Selling your own business comes with a lot of headaches. Often you will encounter situations and circumstances beyond your control that you are not prepared for, which could risk your livelihood. When it comes to selling a medical practice, there are many variables and considerations you must factor in. During a recent Ask the Experts podcast, Steve O interviewed Doreen Morgan from Sunbelt Atlanta Business Brokers to get her take on selling a medical practice.
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What is Sunbelt Atlanta?
Sunbelt Atlanta has been in business for 25 years and is based out of Atlanta. The company employs eight seasoned professionals with over 70 years of collective experience selling companies. Each comes from a background in varying disciplines, from Wall Street to Main Street. They focus only on the sell side and work with companies that range in size from $100,000 to $50 million. Sunbelt only represents sellers of businesses, and they do a lot with medical practices.
Sunbelt Atlanta is a full-service agency that never charges any upfront or retainer fees.
What Makes Selling a Medical Practice Challenging?
The medical industry is comprised of many different types of businesses, from device manufacturing to biotechnology and private practices. For our purposes, we will focus on private medical practices. That includes dental offices, behavioral health practitioners, and healthcare practices. A lot of activity is going on with M&A in these private medical practices. Because there are nuances in how patient records are transferred and when patients are notified, it complicates matters. There are also a lot of regulations governing the sale of private medical practices. The type of sale can also vary widely.
Why are Owners Selling Their Medical Practice?
Many solo practitioners are selling because they want to retire, and it's time to transition the business. There is a lot of interest right now from buyers that want to purchase a successful medical practice.
Some of these buyers are new doctors who are entering their chosen field; some buyers are hospitals that want to purchase private practices in the area, and others want to expand their own business.
The Valuation Process of a Medical Practice
Valuation is one of the key elements of a successful medical practice sale. Typically, medical practices must be sold at fair market value because strict laws dictate that physicians cannot take money for referring patients. Therefore, any company where a doctor/seller has a financial interest they must be very careful. Goodwill will also be factored into the price.
There are a number of factors that must be considered when valuating a medical practice. The first is the size of the practice. A large practice will generally be worth more than a small one, as it will usually have more patients and staff. The second factor is the location of the practice. A practice located in a busy urban area is likely to be worth more than one in a rural area. The third factor is the type of medical practice. A specialty practice is likely to be worth more than a general practitioner's office. Finally, the financial stability of the practice must be considered. A practice with a strong financial history is likely to be worth more than one with a weak financial history. All of these factors must be considered when valuating a medical practice.
How Does the Sale of a Medical Practice Work?
Sunbelt Atlanta Business Brokers doesn't charge any fees until the sale goes through. We first sit down with the people selling and get to know them and their practice. That is how we start the valuation process. Sometimes a doctor won't really know if they want to sell until they see what their practice is worth.
We sit on the same side of the table with our clients until the practice sells. Once we go to market, everything is confidential, which is very important because, with a medical practice, you don't want patients to find out until you officially notify them. That process is critical for patient retention. The same goes for the practices' employees.
We spend a lot of time with the doctor talking about what type of transition they want and when is the right time to sell. Typically, mid-career is when it's most valuable. Many doctors sell mid-career because they want to get back to patient care. Retiring physicians may wish to sell to a new practitioner and keep that small intimate practice in place.
How Long Does It Take to Sell a Medical Practice?
Sunbelt Atlanta uses a very well-defined process, and from the launch date to the closing date, the entire process of selling a company typically takes between five and seven months.
As the owner of a medical practice, it may take you longer to prepare. We always say you should start thinking about selling your practice the day you open it. Realistically, owners should begin thinking about selling two or three years before they are ready to get everything in order. We are always happy to meet with people ahead of time and discuss what they can do to prepare, even years in advance. Then hopefully, when they are ready to sell, they will come to us and know what to expect.
Something that can complicate matters is a practice with multiple physicians. They need to have a Buy/Sell agreement in place and sit down and talk about it, even if the sale will be years down the road. Before going to market, all the partners must agree on what is happening.
There is a lot of pre-planning that goes into selling a medical practice. For example, some solo practitioners still use paper charts. That can drastically impact the value for a buyer. So now is the time to convert those to a digital EHR system, but that takes time.
Another thing to stay on top of is collections. If your receivables are aged, that will affect value also. If you are a retiring physician, are you subconsciously sunsetting the business or actively looking for new patients? If most of your patients are between 75-90, that will negatively impact the company's value. There is a lot to consider here.
How Did COVID-19 Impact the Sale of Medical Practices
Although COVID-19 didn't change how we do business, it deeply affected medical practices. Many of them quickly moved to telehealth. As a result, Georgia became a leader in telehealth medicine across many healthcare industries. Even before the pandemic, medical practices used telehealth to reach rural areas and bring medical services to those who couldn't come into the office. Some practitioners found it to work even better than in-person visits. Most are continuing to use telehealth as part of their regular practices.
How are Employees and Patients Affected by the Sale?
Often buyers want to visit the practice, meet employees, and talk with patients. Due to confidentiality clauses and the nature of the business's sale, they can't meet anyone until closing unless they are key players in the business. Legally, patients must be notified about the transition but not until after. Sometimes the seller and buyer will draft the transition notice together. How this part is handled is very important.
Most often, if one partner is buying out another within a practice, all the employees will be retained. However, if the buyer is a large company or hospital, they may only keep the front office staff such as the receptionist, nurses, and doctors. Other less critical staff may be let go or rolled into the larger organization.
When is the Best Time to Sell?
Most often, the best time to sell a medical practice is mid-career. That's when the business will be the most valuable. You have several years to stay with the business, transition the patients, and still make a good living.
Regardless of where you are with your career and your reasons for selling, if you are considering selling your medical practice, contact Sunbelt Atlanta Business Brokers to see how we can help.