Good Advice Before Listing Your Practice for Sale
The decision to retire is a big one; it’s one of the biggest decisions of your life and not only changes your daily routine, but also your future. If you retire too early you can grow bored, or worse, you may not be able to afford the lifestyle you always imagined. Retirement is not a decision to take lightly and before making the commitment to retire, there are many things you need to consider. The practice also needs to be in a good position for a sale so that you get the best price possible for it, especially if this money is needed for your retirement. In this article we will discuss some points that you need to consider when making this decision to ensure that you and the practice are ready for a sale.
One of the first things to decide is can you afford to retire? Do you have enough money saved to comfortably afford the lifestyle you want? Or, are you depending on the sale of your practice to fund your retirement? Do you need a specific amount from the practice sale in order to afford retirement? Will you need to keep working at least part-time to afford your retirement lifestyle? These are important questions to ask yourself and discuss with your financial advisor. If you are not financially ready or do not have a financial plan in place then you need to decide if you are in fact ready to sell.
Even when you make the decision to retire you can’t start acting like it until the practice is officially sold and the deal closes. Until then, we tell sellers to act like every day is your first day in practice! This means that you should keep up with your production- don’t slow down or risk buyers worrying about the value of the practice (and offering less money), alerting your staff to the fact you are trying to sell the practice, and hurting the money you personally bring in. You should also keep the equipment in good shape; if something breaks, then fix it. Don’t let potential buyers come to your office and see two broken x-ray sensors and a chair that is torn or won’t lift up. You should also make sure that the office looks good – keep the carpets cleaned, make sure the practice has a nice coat of paint and looks good. A drab, dirty, run-down looking office is not going to attract buyers. These things cost little money but make a world of difference to potential buyers!
While you should keep your equipment in working condition, you shouldn’t go out and purchase a significant amount of new equipment. Adding digital x-rays or a CEREC machine isn’t going to add enough value to the practice to pay for itself if you are going to sell within a couple of years. Instead, save the money you would spend on that equipment and let the buyer decide exactly what new equipment they want in the office. This isn’t to say that you shouldn’t buy any new equipment; if something breaks – a compressor, sensor, etc. then you definitely need to get it fixed or replace it with something comparable.
Clean up your accounts receivables and credit reports. If you have uncollectable, old receivables then write them off and get them off of your books. There is no reason to keep these monies on your reports if they are never going to get collected. When a buyer sees a large percentage of Over 90 day receivables it raises a red flag in a practice. Does your staff do a poor job at collecting, do you allow a lot of patients to pay slowly over time, is there fraud in your practice, or do you just let a lot of money slip through the cracks? Similarly, you should also clean up patient credits. If you have a lot of patient credits it worries a buyer that you are not submitting the proper amounts to the unclaimed funds account and might encounter an audit. It can also be worrisome for a buyer that they may end up doing work for these patients and not get paid for the work since you were already paid. And, depending on how you handle the accounts receivable in the sale, you may end up paying the buyer for these credits or writing to checks to all of these patients anyway.
Once you decide that you are ready to sell, you should hire a reputable broker and have them do a practice valuation so you know what to expect as a selling price. Do your homework when hiring a broker and don’t hire the person who simply promises to get the highest price for your practice without doing a valuation. Anyone can promise to get a high price for your office, but not everyone will come through with this promise. You need to hire someone that looks at all aspects of the practice – the production and collections, staff, equipment, location, profitability of the practice, and potential of the practice before they determine a value. Buyers are much more business savvy these days and do their homework on what to pay for practices. They also know enough to hire good advisors to keep them from overpaying. Even if you find a buyer who is willing to overpay for your practice, their bank won’t finance it unless the practice is worth that amount. The last thing you want is to spend time and effort finding a buyer, negotiating a price and conditions, getting attorneys and accountants involved only to find out that banks are not willing to finance the buyer that much for the loan.
You should also talk with your broker about a realistic timeframe for the sale of your practice. Just because you are ready to sell does not mean that there will be a line of buyer ready to buy your practice right now. Unless you have a million dollar, fee for service practice located in a prominent suburb you are not going to have buyers lined up around the corner to buy your practice. Even when you find the perfect buyer, the process takes time. The buyer will need to visit the practice at least twice, have time to review the financials with their accountant, negotiate basic terms for the letter of intent, obtain buyer financing, complete their due diligence and work through the purchase agreement to get to the closing. It is a lengthy process, but having a reputable, caring broker (like Practice Impact) will make the process as painless and profitable as possible so you can enjoy retirement!