Preparing for the sale of your practice

Dec. 1, 2011
For those of you who are thinking about selling your practice in the next few years, there is a great deal of preparation required before taking this big step.

Tom Snyder, DMD, MBA

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For those of you who are thinking about selling your practice in the next few years, there is a great deal of preparation required before taking this big step. Failure to do so may result in your getting a lower value or not being able to complete the transaction at all. Here are some key points to consider:

Meet with your financial advisor. Can you really afford to sell your practice? Some of you may be surprised. If you have never had a financial plan prepared, now is the time to get one done. We often speak to potential sellers who are emotionally ready to sell but financially unable to do so. Based on the plan's results, you may find that you will have to put your practice sale "on hold" a few more years. Conversely, you may have newfound confidence to move forward with your transition.

Discuss the tax ramifications of a practice sale with your accountant. If you are a professional corporation, there are some roadblocks that must be overcome with tax allocation issues in selling your practice. How will you allocate goodwill between the corporation and yourself? How tax efficient will your future sale be? Get answers from your accountant by asking this person to project what your after-tax dollar picture will be by the time you are ready to sell.

Get a comprehensive practice valuation. If you use a broker, retain one who will prepare a formal valuation. Many brokers who prepare formal valuations will credit the valuation fee against the future sales commission. Obtaining a free valuation is not always serving your best interest. In my experience, just having a "number" appear on a spreadsheet does not do you justice when potential purchasers are trying to determine if they want to purchase your practice.

Do not slow down or work fewer days. Doctors who start reducing their schedule in the years prior to selling often discourage accepting new patients as well. This will hurt your practice's value. It also can be a disincentive for potential buyers who will be less interested in purchasing a practice that has been showing a steady decrease in revenue in the last few years.

If you are employing an associate, make sure you have an employment agreement containing a restrictive covenant (in states where enforced), as well as a nonsolicitation clause. If you currently employ an associate without a contract, consult with your attorney. You may be able to ask the associate to sign an employment agreement for additional compensation known as "consideration." This will protect your practice's value. Another important clause in your employment contract is the one allowing for transferability of the employment contract to a new owner. Not having such a clause may have a negative impact on your practice's value!

Assess your facility. You do not necessarily have to make any large capital expenditures, especially if you want to sell in less than a few years; however, you should at least consider making some cosmetic enhancements, if needed, no matter whether it's fresh paint on the walls, new carpet, tile, new landscaping, etc. In other words, make your practice look more esthetically appealing. First impressions are always critical to any potential buyer.

Purge any uncollectible accounts receivable and make every effort to collect those accounts that are past due more than 90 days. This is especially true if you are planning to sell within the next 12 months. If you fail to do this, it will become a sticking point in negotiations.

Fee increases. We suggest you have a fee analysis prepared to determine where you stand within the fee percentile range in your community. If your fees are well below average, and you still have a year or more to go before the sale, do yourself a favor and increase your fees. Even though we have been facing severe economic obstacles, increasing fees — especially if you are at the lower end of a fee profile — makes good sense. Chances are patients will accept the fee increase. You will increase your income, and possibly enhance the value of your practice.

Be realistic in your timing. Sometimes we receive calls from doctors who want to sell their practice in six months or less. This is almost an impossible task for any broker or transition specialist to undertake unless the practice is exceptional and located in a high-demand area. Our advice to most clients is to expect a nine- to 12-month period of time to complete the sale of the practice.

So in the end, proper planning is necessary for you to really get your practice ready for sale. It may also afford you the highest probability of getting your practice's fair market value.

Tom Snyder, DMD, MBA, is the director of transition services for the Snyder Group, a division of Henry Schein. He can be reached at (800) 988-5674 or [email protected].

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