Should I Sell My Medical Practice? Key Factors to Consider

The healthcare landscape is shifting. With rising overhead costs and increasing consolidation in many markets, many independent physician practices have begun to explore their options.

But if you’ve spent your career building up an independent medical practice, selling your life’s work is not something you should take lightly. Instead, it’s a significant decision that impacts your livelihood, your staff, your patients and your community.

This article explores several critical considerations around selling your practice. This includes valuation, post-sale relationships, optimizing your practice’s value, and the essential advisors you need to navigate the process successfully.

Selling Your Physician’s Practice: Key Considerations

For many independent physicians, especially if they’re not business-minded by nature, selling the practice they’ve spent years building can be an agonizing decision. While the potential financial windfall from a sale can be enticing, the resulting loss of autonomy and control is a notable drawback for many.

With the increasing obstacles to profitability — declining reimbursements, rising overhead and administrative burdens to name a few — selling the practice offers a much-needed exit ramp. This may be especially attractive for those who already have an eye on retirement.

At the same time, many physicians are understandably concerned about compromising their high standard of patient care by sacrificing their clinical independence. With a profit-minded third party telling doctors how many patients to see and how to run their practices, selling to private equity can shift the practice’s internal landscape in important ways.

As they contemplate this decision, physicians must carefully evaluate several key factors that will determine the future of their practice.

Valuing Your Physician’s Practice

While some people become physicians with profit in mind, many more have other priorities like providing high-quality care and maintaining good relationships with their patients. So when it comes to selling the practice, many struggle with valuing it.

Determining a fair valuation for an independent practice is a complex process. Valuation methods focus on objective metrics like revenue, cash flow and growth potential — factors many physicians don’t consider. However, subjective elements like specialty, location desirability, patient mix and operational efficiencies also heavily influence the valuation of a practice.

For private equity buyers in particular, valuation is driven by the spread between your practice’s income and your expected post-sale compensation. They anticipate carving out a certain percentage of profits to recoup their purchase price.

To assess your practice accurately, it’s best to work with a healthcare CPA with experience valuing healthcare businesses and working on these types of transactions. They can guide you through the process and help you understand which factors have the greatest impact on your practice’s overall value.

The Post-Sale Practice Relationship

Most selling physicians remain involved in the practice for a specified period. From the buyer’s perspective, the physician’s expertise and patient relationships are key components of the acquisition.

But what this actually looks like can vary. The majority of physicians continue seeing patients through an agreement with the new practice owner, complete with performance incentives. Others may transition into an advisory role like medical director or, if they’re close to retirement, slowly transition out of the practice altogether. Ultimately, the post-sale relationship hinges on the sale agreement. So it’s crucial to understand what you want in advance and negotiate these terms up front.

Optimizing Your Practice’s Value

If you’re considering selling your medical practice, it’s best to start optimizing its value well in advance of the sale. There are a few important steps you can take to position your practice attractively to potential buyers and maximize your sale price:

  • Revenue Cycle Enhancement: This process involves improving financial health by optimizing the entire patient engagement from first contact to final payment. By collecting and analyzing this data, you can identify and resolve barriers to profitability.
  • Financial Reporting: Accurate, well-organized financial statements provide crucial transparency into the practice’s performance, growth trajectory and overall operational fitness. This demonstrates trustworthiness and raises the buyer’s confidence in the value of your practice.
  • Operational Efficiency: Identifying and resolving operational inefficiencies shows commitment to long-term sustainability. Key areas of concern include staffing, technology utilization, supply chain and clinical workflows. For practice owners, operational efficiency boosts the overall health of the practice. And potential buyers want reassurance that the practice runs like a well-oiled machine.

By proactively optimizing these areas, you can improve the day-to-day functioning of your practice, position yourself more competitively for sale, and demonstrate the practice’s preparedness for an ownership transition. This is attractive to buyers because fully optimized practices require less investment on their part to recoup their money and turn a profit.

Ultimately, a well-executed optimization plan positions you for a successful sale by increasing profitability, mitigating risks and giving buyers confidence in the practice’s future performance under new ownership

Key Advisors for Selling Your Physician’s Practice

Selling your physician’s practice is a complex process with numerous financial, legal and operational considerations. To navigate these complexities, assembling an experienced team of advisors is crucial. They can help you understand your options, maximize the value of your practice, and protect your best interests.

Your advisory team should include:

  • Accountants: Healthcare CPAs help you prepare for the sale of your business, organizing your financial statements and assisting with revenue cycle enhancement projects that can improve the value of a physician’s practice. Accountants may also provide advice on the tax implications of the sale and can help you navigate the due diligence process.
  • Attorneys: Healthcare attorneys advise on contracts, compliance and protecting your interests in negotiations.
  • Consultants: Consultants offer expertise in areas like operations assessments, valuations, transition planning and post-transaction integration.
  • Investment Bankers: For larger practices, bankers run formal sale processes, positioning opportunities, identifying buyers and managing deal logistics.

With the right team in place, you can approach the sale with confidence, knowing you have the expertise necessary to achieve a successful outcome.

James Moore: Experienced Advisors to Physician’s Practices

With rising costs, increasing regulations, and growing competition from corporate players, the decision to sell your medical practice can be a complicated one.

James Moore’s team of healthcare CPAs understands the unique challenges and considerations involved in selling a medical practice. An experienced advisor can guide you through every step of the process, from conducting a comprehensive valuation to structuring the deal and navigating the intricate web of legal and financial implications.

Whether you’re considering a sale to a larger healthcare system, a private equity firm or an acquisition by another independent practice, James Moore can help you ensure that your interests –– and those of your practice — are protected.

Contact James Moore today to learn more about our accounting and advisory services for healthcare businesses.

 

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professionalJames Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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