Retiring Soon? Maximize the Value for Your Practice

Copyright 2020

There was once a time when a retiring doctor could easily sell a thriving practice to a hospital or practice management company. These days, many practice management firms are out of business and hospitals are more likely to be selling than buying.

So if you're heading for retirement and planning to put your practice up for sale, the choices may be limited to the following candidates:

A doctor with a few years of experience. Some physicians joined a group practice, expecting to become a partner. But partnership prices are generally steep -- proportional to potential income -- and these doctors may decide they can do better on their own.

Physicians emerging from residency. Some doctors want to start out with their own practices -- if the terms are right.

If you want to appeal to either of these potential buyers described above, you should hire a junior doctor and start planning to sell your practice two or three years in advance. Protect your interests with an employment contract, which should include:

1. A statement making it clear that the younger physician is expected to buy the practice.

2. A schedule for the takeover.

3. A formula for setting a purchase price, based on collections.

4. A clause giving either party the right to back out, if things don't work out.

An independent appraisal of your practice can help you get a fair price for the business and give potential buyers an idea of what they will pay. And remember, operating trends can make a difference:

•If your practice can show a recent increase in collections, you may get a larger percentage of those collections when you sell.
•On the other hand, if income has been dropping, you might get a smaller appraised value for your practice's goodwill.

The bottom line: It pays to increase collections before selling your practice. Work extra hours and see more patients. If you cut back just before you retire, as many physicians do, your sales price is likely to drop. The lower your net income and the fewer active patient charts you have to turn over, the less attractive your practice will be to potential buyers.

What's more, if you go into pre-retirement mode, your revenues will drop but your expenses won't fall as much.

One final tip: Don't forget aesthetics. A bit of sprucing up may enhance your practice's appeal. Splash on some new paint and lay new carpeting. Take home everything from the office that you don't actually use. The result is a clean, spacious look that buyers can picture themselves in.