5 Points to Ponder About a Transition in the New Year
We have been involved in practice transitions since the mid-1990’s. Our company has sold over 500 practices in 12 different states. Doctors have sold their practices for numerous reasons ranging from just being tired of owning and managing a practice to severe health issues forcing them to sell.
In all these years and transactions we have performed, not one doctor has come up to us and said “I wish I wouldn’t have sold my practice so soon”, or “I wish I still could own my practice”. In fact, most doctors whom we talk with months, or even years after selling their practice say “selling was one of the smartest decisions I made, I wish I would have sold much earlier”.
So, how do you know when is a good time to sell? Here are a few things to consider:
- The Current Sales Market – Is it a buyer’s or seller’s market? A buyer’s market is when there are a lot of practices for sale, interest rates are average to high and there is low demand. Currently, as of today, we are in a seller’s market. Interest rates are quite low. The economy is doing well. The demand for practices is high. Doctors and groups looking for practices producing over $1,000,000 per year is very high. That is attributed to the number of corporate buyers in the marketplace. The demand by corporate and other buyers is driving up the price of practices. In a few years, this will change, and prices will drop, possibly significantly. You want to sell your practice in a hot seller’s market versus a buyer’s market. Even if you sell 5 too early, you will make it up in the sales price you are going to receive versus the income you would make as an owner.
- Being Forced to Sell – There are certain things that are inevitable in life. Getting older is one of them. And that includes all the aches, pains and other health issues that go along with it. We have seen doctor after doctor, every year, sell their practice because of back, neck, hand, or eye site issues to name a few. We have also seen more serious health issues that forced a doctor to sell. Cancer in all its’ forms and other diseases can happen when you least expect it. There have been several doctors who every year told me they were ready to sell. Only when they were diagnosed with cancer did they decide to sell. One of them sold their practice and then passed away the next day. We have story after story of doctors who sold their practice expecting to enjoy retirement with their family only to report back that they or their spouse got sick, or worse yet, passed away. Enjoying retirement and life is something we should all have the opportunity to do. Selling when it’s the right time ensures us of this.
- Harvesting the Equity in Your Practice – This is one of our favorite strategies in selling a practice. And, selling in a seller’s market with higher practice values make it even a smarter decision. When you started or bought your practice, you probably took out a loan with the bank. As you have been in practice, you have paid your loan down and have built up your practice. The difference between the potential sales price of your practice and any debt you may have on your practice is called equity. Many doctors may have hundreds of thousands of dollars, if not millions of dollars, in equity. This equity does not do anything for you while you still have the practice. You cannot receive this money unless you harvest the equity. You do this by selling your practice. You put the hundreds of thousands, or million dollars into the bank, invest it, or pay off your house. Whatever you would like to do. You can then work back in the practice you just sold, or work in another practice. Or, you can even go buy a new practice, build it up and harvest even more equity. It’s a beautiful thing.
- And now for Something Completely Different – That was for the Monty Python fans out there. At times we all get tired of doing the same old thing, day in and day out. We are just tired of the monotony, tired of staff, tired of the patients and just ready to do something completely different. We have doctors who are ready to change course completely. We have had doctors sell and tell me they want to be a real estate agent, a barista, or they are going to run a surf shop in Hawaii. If you have reached that point and are tired of the same old routine, life is short, it is time to take action and do something different. You can always come back years later if you decide you have had a long enough break and are ready to return back to practice.
- Annual Production is Decreasing – For fun, go back and take a look at your last five years profit and loss statement or tax returns. Have your annual revenues gone down year after year over the past 5 years? How’s your income? Has it also gone done year after year? We frequently see this as practice owners start to get a bit tired towards the end of their career. They slow down their production, but the overhead stays the same, so their income goes down even faster. They then decide to sell and think that the price should be based on what the practice used to do, before the slide in production. It does not work that way. A practice’s value is what it is doing today, not five years ago when it was double the revenue. Using the Equity Harvesting strategy in number 3 above, would have given these doctors hundreds of thousands of additional dollars.
We are imparting this knowledge to you, not to get you to sell your practice as soon as possible. We are simply giving you some things to think about and passing on to you some wisdom from prior experiences of other doctors. Thinking about these five things in addition to taking action may provide you more time with your family if you sell a few years earlier. It may also give you more money to have a happy retirement.
Look at each one of the five items above and ask yourself if you want to sell your practice when you have to, or when you want to? As always, call us if you would like a free consultation.