Preparing to sell a solo medical practice
By Matt Dickstein
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In this article, I give some thoughts on preparing to sell your solo medical practice.
Sell your practice, don’t just walk away
It’s better to sell your practice than to walk away. The benefits are: you cash out, and the buyer takes over a large part of your practice obligations, including for example, payment on real property and equipment leases, collection of accounts receivable, and the maintenance of medical records. In brief, by selling you get cash + a cleaner exit.
Optimize practice value
You should prepare your practice for sale. You want the financials to look good. Most buyers require 3 years of tax returns and financial statements for your practice. Here is a short checklist to make your numbers look better:
Get a good accountant. A good accountant can help you present a better picture in your tax returns and financial statements, for example, by pulling out personal expenses that you run through the practice (the car lease).
Reduce payroll. Cut out overtime – a policy of zero tolerance for OT can reduce payroll costs substantially. Reduce staffing levels by staggering schedules. Here you staff-up for peak times and staff-down for quiet times, and thereby reduce a couple positions from full-time to part-time. Last, use less expensive health care providers where possible.
Code everything you do. Don’t just code what you know you can collect. Code for everything you do because the payers frequently change their reimbursement rules and it’s worth a try.
Collect every dollar. Be strict with your accounts receivable. Do not waive co-pays and coinsurance: you rarely get full reimbursement for your services, so there is no reason to take a double discount from the payer and from the patient. Waiving co-pays also might breach your payer contracts.
Patients should pay for non-covered services. Most payers allow you to collect payment on services that are not covered by benefits, provided that the patient has been fully informed and signed a waiver stating that they understand their liability for payment for those services. Collect for these services.
Lastly, clean up the physical appearance of your office. It makes a difference. Don’t invest in new equipment, however, or spend too much on renovations.
Find a buyer
When you’re ready, go find a buyer. Talk to physicians in your area. Find out if there is a physician who wants to set up his own practice, especially an up-and-coming associate. If you have a longer timeline, consider hiring an associate and grooming her to take over. If that doesn’t work, hire a broker who specializes in the medical industry, because they sometimes know of a relocating doctor who wants to buy or a group that wants to expand.
Word to the wise – start early
You should begin the retirement planning process a few years in advance. First, it takes a while to find a buyer, and longer to groom an associate. Second, it takes time to reduce your costs as described above. Third, assuming you’re retiring and you want to scale back your hours in your last couple of years, you should sell your practice while still practicing at 100%. The value of your practice is at its highest then – when you scale back your hours you reduce the practice’s income. Fourth, as you approach retirement, you lose leverage at the negotiating table because the buyer thinks you have no other options.
No matter how you exit your practice, be sure to read this article, Leaving a medical practice / closing a medical practice. See also my articles on exit planning – Exit & Succession Planning (Short Summary); Exit & Succession Planning (Long Version).
I hope this article helps you. Remember that selling a medical practice is a complex process. Before you do anything, get competent legal counsel to help you.