Seller Articles

Seller Preparation Checklist

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

Top 10 Mistakes When Selling Your Practice

By Rod Johnston, MBA, CMA

Omni has sold over 500 practices since we started selling over 20 years ago. The majority of our transactions go pretty smooth, but in nearly every transaction there are road bumps, hurdles, or just some things that need to be ironed out or discussed. Here are ten of the most common mistakes that sellers make when selling their practice:

1. Waiting Too Long to Sell

Every business or practice owner thinks they can continue working until one day they decide to sell. They believe they can just put it on the market, and it will sell in a month or two for a high price. But timing is everything. If you decide to sell when your numbers are declining, you may lose hundreds of thousands of dollars. Selling when rates are high also reduces value, as banks assess the cash flow after debt service of your practice. Higher interest rates lower cash flow and, consequently, the value of your practice. Similarly, if you choose to sell during an economic downturn when there are fewer buyers, you may again lose value, and your practice could sit on the market for months—or even years.

2. Not Watching Your Payroll

What is your annual payroll as a percentage of last year’s collections? It should be somewhere between 25% and 30%. If you get to a point when it’s time to sell and your payroll is high, a buyer will not look favorably at your practice. Keep your numbers up, and make sure your payroll is where it should be.

3. Managing Patient Credits

Typically, you sell your accounts receivable less patient credits when you sell your practice. However, did you know that every state has a law requiring you to refund a patient’s credit if they have not been active in your practice for a certain period, typically around three years? If you cannot locate that patient, you need to send the patient credit to the state where your practice is located. This is known as the unclaimed property or escheatment law. Look it up and manage your patient credits accordingly.

4. Lingering Liens

Have you ever borrowed money against your practice? You may want to run a lien search to check if any liens are still against your practice. Even though you may have paid off the debt, banks are notorious for not releasing the lien once the debt is paid off. You can perform a lien search, also called a UCC search, on your state website, or contact an attorney or a service that conducts lien searches to examine your practice for any liens.

5. Renewing Your Lease

If you are renewing your lease, now is the time to discuss assignability with your landlord, real estate broker, or attorney. Try to include assignability language in the lease. Many times, landlords will require you to stay on as a responsible party for the life of the lease, even after you have sold the practice. Having assignability language can help you be released from personal liability on the lease sooner rather than later.

6. Not Giving Enough Time to Find a Buyer

On average, it takes about nine months to sell a practice. If you have a great practice in a desirable area, the time will probably be less. However, if your practice has low production, under $350,000, it will take longer to sell. Practices in remote areas, which are less desirable than metro or affluent areas, also tend to take longer to sell. Small practices with only 2 or 3 operatories will generally require more time as well. When we say longer, it could mean twelve months, or it can be up to five years.

If you’re in a remote area like the San Juan Islands, consider starting the sale process five years before your ideal selling date, as fewer doctors may be looking to practice there. If you find a buyer years before you’re ready to sell, congratulations! You have a bird in the hand—take it! You can then consider working for someone else, teaching, or work back in the office. It is a good problem to have if you sell before you really want to in a remote area.

7. Not Weighing All Your Options

There are numerous ways to sell and various types of buyers. You can sell to an individual, a corporate-owned group, a small local group, or even to an associate. Working with a broker can help you explore and discuss your options. Perhaps you want to sell and then work back, or maybe selling to a larger group is a better fit. Brokers know the market and can help design an optimal transition plan for you.

8. Failing to Plan

This is more than just failing to plan; it’s failing to put the plan into action if you have one. Banks and brokers look at the last two or three years of tax returns to determine the value of your practice. If you want to maximize the sale of your practice, your best years need to be your last two or three years. If necessary, hire a consultant to help you streamline your practice, increase production, and reduce overhead. Most importantly, keep your foot on the gas!

9. Selling On Your Own

I have spoken to doctors who sold their practices themselves. One doctor, who was collecting $1.5 million, sold his practice in a nice metro area for $500,000. I did not have the heart to tell him that he undervalued his practice and could have gotten another $500,000 to $700,000. We have listed practices where the seller tried for two years to sell on their own, thinking just placing an ad in the state association would be enough. We sold these in four months. In other cases, sellers were difficult to work with, scaring away every buyer interested in the practice. Hire an expert to take the emotions out of the transaction. You may not always get a higher price, but you’ll likely save on stress and avoid costly mistakes.

10. Not Hiring an Attorney to Prepare Documents

We have had buyers and sellers who wanted to save a few thousand dollars by simply reviewing the agreements themselves. They would ask for changes to the document and send them to the buyer. The buyer would then send the changes to their attorney, who would reject them, leaving the sellers unaware of the legal reasons for the rejections. A transaction that should have taken two months to complete ended up extending to six months and then ultimately fell apart. Hire an attorney and get it done right. It’s one of the biggest transactions you will make, so ensure it is handled correctly.

Being on top of these ten items will help ensure a smooth practice transition. Contact us for a free consultant and help you get started on planning for your transition.

