Many doctors today are beginning to evaluate their careers and make decisions regarding retirement. To accomplish their goal the questions of how to transition out of practice becomes the focal point. In the following paragraphs we will highlight key consideration and expectations.

Considerations

1.  Do I have a plan for my life after I quit practicing podiatry?

All that most podiatrist have done for many years is practice podiatry; generally, spending 40 to 70 hours per week seeing patients, completing minor repairs, monitoring and managing staff, completing billing forms and trying to stay current with medical developments. With this much of your life consumed by the practice, what will you do once you are no longer responsible for seeing patients and “running” the practice? If you don’t have a clear answer and plan, then you probably are not ready to quit.

2.  My practice is very busy, I have worked hard to build it, will I be able to sell it?

This is a very common question, the key is not can I sell it, but at what price can I sell my practice? Being prepared to sell your practice is 90% emotional and 10% physical. More than likely, a new buyer will not “see-it” (your practice) in the same way you do. Today’s generation X (as they- the under 30-somethings) are not as concerned about the financial reward, but rather, how it fits into their life. Most practices will sell in some manner- but the “emotional” and financial return on investment will not be at a level you probably expect.

3.  How will I price my practice for sale?

My buddy says…. First, the buddy method is not a recognized method to assign value or price. (We define the “buddy method” as the pricing and valuation of a practice based on the same methodology of as your buddy did. This “method” assumes that all factors affecting price and/or value between two practices are identical. So, if your market demographics, payor mix, operating infrastructure, patient volume and other relevant factors are similar, you buddy’s method may work.) However, we believe that each podiatric practice is unique.  Therefore, it should be evaluated accordingly.

The true value of a practice is based on the cash flow generated. Practice cash flow is defined as the amount of cash remaining after overhead expenses are paid, dollars available to be distributed to the owner. Additionally, hard assets (computer technology items, podiatry chairs and office equipment) plus accounts receivable (value based on collections/collection ratio).

A percentage of the cash flow is computed for goodwill and the three components are then summarized. (goodwill, hard assets and accounts receivable)

4.  Who will buy my practice?

It depends, maybe no one. If you have expectations, (to be discussed next) which are outside of the market, your practice may not sell.  If you will only accept an all cash deal it will be much more difficult. To be attractive to a buyer a practice must:

• Be reasonably priced.
• Have a revenue stream, which can be transferred.
• Have flexible financing and transition terms.

Available buyers today include:

• residents
• Individuals looking to relocate (one to two years out of residency)
• Another local practice
• Associate within the practice.

It is important to note that it is not uncommon for young practioniers to have school debt in excess of $150,000. Therefore, flexibility and creativity in financing becomes imperative.

4.  Would I (the seller) be willing to purchase the practice at the asking price based on the cash flow, the condition of the equipment and the condition of the books and records?

Fundamental to the considerations of selling a practice is the issue of reasonableness. Does the goodwill value make sense? If overhead is unreasonably high or low, can it easily be explained and can a purchaser convince a lender of the “realness/believability” of the adjustments to cash flow. What condition is the equipment in? In many practices the treatment room chairs are more than 15-20 years old. If this is the case, then how can any salvage value be allocated to them. Additionally, adjustments may be required so that cash is available for the purchaser to update the equipment. Lastly, in many practices, deductions for various expenses are included on the practice tax returns in order to take advantage of favorable tax treatment. However, this may become an issue when lenders review tax returns during evaluation of practice cash flow. This is an important consideration when the discussions begin regarding terms, conditions and financing.

Expectations

1.  How much should I expect to sell my practice for?

Practices today are selling between 45% and 70% of collections (on a rolling three year average). Many factors influence the selling price including , but not limited to financing capacity of a buyer, overhead, transferability of contracts, ease of transaction, carry-back of debt by owner.

2.  How long should it take to sell my practice?

The average time to sell a practice is 18 to 24 months. On occasion it may be shorter; however, generally 18 to 24 months is the time required.

3.  What should I expect form a potential buyer when a site visit occurs?

A seller should be prepared to open the books and records of the practice. The buyer will want (and need) to see surgery logs, tax returns, production information (such as CPT analysis and Diagnosis Reports), daily schedules, (appointment books) and managed care contracts. Full and adequate disclosure is required. Additionally, during a visit the potential buyer will want to see how the staff interacts with patients, as well as how they get along.

4.  What are the cost related to selling a practice?

The seller will have the following estimated cost: a. Practice valuation and analysis cost $ 5,000-$10,000. b. Attorney’s fees $5,000-$10,000 c. real estate appraisal fee (if needed) $4,000-$8,000 d. Tax planning and personal financial planning $3,000-$7,000.

5.  If it takes 18-24 months to sell a practice at what point should I begin to consider starting the process?

If an individual has determined a stopping point for practice i.e. 60 years of age, 10 years from today, etc. an appropriate time to consider would be to back up five years from the ending target date. This would allow for delays, miscalculations and other unexpected events to be encountered and not interrupt making the target date.

Selling a practice is an important personal decision, which should be undertaken with serious thought and planning. The expectations and considerations discussed in this article only outline a few of the key issues, we recommend the use of trusted advisors to guide in the process.

To find out how Provider Resources, LLC can help you in the process. contact us at (888) 776- 2430 or by email consulting@providerresources.com.