Legal Issue
May 2019 Dallas Medical Journal 17
t had rained early in the day and the
track in Beijing National Stadium was
still wet. The Olympic venue was
filled with anticipation as the runners
prepared for the first heat of the men’s
4 x 100 meter relay. The US men’s
team was loaded with talent and had every
expectation of winning gold in the 2008
Olympics.
The US had edged out Jamaica by 2
hundredths of a second for first place in
the qualifier. The US men’s team ran in
lane 7 with Rodney Martin starting off,
followed by Travis Padgett, Darvis Patton,
and Tyson Gay as the anchor. Everything
was going as planned. The first three
legs of the race included quick runs with
smooth handoffs. The US was starting to
pull ahead and then, somehow in the last
exchange, Patton and Gay didn’t connect.
A nightmare ensued - the baton fell to the
track!
Years of preparation and dedication
to diet and exercise were for naught.
The US would leave without the gold or
even medal that year. No celebration with
American flags and anthems would be
enjoyed. What happened? And what can
practice owners learn from this unfortunate
event?
Selling a medical practice can be
one of the most emotionally draining
and satisfying events physicians can
experience in their career. Transitioning
a medical practice is complicated and
requires the proper preparation. Below are
three principles to help you achieve your
goals in the sale of your practice.
Start Early
Planning for a practice transition and sale
can never start too early. This might seem
like common sense, but all too often
practice owners put off planning for a
future transition. Whether procrastination
is due to not knowing where to start or
believing you’ll live forever, practice owners
typically wait until the last moment to put a
transition plan in motion.
This week I had a physician call who
was interested in hiring our firm to assist
in the sale of her medical practice. After
discussing her goals, she stated that she
wanted to sell the practice in two months.
She explained that she had made plans to
move and would be closing the practice
soon.
Although the timing of every practice
transition is different, it typically takes six
to eight weeks to close on a practice
sale once a Letter of Intent is submitted
by the buyer and agreed to by the seller.
This allows the buyer time to obtain bank
financing, work with the landlord to get
a lease assignment or negotiate a new
lease, complete their due diligence, start
the credentialing, and agree to purchase
agreements – plus a dozen other tasks the
buyer needs to complete to be ready to
take over as the new owner. Needless to
say, two months is not enough time to plan
and execute a practice transition.
Ideally, practice owners should start
planning for their transition three to five
years out. The selling physician should
expect it to take several months and
maybe years, to find a qualified buyer
that would fit well into the practice and
community. It takes time to sort through
the tire-kickers to find the right buyer that
sees the value in purchasing your practice.
Practice Valuation
An important element in a transition plan
is having a valuation completed on your
practice. Your practice valuation impacts
the entire practice transition process so it is
important to do your due diligence and find
an expert in medical practice valuations.
There are many factors that contribute
to the overall value of your practice, such
as staff resources, location, equipment,
fee structure, total active patient count,
and patient payor mix. However, the
most important factors in determining the
value of the practice are the income and
expenses or, simply put, the cash flow.
Practice owners should remember that
buyers do not purchase practices based
on potential and opportunity for future
growth. Ideally, practice owners should sell
their practice when revenues are at their
highest. Declining collections can have a
significant detriment on practice value.
Make sure you get out on top. Aim to
attract new patients, maintain a full-time
schedule, and keep your overhead in
check. These efforts will help keep your
revenues consistent so you get top-dollar
for your practice.
Smooth Transition
Before and after the practice sale, practice
owners can take certain steps to make
a smooth transition from buyer to seller.
Avoiding unnecessary mistakes also will
increase the probability that the practice
sale goes through successfully. Here are
some best practices to ensure a smooth
and successful practice sale and transition.
Keep patient records and financial
statements in order.
As part of their due diligence, buyers will
request from sellers three years of tax
returns, financial statements, production
reports, and review patient records. Ensure
that patient records and the practice’s
financial statements are current and in
order.
Do not let the lease lapse.
If you expect to sell your practice using
third-party financing, which is preferable,
be aware that the lender will require the
purchaser to acquire a lease (inclusive of
renewal options) for at least the length of
the note (typically 72 to 84 months). Talk
with a lease broker whenever you renew
your lease to help you negotiate terms
allowing you to transfer the lease without
unreasonably locking you in.
Structure a Balanced Transition Period.
The buyer typically requests the seller to be
available and come into the practice for a
period of time after the sale. The length of
time depends on the buyer’s experience
level, production mix of the practice, and
size of the practice. It is common for the
seller to come into the practice for a few
weeks to make introductions, answer
questions, complete ongoing treatment,
and be available to ensure continuity of the
practice. If the schedule permits, the buyer
may hire the seller to work in the practice.
Introduce the Patients to Buyer.
In addition to giving patients notice of the
sale, the letter sent to patients should
introduce the buyer. This is an opportunity
for sellers to endorse their successor and
invite patients to continue their care with
the new practice owner. Also, the seller
should arrange to introduce the buyer to
referral sources to transfer these important
relationships.
If you are like most physicians, you only
sell your practice once. Learning from
one’s mistakes is not an option. Like the
exchange of the baton between relay
runners, timing, experience, and focus
are critical. Start planning early, have your
practice valued, and design a smooth
transition plan. No two practice sales are
the same, put with proper planning and
focus on best practices, you can win gold
in your practice sale. DMJ
I
Jeremy Brown, JD earned his law degree from Texas
A&M University and completed
his undergraduate studies at
Brigham Young University. With
over ten years of experience
in the practice transition
and brokerage industry, Mr.
Brown has assisted hundreds of
physicians successfully in selling
or purchasing a practice.