize in and would be happy to help you with. Contact us to learn more.

The Employees Go

The buyer of a medical practice may decide to bring in their own crew, or, if it is a particularly small practice, take over employee functions by themselves. In this case, the seller should let those employees know their fate well in advance. However, not before the buyer has signed a sales agreement and they and/or their new employee(s) been brought up to speed on the office processes and procedures.

A buyer may also opt to…

Wait and See

If the buyer is unsure, it may be best to leave the employees out of the sales contract, and simply have a wait-and-see attitude. The buyer can take over the practice, get to know the employees, and decide how and if s/he wants to proceed with the current setup or change it up a bit.

If this is how things will go, be sure as the seller that you do not have employment contracts set up that you will be violating (and thus inviting potential litigation from those employees).

There are as many different employment situations in a medical practice as there are practices being sold. As we’ve said above, sticky situations and legal questions may require the advice of a good attorney.

We have also been exposed to many medical practice sales that involve employees, and we’re more than happy to discuss them with you. Contact us now using the form below. We'll provide more information on your options and the best way to go about things in your particular situation.


Working After The Sale of Your Medical Practice

One of the most important considerations in the sale of a medical practice is that of attrition.

Beyond just getting a sales contract signed, the seller also needs to do everything in their power to keep the value of the practice intact moving forward so that the buyer realizes the full potential of the practice.

This is especially essential if the seller is being paid overtime in installments. If, once the buyer takes over, a few months down the line, the number of patient visits begins to drop, it won’t just be dispiriting for the buyer; it may actually make it difficult for them to meet their commitment of paying for the remainder of the practice.

One way to remedy concerns over attrition, as well as potentially deal with many other issues, is to have the seller stay on in the practice for a while. This could be transitional (temporary); as a consultant; as an employee; or as an independent contractor.

Any or all of these could be employed in some combination, and should be determined by the buyer and seller of the medical practice before the sales contract is signed. We'll go over these options in greater detail further later on in this post.

First, let's evaluate the pluses and minuses of having the original owner stay on or take off early.

Advantages To The Seller Staying On

From the seller’s perspective, there are several reasons why you may wish to continue being a part of the business for some time, even when you no longer own it:

  • To keep you as part of the business until you get all of your installment payments, making sure the practice keeps running at least as smoothly as it was when you owned it.
  • It may make it much easier for your patients and staff to get used to the new reality of different ownership to know you haven’t completely abandoned ship.
  • To provide you with income after you no longer own the practice.
  • It may even serve some emotional needs, stemming feelings of loss and purposelessness you may have otherwise had if you just up and left after years of service in your practice.

Advantages For The Buyer When The Seller Stays

The buyer of a medical practice may also see some advantages to having a seller stay on, even if only temporary. These advantages may include:

  • Helping to reduce attrition as patients transition from one lead practitioner to another.
  • Learning more about the day-to-day intricacies of running the business. While a short period of transition can be helpful in learning how a business runs, a longer period will expose all kinds of stuff that may not have otherwise come up.
  • It can provide you with income after you no longer own the practice.

On The Contrary: Reasons To Split Early

There are also situations where the new ownership and the seller may wish to part ways early on:

  • When a medical practice has not had a great reputation and the new owner wishes to make clear that the practice is now under new management and headed in a new direction.
  • The seller is a burned-out medical practitioner and is already pretty checked-out from the practice.
  • The seller is retiring and/or is moving out of town.
  • Buyer is an employee or someone who was otherwise already involved in the practice before buying it, and already is familiar to patients and knows how the systems run in the office.

Options For Staying On: Forms It Can Take

If the seller is looking at staying on board for a while, there are several forms this may take. They may include:

  1. Working as an employee
  2. Working as an independent contractor
  3. Staying on without pay

Let’s take a look at each. 

1.Working As An Employee After Selling Your Medical Practice

If the buyer and the seller of a medical practice agree that the seller will stay on as an employee for a given length of time, we recommend that the stipulations of that work are included in the sales contract of the practice. These stipulations would include:

  • The number of hours per week (full-time or part-time)
  • If payment is by the hour or salaried
  • What, if any, benefits will be included (healthcare, 401(k), sick leave, vacation, etc.)
  • How long the employment will last (it could be specified, or at will)
  • Specifics about what job duties are included
  • How the employment can end. Can either party terminate it with a certain amount of written notice? (If it can end at any time with or without notice, this is called “at will” employment.)
  • You may also choose an employment contract based on performance. For example, if the practitioner is staying on and keeps their volume as it has been up until the time the sales contract was signed, that’s one rate. If they increase their patient load and/or otherwise grow the business over a certain period of time, they may get a bonus or be otherwise incentivized.