Top 10 Mistakes When Selling Your Practice

By Rod Johnston, MBA, CMA

Omni has sold over 500 practices since we started selling over 20 years ago. The majority of our transactions go pretty smooth, but in nearly every transaction there are road bumps, hurdles, or just some things that need to be ironed out or discussed. Here are ten of the most common mistakes that sellers make when selling their practice:

1. Waiting Too Long to Sell

Every business or practice owner thinks they can continue working until one day they decide to sell. They believe they can just put it on the market, and it will sell in a month or two for a high price. But timing is everything. If you decide to sell when your numbers are declining, you may lose hundreds of thousands of dollars. Selling when rates are high also reduces value, as banks assess the cash flow after debt service of your practice. Higher interest rates lower cash flow and, consequently, the value of your practice. Similarly, if you choose to sell during an economic downturn when there are fewer buyers, you may again lose value, and your practice could sit on the market for months—or even years.

2. Not Watching Your Payroll

What is your annual payroll as a percentage of last year’s collections? It should be somewhere between 25% and 30%. If you get to a point when it’s time to sell and your payroll is high, a buyer will not look favorably at your practice. Keep your numbers up, and make sure your payroll is where it should be.

3. Managing Patient Credits

Typically, you sell your accounts receivable less patient credits when you sell your practice. However, did you know that every state has a law requiring you to refund a patient’s credit if they have not been active in your practice for a certain period, typically around three years? If you cannot locate that patient, you need to send the patient credit to the state where your practice is located. This is known as the unclaimed property or escheatment law. Look it up and manage your patient credits accordingly.

4. Lingering Liens

Have you ever borrowed money against your practice? You may want to run a lien search to check if any liens are still against your practice. Even though you may have paid off the debt, banks are notorious for not releasing the lien once the debt is paid off. You can perform a lien search, also called a UCC search, on your state website, or contact an attorney or a service that conducts lien searches to examine your practice for any liens.

5. Renewing Your Lease

If you are renewing your lease, now is the time to discuss assignability with your landlord, real estate broker, or attorney. Try to include assignability language in the lease. Many times, landlords will require you to stay on as a responsible party for the life of the lease, even after you have sold the practice. Having assignability language can help you be released from personal liability on the lease sooner rather than later.

6. Not Giving Enough Time to Find a Buyer

On average, it takes about nine months to sell a practice. If you have a great practice in a desirable area, the time will probably be less. However, if your practice has low production, under $350,000, it will take longer to sell. Practices in remote areas, which are less desirable than metro or affluent areas, also tend to take longer to sell. Small practices with only 2 or 3 operatories will generally require more time as well. When we say longer, it could mean twelve months, or it can be up to five years.

If you’re in a remote area like the San Juan Islands, consider starting the sale process five years before your ideal selling date, as fewer doctors may be looking to practice there. If you find a buyer years before you’re ready to sell, congratulations! You have a bird in the hand—take it! You can then consider working for someone else, teaching, or work back in the office. It is a good problem to have if you sell before you really want to in a remote area.

7. Not Weighing All Your Options

There are numerous ways to sell and various types of buyers. You can sell to an individual, a corporate-owned group, a small local group, or even to an associate. Working with a broker can help you explore and discuss your options. Perhaps you want to sell and then work back, or maybe selling to a larger group is a better fit. Brokers know the market and can help design an optimal transition plan for you.

8. Failing to Plan

This is more than just failing to plan; it’s failing to put the plan into action if you have one. Banks and brokers look at the last two or three years of tax returns to determine the value of your practice. If you want to maximize the sale of your practice, your best years need to be your last two or three years. If necessary, hire a consultant to help you streamline your practice, increase production, and reduce overhead. Most importantly, keep your foot on the gas!

9. Selling On Your Own

I have spoken to doctors who sold their practices themselves. One doctor, who was collecting $1.5 million, sold his practice in a nice metro area for $500,000. I did not have the heart to tell him that he undervalued his practice and could have gotten another $500,000 to $700,000. We have listed practices where the seller tried for two years to sell on their own, thinking just placing an ad in the state association would be enough. We sold these in four months. In other cases, sellers were difficult to work with, scaring away every buyer interested in the practice. Hire an expert to take the emotions out of the transaction. You may not always get a higher price, but you’ll likely save on stress and avoid costly mistakes.

10. Not Hiring an Attorney to Prepare Documents

We have had buyers and sellers who wanted to save a few thousand dollars by simply reviewing the agreements themselves. They would ask for changes to the document and send them to the buyer. The buyer would then send the changes to their attorney, who would reject them, leaving the sellers unaware of the legal reasons for the rejections. A transaction that should have taken two months to complete ended up extending to six months and then ultimately fell apart. Hire an attorney and get it done right. It’s one of the biggest transactions you will make, so ensure it is handled correctly.

Being on top of these ten items will help ensure a smooth practice transition. Contact us for a free consultant and help you get started on planning for your transition.