Is Practice Planning Keeping You Up at Night?
Team up with a professional and catch some zzz’s.
By David Liberman
If planning a practice strategy is keeping you up at night, then you are on the right track.
Buying or selling a practice, entering into a partnership, or leaving a business relationship may be the biggest financial decision of your life. If you are planning a career transition and you think you can do it on your own, think again. Now is the time to eliminate any self-defeating powers and consult a professional. Planning any business strategy takes specialized training, expertise, time, and patience. To plan and execute a practice strategy you must be knowledgeable in a diverse number or areas: valuation, marketing, real estate, negotiation, advertising, to name a few. It is always recommended to team up with a professional when planning to buy or sell your practice. The broker will act as an intermediary and your guide in navigating you through this complicated and often emotional process. Having this guidance will help to avoid potentially expensive missteps.
Now is the time to self-assess your expectations. Write down your goals. Direct your energy productively, and ask yourself the following questions: “What is my motivation for wanting to buy/sell a practice?” “Am I willing to devote the time, the effort, and the emotional commitment?” “Do I have support?” “Will I change careers?” “Will I retire, teach, perform relief work, travel?” Selling a practice is a revolutionary change in one’s life. Letting go of the “identity” of being a doctor and business owner can be an extreme, emotional challenge. Finally, ask yourself, “Will I invest, buy a vacation home, or live off the money from the sale of the practice?” What you discover from answering the questions you just asked might be why you have not committed to buying or selling your practice at this time in your life. However, you might discover that now is exactly the right time! The universe is telling you it is time for a change.
Another factor affecting your decision could be the cost of selling your business. Not only are there upfront costs, but there are also costs after the sale that you could incur. Your financial situation may obligate you to taxes that could be anywhere between 15 to 70 percent of the sales profits. Consulting a tax professional will give you a better understanding of the tax implications. Brokerage fees are usually between 10 and 12 percent. Legal and professional fees of up to $2K to $7K for attorney and/or accountant may also be involved. Lastly, closing costs of anywhere to 0.5 to 2.5 percent of the sales price are a factor. In some cases, you can pay taxes owed by setting up trusts, or accepting an “owner carry” note. Owner carry will not reduce taxes. It can defer taxes over a period of time. And the seller can receive additional interest income. Seller carry notes have both risks and rewards. Talk with an advisor to see if seller carry notes are right for you.
You have decided the time to sell is now, but does that really mean today? Is it really best to sell now, or wait two years to maximize the sale? Perhaps now is the time to open up the dialogue and start a conversation with an expert. Upon doing this, you might find out that the value of your practice is based on historical income data. Basically, your practice is worth an average of what was reported on your tax returns the last three years. Your broker/intermediary can help determine if adjustments can be made to increase the value that will be acceptable to buyers and lenders.
Stop the worrying and start sleeping soundly. There are trained professionals who specialize in assisting you with this life-changing decision. One key to a successful practice sale/purchase is setting the proper sales price. Determining the most viable sales price is not an easy task. There are many external factors that come into play when trying to figure what the “fair market value” is. Be wary of using general business brokers and CPAs to determine the valuation. Price your business too low and you could lose thousands; on the other hand, price it too high and the business may not sell. One way to generate a successful buying/selling interaction is to use a professional intermediary that has demonstrated achieving positive outcomes and maintaining confidentiality. Look for a company with a large internet presence; this is necessary to reach as many potential buyers and sellers as possible. Find a broker who advertises through direct mail, produces email advertisements, and has relationships with numerous medical specialty lenders; all of these characteristics will be useful in helping achieve the outcome you desire. Locate a firm that utilizes an established, nationwide, referral network to create win-win situations. Good brokers know what information to collect, and how to package that information in a way to make buyers want to buy. Your intermediary will screen the numerous calls and inquiries and sort out the qualified from the unqualified. This will allow you, as the business owner, to keep the practice revenue flowing, maximizing practice value and marketability.
It has been said that you attract what you create and believe to be true. This is the law of attraction. If you believe your practice will not sell, it is recommended you get a “practice sanity check.” Some professional intermediaries will offer a complimentary practice checkup. This “sanity check” can identify if the practice is viable to be sold. The broker will identify where and how improvements can be made to maximize profitability. Some practices sell in six months, while others may take up to two years. It is recommended to start contacting specialized professionals two-plus years in advance of a sale, to properly plan for the sale, purchase, or partnership.
We all have a different life path, our own destiny, our own contributions to society. Buying or selling a practice is a time of transition and transformation in one’s life. The universe encourages us to transform. We must let go of what is not working in our life. If now is your time to make this transition, then realize that practice sale planning requires time, energy, and commitment. Consulting with an expert will assist you with this journey. Take strategic risks by doing your homework, get good advice, and trust in the right professional to be your guide through this process.
David Liberman, D.C., FIAMA, LREB, has 16 years of experience as a wellness clinic owner in Colorado. He specializes in practice sales and valuations. He can be reached at firstname.lastname@example.org.