2. Working As An Independent Contractor After Selling Your Medical Practice

It’s possible that the buyer may wish to have the seller or seller’s employees stay on for a limited amount of time, or come on as a consultant/advisor here and there, and in this case it may be preferable to have them come on as independent contractors. An independent contractor in a medical practice is expected to be paid on a project-to-project basis, either by the hour or by flat-fee per project.

A practice could also agree to pay an independent contractor for a given number of hours per week for a given length of time (say, 30 hours per week for 3 months). In contrast to employees, independent contractors are not given health insurance or other benefits, nor are taxes taken out of the payments made to the contractor. It is the responsibility of the contractor to report to the IRS all payments made, and account for their own tax burden.

Because the IRS looks closely at independent contractor agreements, it’s important to have the agreement written into your sales contract cover very specific topics, including:

  • How much will be paid, and how often
  • The length of employment
  • How it can be ended. In writing, with a certain amount of notice?
  • Dispute resolution. Will you use mediation or arbitration? The contract we generate here at Sellingapractice.com usually include mediation and arbitration provisions.
  • Who will own any products or intellectual property the contractor creates while employed. Did you create a new treatment technique while an independent contractor? If it’s not specified that you get to keep the intellectual property rights to that technique, you may be (un)pleasantly surprised to find that the practice for whom you were working now own that technique.
  • The duties/services expected to be performed by the contractor.
  • A statement that the contractor is not an employee, but rather an independent contractor, and is expected to pay their own federal, state, and local taxes.

Independent contractors should be asked by the practice to sign an IRS W-9 form at the outset of their employment. This form allows the practice to file a 1099 form in January following each year of employment to show the IRS how much money was paid to the contractor. A link to the form may be found on the IRS website or by clicking here

A Warning

The IRS is very keen to have people be employees rather than independent contractors, and they often look very closely at independent contractor situations. If an independent contractor is being paid regularly for much of a year, the IRS may believe this person should instead be an employee, and either side may get audited.

Be Sure To Check With A CPA

Staying On Without Pay

When we represent sellers, we often suggest that the seller stay on for a month or two to help the buyer transition over, without pay. This is a negotiating point and obvious benefit to the seller, which we call a “runway” to success for the buyer. In fact, we may add to this that the buyer’s first payment on an installment plan not be until a couple of months after the signing of the sales contract just to sweeten the pot for the buyer. These kinds of agreements should also be written in the sales contract, specifying which duties will be expected of the seller, and for how long.

The legal differentiation between being an employee and being an independent contractor

A business with employees is expected to pay withholding (income tax), Social Security, Worker’s Compensation, and other taxes that are taken out of the employee’s paycheck. An employee may also get additional benefits such as healthcare, paid time off, and retirement benefits.

A medical practice using an independent contractor is expected to be paid on a project-to-project basis, either by the hour or by flat-fee per project.

A business could also agree to pay an independent contractor for a given number of hours per week for a given length of time (say, 30 hours per week for 3 months). In contrast to employees, independent contractors are not given health insurance or other benefits, nor are taxes taken out of the payments made to the contractor. It is the responsibility of the contractor to report to the IRS all payments made, and account for their own tax burden.

Independent contractors should be asked to sign an IRS W-9 form at the outset of their employment. This form allows the practice to file a 1099 form in January following each year of employment to show the IRS how much money was paid to the contractor.

Regardless what kind of employment the buyer and seller of a medical practice agree to, we highly recommend consulting an attorney that specializes in employment law to consult on this part of the process (and the contract). Employment law is quite a deep specialty, and there’s good reason (read: audits and lawsuits) to be sure your intentions are legally sound before and while committing them to paper.

A Note on Non-Competition Agreements in Medical Practice Sales

We’ve found that most successful practices are anchored by one or more exceptional practitioners who are quite well loved by their patients. In fact, a big part of the value of the medical practice being sold may lay in the goodwill generated by the history of those practitioners.

