How to Sell a Medical Practice in 2021 [Step by Step]
This is a step-by-step guide on how to Sell a Medical Practice in 2021. In this guide, we will cover the most important things to consider before you decide to sell your practice. A physician may sell their medical practice for a variety of reasons. For some, a well-deserved retirement is on the horizon, while others are seeking a better opportunity. A sudden illness or relocation are also motives to sell. Our guide is intended to help physicians navigate this complex process. Build Your Team Selling a medical practice involves many legal, financial, and practical considerations. To navigate through these issues, you should recruit a team of professionals to assist you. Having experts to guide and advise you through the process will maximize the value of your practice. The key is to build your team early in the process. While it may be tempting to jumpstart the sale process by guesstimating your practice’s value and seeking potential buyers, you could get stuck in an unfavorable situation. What may start as an informal negotiation could end up as a legally binding obligation. At a minimum, your team should consist of an attorney, accountant, and valuation expert. Healthcare Business Law Attorney A competent healthcare attorney, experienced in the purchase and sale of medical practices, is invaluable. An attorney can assist you with the following: Compliance with state and federal healthcare laws, Due diligence, Employee and staff relations, Management of patient records, Open contracts with third parties, and All legal documents related to the sale. Your attorney will help negotiate the terms of the sale and ensure that you do not have any unexpected obligations after it is complete. Certified Public Accountant (CPA) A CPA is integral to determining the accurate value of a medical practice. Having a CPA to create financial statements will provide a clear picture of the business’s financial status. Your CPA will also explain the tax implications of the transaction, which will help determine the type of agreement you enter into and how to structure the sale. Valuation Expert Your medical practice’s value is the core of the entire transaction. The value affects the list price, attracts buyers, and sets the standard for the final purchase price. A health care valuation expert will perform extensive research and analysis on your medical practice to determine its fair market value, considering both tangible and intangible assets. Valuing Your Medical Practice The valuation of the medical practice is what drives most of the negotiations toward a final purchase price. The fair market value (FMV) is the standard for valuing a practice. FMV is defined as the result of an arms-length transaction between an informed, willing buyer and an informed, willing seller. To value a medical practice, an appraiser will consider many factors, including: The nature and history of the business, Book value and financial condition, Economic outlook, Earning capacity, Fixed assets such as equipment and real estate, Goodwill and other intangible assets, Post-transaction compensation, and Market comparables. It is important to note that the FMV of the medical practice is not the same as the purchase price. Rather, the FMV is the basis upon which the parties determine the purchase price. Find Multiple Buyers Having multiple offers could increase the value of your practice. The best way to locate potential buyers is to contact prospects, such as hospitals, colleagues, and competitors, and let them know you are considering selling your practice. Pre-Purchase Steps Many preliminary steps lead up to the final purchase of the medical practice. Preliminary Agreements To provide security for yourself, there are several preliminary agreements you should consider before investing time and money into the potential sale. Letter of intent Once you have a prospective buyer, consider executing a non-binding letter of intent. The parties can preliminarily resolve issues within the letter and outline the tasks to complete before entering into a purchase agreement. The letter of intent serves as a roadmap for the transaction. Confidentiality and non-solicitation agreement As part of the due diligence process, the buyer will have access to confidential information of the practice, such as financial statements and employee and patient lists. To protect this information, you may want the buyer to sign a confidentiality and non-solicitation agreement. The terms of the agreement would prohibit the buyer from disclosing the information for purposes other than performing due diligence. The agreement would also bar any solicitation of employees and patients of the practice until after the sale. Structure of the Sale You and the buyer must agree on whether the medical practice’s sale will be a stock purchase or asset purchase. A stock purchase is when the buyer purchases the entire business, taking complete ownership and acquiring all assets and liabilities. In an asset purchase, the seller remains the practice’s legal owner and the buyer purchases only specific assets, such as equipment, licenses, inventory, and goodwill. There are significant legal and tax implications to either type of sale. Your CPA and attorney can guide you on this and advise on which option best suits your needs. Due Diligence Both the buyer and seller will go through their own due diligence process. The buyer’s due diligence will involve learning the ins and outs of the medical practice to ensure that the business is accurately portrayed. To accomplish this, the buyer will do the following: Examine financial records, including tax returns and financial statements; Review all assets and liabilities; Ensure compliance with applicable healthcare laws and regulations; Understand the billing and coding process of the practice; Assess all current working relationships; Review all open contracts, such as supply contracts and lease agreements; and Analyze any ongoing litigation matters. The seller’s due diligence is not quite as lengthy as the buyer’s but just as important to the transaction’s success. Ensure compliance with the corporate practice of medicine The corporate practice of medicine (CPOM) is a legal doctrine that limits who can practice medicine and provide medical services. For example, Texas’s CPOM prohibits business entities and corporations from practicing medicine and...
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