Selling your practice: How to start the process
Effective exit strategy requires long-term planning, deciding on a successor vs. a doc group/hospital sale
Randy R. Bauman is a partner at Delta Healthcare, a health care consulting firm in Franklin, TN. Neil H. Baum, MD, is professor of clinical urology at Tulane Medical School, New Orleans.
Probably the two greatest times of stress for urologists are the day they start their practice and the day they decide to leave the practice and put it up for sale.
One of us (NHB) started a practice in 1976. At that time, most urologists continued to practice until shortly before they died—almost with the scalpel in their hand or cystoscope in the bladder. Today, many urologists are seriously contemplating leaving active practice at age 55, 60, or, more traditionally, 65.
Urologists in a group practice, even those with just one or two partners, presumably have in place a well-thought-out and properly drafted contract with buy-out and “phase-down” provisions. For group practices, it is imperative that the members critically review, discuss, and decide whether their contractual arrangements make sense for these times. Urologists who have done so have an exit strategy that is fairly self-executing, effective, and provides the seller with a seamless transition to retirement.
Why sell your practice?
Urologists contemplating leaving practice consider selling for two main reasons:
- to realize some value for the work performed in establishing, growing, and maintaining the practice
- to ensure their patients are cared for when they retire or leave the community.
Both of these are laudable goals. Of course, you want your patients to be taken care of and you want to provide those patients and your established referral base with an avenue of continuity. Wanting to realize value for what you have created and invested in over several decades is also certainly appropriate.
Preparing your practice for sale
People wishing to sell their home who put a "For Sale" sign on their front lawn without any advance preparation don't maximize the value of their home, and the same is true of medical practices. Regardless of who takes over your practice, you need to prepare in advance to segue your practice to your partner(s) or to another urologist.
The first step is the real estate equivalent of curb appeal or how your practice looks from the outside looking in. If you've been in practice long enough to consider retirement, you want to make sure your office doesn't still have that circa-1963 look. While a total remodel may not be possible or economically feasible, updating the worn carpet, painting the reception area, adding some new furniture, and doing some general housecleaning is usually a good place to start. Potential buyers can be very image conscious, and something that looks old is generally viewed as having less value.
Knowing your practice's finances and ensuring they are in order is the most important aspect of selling your practice. Any serious buyer will ask to examine your books, look at how you run your business, and assess the potential growth and vitality of the practice. They will want to know where the revenue comes from and where it goes.
You should strive to show a stable or growing revenue base, an attractive payer mix, reasonable overhead, and a personal income that is at least stable and hopefully increasing. If your earning capacity is low or has been declining, you need to be able to explain why.
When looking at personal income, don't forget to normalize your income by adjusting for varying levels of non-standard physician benefits and discretionary expenses that often are included in practice overhead. For example, rich retirement plan contributions and expensive cars that are paid for by the practice make your income look artificially low. However, if you explain your rationale for these expenses, your profit and loss statements will look more attractive.