So once these practitioners are no longer part of the practice, what’s to prevent them from just moving nearby and opening another practice?

This is where a Non-Competition Agreement comes in. If the anchor providers are not planning on retiring or moving a good distance away from the practice, a buyer will want to protect their investment by being sure current and future patients stay with the practice.

If your seller is planning to continue working after the sale, with or without the buyer, we highly recommend adding a “Covenant Not To Compete” into the sales agreement. For greater detail on Non-Competes here, check out our post on them here.

In Summary

In the final analysis, deciding whether or not a seller stays with the business as an employee, independent contractor, at-will employee, and/or working for free is a big decision. Much rides on the way these agreements are put into a sales contract, both from a liability perspective and the view of the IRS.

We specialize in helping practices of all sizes separate the signal from the noise. Let us help you. Arrange a free call by reaching out to us today.


Why Are We Giving This Course?

Whether you plan to sell a medical practice or buy one, the fact is that you want to keep your practice cooking right up to and well after the practice changes hands. Many of our clients have requested tips on how to do it. 

With this in mind, we've decided to share this video made by Selling A Practice's Jason Luban and Brooks Wiley, an expert on Search Engine Optimization. We're excited to share our unusual methods with you.

(To get the handouts for this course and for further information, click here.)

More On The Video

There are several keys to knowing how to go about keeping a practice brimming with new patients, and we believe the right methods can be learned in just a couple of hours. We've been studying the habits of the most effective, and thriving, practitioners for 15 years, and our course instructor's practice has been full for several years as well.

What have we learned, from the inside out?

That having a decent online presence, attending early morning networking meetings, and going cold into doctors' offices will only go so far.

The path to a full practice lays not in what you do outside of the office, but what happens within it.

One key is to create a feedback loop between your referral sources and your patients, and, ultimately, to have your patients be responsible for 90% of your referrals.

This is just one of the many points we'll expand upon in this short but impactful course.

Did You Know...... the largest and highest grossing acupuncture practice in the United States is located in a town of 7,000 people in Washington State?

The Economy Has Little To Do With Your Success. Nor Does The Size of Your Town or The Number of Practitioners Near You.

As successful acupuncturists in an area with the greatest density of practitioners in the United States, we've heard all the excuses. We used to recite them ourselves.

But the fact is, whether you live in Los Angeles or Las Cruces, there's no good excuse for having anything but a thriving practice.

Hard-Won, Real-World Knowledge From Practitioners, Not Lecturers

It's taken many years, many courses on practice management, and many mistakes in our own practices before we distilled out what we believe are the true keys to a successful practice.

In this fun, experiential, multi-media seminar, we'll share immediately applicable techniques that will fit easily into your routine, including:

  • The Rule of 3: Break down the amount of outreach you need based on how busy you are.
  • Focused Messages: Zero in on the needs of your referral sources.
  • Website SEO: Understand the real secrets to Search Engine Optimization and what puts your website above the rest.
  • Well-formed Outcomes: Set measurable practice goals that you can meet...and much more!

Refresh Your Practice...

...through this fun, experiential, practitioner-focused class combining real-world marketing from outside the clinic with hard-won clinical wisdom from within it.

You'll get powerful results, including a consistently full practice, a more satisfying experience with your patients, and reduced burnout.

This class will make you more successful in your work, and will make your life easier in and out of the clinic.

About the Instructors

Jason Luban, MS, LAc, is a California-licensed acupuncturist and NCCAOM Diplomate and has been in private practice in the Bay Area since 1997, with a full practice for the past six years. He has spent much of the last 20 years seeking out and modeling practitioners who have thriving practices, and his key finding is that what practitioners do inside their offices matters much more than their formal marketing outside of it.

Jason was also the Founder and Chief Geek at Trigram Software (makers of AcuBase practice management software), where he consistently consulted with clinicians from around the country on how they run their practices, for better and for worse. He sold Trigram several years ago so that he could better pursue his true passion of medical practice and teaching.

Brooks Wiley is an expert on search engine optimization, the art and science of getting your website to the top of Google and other search engine listings. He'll teach you the five most important things you need to know for your site to come up on top when potential patients search for you online, as well as providing great tips on how to manage your online reputation.


Have Questions? Contact Us Now...

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