Looking Toward the Future: 10 Steps You Must Do Before Selling Your Practice

In the course of your career, you might decide to sell your practice. There are ten important aspects of your practice that you should consider NOW, so that when the time arrives, you will have developed a truly marketable practice.

1. MAINTAIN STRONG REFERRAL SOURCES

Professional respect has value. Do you have good relationships with other professionals in your community? You should. If so, are those relationships so strong that you can transfer them to a new owner?

For example, if you have several professionals who continually refer patients/clients to you, you would want to ensure that those referral sources will continue to send patients/clients to the new owner. Otherwise, the buyer might want to discount the practice price by the amount that would be lost from not getting referrals from just those few sources.

Most professionals will continue to refer to the practice after your departure, as long as they are assured that those clients/patients they refer will receive the same good care that you currently provide them. It is also important for your referral sources to know that the new owner will reciprocate with referrals to them (assuming that is the type of relationship you currently have).

Keeping up with and then transferring these relationships will help your patients/clients too. That maintains continuity and quality of care for them, which will help them to always think well of you.

2. MAINTAIN FACILITIES AND EQUIPMENT

Everyone is inclined to pay more for something if it looks attractive. The same principle applies to buying a practice. If your facilities are pleasing to the eye, you might be able to command a higher price. While a clean carpet is only just that, it might demonstrate to the buyer that every aspect of your facility and practice is probably well maintained.

Well-maintained, state-of-the-art equipment also speaks well of you. It says that you have a growing practice that is keeping in step with technology.

3. INCREASE YOUR GROSS SALES

The best indicator of the value of a practice is its cash flow. Your successor will want assurance that he is acquiring a reliable income stream. Now is the time to concentrate on reactivation of old patients/clients, increasing your marketing budget to attract new patients/clients, setting goals for the staff and moving the practice toward maximum productivity.

4. IMPROVE YOUR BOOKKEEPING RECORDS

Part of selling a practice requires that you develop and present an accurate picture of what you have accomplished. You will want to be able to disclose good financial figures. Plan to have at least five years’ worth of good financials because the buyer wants predictability. Have an outside professional prepare “compiled statements.” That adds credibility. The practice buyer will find that well-maintained, accurate accounting records help with forward planning. Additionally, good records can even help you explain a slump period.

5. DEVELOP A TRANSITION PLAN

Very few practice owners supply the buying owner with a transition plan. If you were to do that, you will be far ahead of other owners who want to sell their practices. You should develop a plan because it not only can increase the worth of your practice, it can make life easier for everyone. Put the transition plan in writing, then review and outline all the systems and how they work. The marketing plan, referral sources, management policies and accounting systems should all be put down in narrative form.

Indicate a time frame in which the practice will be transferred to the new owner. That will give him an idea of how long he will have to learn the ropes. Don’t expect to make the deal and run with the money. An adequate time frame to transfer a practice in which you will be working side-by-side with the new owner, will range from 30 to 120 days, depending on the size and complexity of the practice.

Part of an effective, valuable transition plan can involve a good loan package. It shows that you have put together a transition plan that is easily understood by a third party. It indicates that you have a good relationship with the bank. That can enhance the value of your practice, since the banker knows that the systems will remain in place and generate cash flow to repay any loans.

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How to Guarantee a Satisfactory Retirement Fund

It is never too early in your career to start funding your retirement. You may only be one day out of school, but you should be thinking with and planning out a retirement fund.

We have found from our surveys that an ongoing decline of interest in practice ownership is making it increasingly difficult for practice owners to sell their practices, and this is causing many doctors to work in their practice years after they wanted to leave.

Unfortunately, less and less new graduates want to own a practice. More of them are looking to become associates in a practice, work 35–40 hours a week and start out with full benefits.

As part of my research, I recently spoke to a doctor in Ohio that was at retirement age. He had been in practice for over 38 years and was ready to retire. I asked him if he had adequately funded his retirement, and he told me that he had always thought that when the time came, he would sell his practice and have plenty to retire on. He found out that he was mistaken.

When I talked with him, his practice had been up for sale for over 3 years, and he couldn’t find a buyer. And of course, he was still working as he had not adequately funded his retirement outside of a practice sale. He was counting on the sale of the practice to handle his retirement. He found out, way too late, that such a plan is not always workable.

I’m hearing this story more and more from doctors all over the country.

Here are a few things that you can do to protect yourself from this situation:

  1. Place a portion of your monthly overhead into your retirement fund. Budget this in from the start. Retirement is something that needs to be figured into the overhead so that it is taken care of every month. Treat it as you would an equipment lease, a mortgage or employee salaries. Make it an ongoing expense.
  2. Find a financial planner that can properly advise you on what to do with the money that you set aside each month. Get a professional involved to help you find the best vehicle for your retirement plan.
  3. Own your practice real estate. This is a big one. Real estate is something that you can always fall back on. Even if you can’t find a buyer for your practice, you can sell real estate. If you own the building, and you find someone to buy the practice, you can lease the building to them and make a residual monthly income off the lease and have that extra income.
  4. Diversify. Do not put all of your money in one area. I have interviewed doctors from all over the country that told me horror story after horror story about the tens of thousands, even hundreds of thousands of dollars that they lost in the stock market crash. Many of them told me about how they had planned on retiring already, but due to the market crash, they were stuck working for several more years to recover what they had lost. On the other hand, some doctors that lost money when the market crashed fared well overall due to diversification in real estate, other businesses and their retirement funds. Don’t let a loss in one area ruin your plans.
  5. Have an exit strategy. Decide ahead of time how you want to transition out of your practice. Don’t wait; do it now. Having an actual plan and executing it is vital to you having the retirement future that you want. Of course, the type of practice you have will influence this greatly. A multiple partner practice can draw up a buyout agreement that guarantees each partner has the ability to walk away with an agreed upon amount that can, for example, be based on the yearly gross income of the previous five years. A solo practitioner could start bringing on associates to find a good match for the practice and structure a transition for them over a period of time. You could even offer to provide internships for local graduates that would give you access to possible associates that could eventually buy you out. The bottom line is that you need to have a clear-cut plan and act on it from the beginning. You don’t want to address this issue when you are ready to retire, you want the plan fully executed, so you can retire.

As mentioned above, it is absolutely VITAL to budget your retirement funding into your overhead. Additionally, you should budget a percentage of your monthly income to go to a reserve account every week or every month. This should be treated as an expense. DO NOT put yourself in the position of having to rely on credit cards for an emergency.

If you unexpectedly have a leaky roof, an older piece of equipment breaking down or a new piece of equipment that you need to buy, a built up reserve will help you to cover these situations without dipping into your retirement fund. If you don’t have to use some or all of your reserve, you will have more available for retirement.

The bottom line is that you need to be proactive with your finances to ensure a stable future for you, your practice, your staff and your family. Don’t assume it’ll all work out. It won’t unless you plan it out and make it happen.

We are now offering a no cost, no obligation 1 hour phone consultation for practice owners, on specific Hot Tip topics. If you received this email, your practice is qualified for this free call with one of our experts.


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