THINKING ABOUT BUYING OR SELLING A MEDICAL PRACTICE?

HOW MIGHT USING A “PRACTICE BROKER” MAXIMIZE YOUR OUTCOME?

To sell your practice successfully for maximum value, you could benefit from utilizing a practice broker. According to Craig Evans, owner of Precision Healthcare Consulting LLC, an experienced broker should have a proven strategy that includes the following vital components.

Opinion of Value

You will receive multiple opinions from colleagues when you ask what they think your practice is worth. But best practice dictates an average of multiple valuation methodologies. Three years’ records of gross income, income before interest, taxes, depreciation and amortization (IBITDA), seller’s discretionary earnings (SDE), as well as an earnings multiplier determined by nationwide statistics should all figure in. Tax submissions are best, but profit and loss and balance sheets will also work. You should not be charged by the broker for this analysis.

It is important to note that value cannot be solely based on what you think a buyer will pay. Most buyers use bank financing, and the bank requires financial history showing that a buyer will be able to service the debt and make a reasonable rate of return or wage from their investment.

An experienced practice broker uses all these factors to go to market with a reasonable and bankable asking price. Sometimes their analysis shows that it is not the best time to sell and work needs to be done to improve profitability.

Marketing Savvy and Reach

A broker creates two marketing pieces. First, there is a “teaser,” that lists key points such as asking price, cash flow (either IBITDA or SDE), specialty and a short description of the practice’s desirability. A second, much more detailed profile includes limited financial information, pictures, patient bases facts, employee outline, description of the services provided, a sample buyer process, hours and growth opportunities. The profile should also include projections about the stability and status of the healthcare segment.

Privacy and Buyer Vetting

To seek your best buyer, a good broker casts a wide, preferably nationwide net. The teaser should be disseminated to the broker’s existing buyer pool as well as through a variety of websites regularly perused by buyers. The inquiries will be vetted by the broker to determine if the prospective buyer has the financial wherewithal, experience and/or licensing required. Those that qualify must be sent a nondisclosure agreement. Only after they execute the NDA will the confidential profile be released. 

It is vital to have tight control over this process. You typically do not want competitors, employees or other business associates to know that you are seeking a buyer, until you’ve successfully closed on the practice sale.

Fielding Inquiries

Your broker will serve as the buffer between you and the buyer to articulate the practice’s value, ensure privacy is maintained, and control the flow of information. They will set up interviews and perhaps tours with qualified buyers.

Assessing Offers

It is common for buyers to offer less than your asking price or perhaps ask for the seller to take payment over time or base the total compensation for the practice on future earnings, referred to as an “earn out.” These are all acceptable means of practice acquisition. But anything other than cash at closing may not be what’s best for you. Your broker will help you determine if the offer meets your goals and will suggest appropriate counter proposals.

Banking Assistance to Buyers

A buyer may have the right assets and experience but not have a bank that understands healthcare’s unique financial model. Your broker should point buyers to SBA or commercial lenders with a proven track record in healthcare lending.

Due Diligence

Once an offer is accepted, it will include a specified period for due diligence. The information required varies widely with the size and complexity of the transaction. Your broker will provide an online data vault where you, your accountant, and attorney, can upload and share the information the buyer and their lender need to verify the legitimacy of the assets or equity involved in the transaction. This can include but is not limited to carrier contracts, entity by-laws, employee salary information, lease, licenses, tax returns, bank statements and more.

Legal Representation for the Transaction

Not all attorneys are good choices for business acquisition transactions. As a seller or buyer, you need experienced representation who will address legitimate concerns but not needlessly run up billable hours negotiating minor points. Malecki Brooks Ford Law Group, LLC handles the legal representation for these types of sales and purchases. 

For further information contact:

Melinda Malecki [email protected]