Thinking About Selling?
If you are starting to think about selling your practice because of upcoming retirement, relocation, or any other reason, there's a number of things you can do to prepare your practice and make it as marketable as possible. The lead time for transitioning out of your practice is best if you allow 6 months to 2 years, but can be much shorter in situations where you have a ready buyer or if you are forced out of practice due to injury, illness, or some other crisis situation. Some points to cover:
1. Numbers. No matter who assigns a value to your practice, or what method is used, the value will be based primarily on numbers, so you need to have those current and organized. Any serious buyer will also want this information, and should be entitled to it as long as everything is kept confidential. Most chiropractors are solo practitioners, but if you are selling a group practice, all the practice stats should be made available to a buyer.
Numbers are vital to putting a price on your practice. Practice appraisals can be obtained from a variety of practice brokers, business appraisers, accountants, or attorneys who specialize in business sales. The major sources of information they will review:
Practice Statistics. Accurate and honest statistics should be organized and available for at least the previous 12 months and sometimes up to 3 years prior to the sale. Typical practice numbers requested are the number of new patients, patient visits, dollars billed, and dollars collected on a monthly basis. These are most easily compiled from your practice software, and in most cases are in a readable format.
Overhead expenses. You may need to enlist the help of your bookkeeper or accountant to compile an accurate reflection of all business expenses, including rent, utilities, supplies, payroll, software support…everything it costs you to operate the business. Items that are legitimate business expenses but personal 'option' should be eliminated so that the buyer can see an accurate financial picture of the profit generated by the practice. This would be things like seminar and related travel expenses, and vehicles, if any. Your accountant or accounting software should be able to prepare an edited, but honest, Profit and Loss Statement for this purpose.
Tax Returns. Your corporate and/or personal tax returns for the immediate past 3 years will be requested by a financial institution if the buyer applies for any financing. However, tax returns should only be released to the financial institution and not directly to the buyer. The bank will use them for loan determination but should not disclose them to the buyer.
2. Equipment and Inventory. A current inventory of all equipment that will be included in the sale. It's usually easiest to list items by room, with a brief description. It's also important to list items which will NOT be included in the sale. For example, some doctors want to keep certain chiropractic instruments, pieces of heirloom furniture or memorabilia, art work, etc. In group practices, pieces of equipment owned by individual doctors that will NOT be included in the sale should also be listed as not available, so there are no misunderstandings.
An estimate of supplies, materials, and nutrition that are usually on hand for the normal operation of the practice should be compiled.
3. Accounts Receivable. AR are most often, but not always, included in the sale. Accounts should be 'cleaned up' by reviewing the AR with your staff, writing off any amounts due that you feel are just not collectible, and then generating a current aging of Accounts Receivable. AR will be discounted according to the age of the accounts, with your typical collections percentage taken into account.
4. Real Estate. If real estate is part of your practice sale, an appraisal should be obtained from a professional appraiser, or a commercial realtor can do a market analysis. Professional expertise with this portion of the practice sale can be handled by a realtor or a real estate attorney. If you own your practice building but do not want to sell it at this time, find out how much you should charge for rent/lease. Talk with your tax professional about the impact of selling your practice and building at the same time on a cash basis, versus selling the building (or the practice) by owner financing over a period of time. The buyer may be interested in renting your building initially, with the option to buy the building when the practice is paid off. The Purchase Agreement for your practice may also require that the practice cannot be relocated before the practice and building are paid in full.
5. Improve your practice appearance. Just like 'staging' for your home before listing it on the market, it's important that you (or someone you trust) take an objective look at the physical appearance of your practice both inside and out. Any obvious areas that need cleaning, sprucing up, repairs, painting, take care of those first. Getting the clutter out of your reception area, front desk, treatment rooms, doctors office and all areas is important. Think of what kind of first impression it will make for prospective buyers.
6. Purge your records. This is an optional item, but you may need to consider purging old patient records and/or X-rays (or this may be required by the buyer). In long-established practices, if records were not periodically purged, there may be an enormous amount of paper files and X-rays which can be overwhelming for prospective buyers. Patient records need to be maintained for 7 years (and according to some sources, 10 years) from the date of last treatment of the patient. In the case of minors, the time period begins from when the patient reaches the age of majority. In Nebraska the age of majority is 19. If a patient were last treated when they were 9 years old, the records would need to be maintained until this patient turned 26 years old. The Purchase Agreement should include a clause which transfers the responsibility and ownership of all patient records to the buyer, sometimes referred to as the Conservator of Medical Records. You should check with the laws and regulations in your own state.
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Hiring or becoming an associate
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Disclaimer: Dr. Vander Broek is not an attorney, accountant, realtor, financial advisor, or licensed broker.