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Avoid these pitfalls when selling your medical practice.
Oftentimes private practice physicians make drastic mistakes when selling their medical practice and lose thousands of dollars in the process. All their hard work and long-term investment goes down the drain. These mistakes though are often easily avoidable. As small business owners, these physicians had once dreamed of owning their own medical practice and building it to success.As times goes on, they hope to reap the rewards in the form of a successful business sale. Sounds like a great plan! But making the sale is not as easy as it may appear.
Proper planning can mean thousands of dollars in your pocket. Here are four tips to help you avoid medical practice sale pitfalls, disappointment, and lost money.
Mistake 1: Not planning ahead or waiting too long to sell
Waiting too long, or not planning in advance, can cause many physician practice owners to miss their window of opportunity. It takes a considerable amount of time to prepare for and execute a medical practice sale, therefore, long-term planning is key to any successful medical practice sale. Physicians looking to retire quickly and sell their practice within 12 months are way behind the power curve and these scenarios are often a longshot endeavor. It pays to plan ahead; you just never know when that perfect buyer may approach you and make you an offer you just can’t refuse.
Succession planning is a major consideration especially for solo physician practices as I have written about in several other articles.Again, waiting until the last minute (less than 12 months) to plan for your exit puts you at a severe disadvantage. Additionally, the physician "succeeding" you needs to be set up for success. If they see you have been planning and considering this for quite some time and that it's not a quick "I've had enough" sale, your price will be much higher. Add to that the confidence the buyer will have in a medical practice purchase if they see there was a strategy for the sale and that it's not driven out of desperation.
Mistake 2: Not finding the right person to assist you
Finding the right transactional consultant to help you with succession planning and to assist you with the sale of your medical practice is crucial to your success. Often physician practice owners go with the first person they meet just to “list their practice” and get the process going. This can cost you time and money in the long run. Within a few months, you may see no results and have to go on the search all over again. Taking time to interview professionals and looking at a realistic outcome of what is expected will get you going in the right direction. Keep in mind too, that no one is more motivated, passionate and knowledgeable about your medical practice than you.
Mistake 3: Asking too much or too little
Setting a very high or unrealistic price tag on a medical practice can lead to a dead-end street. Expecting to get top dollar for a practice that generates little or no profit is simply using bad business sense. Consider your specialty, similar practices, the current economy and your marketplace when pricing your practice to sell.I have also written several articles on medical practice valuations which can help you through that thought process. Remember it is business so don’t take it personally. Look for the most valuable opportunities for your medical practice.
Another mistake is to price the medical practice too low. Sometimes physician owners will price their practices low because they are burned out, suffer from an illness or did not get good advice. Do your homework first. Listen to your professionals such as a transactional consultant. Do research about other medical practice sales before jumping in with both feet.
Mistake 4: Selling to the wrong person
Taking the first offer may not be a wise choice as this may not necessarily be your best offer. Selling your practice for top dollar with little or no money down along with an extended contract may lead you to lose it all. Medical practice sales can go bad after the new owner takes over. The new owner may lack business experience, have a closed mind or be a poor leader . . . the list goes on and on. A successful medical practice owner makes it looks easy, but change that mix and disaster may strike. When this happens, the new owner may quickly end up in the red. This is why you want to get all or most of the money up front and leave little to escrow.
Evaluate your options and make the best selection for the long term. Ask yourself, is this the best physician to buy and run my practice? Or, can they quickly connect with my patients and referring physicians and learn how to market effectively? When the medical practice sale goes as planned, it creates a tremendous opportunity for both physician owners and the success continues.
Running a medical practice is a tough business—much tougher than people realize. The more planning you put into your sale, the better the price you will be able to obtain. Keep in mind that the prospective buyer will be very suspect of your reason for selling. Have your plan and strategy in place to eliminate any fears. Just like you started your medical practice with a strong plan, sell it with a strong plan as well.
Nick Hernandez, MBA, FACHE is Founder & CEO at ABISA, LLC