Prepping Your Practice for Retirement
When selling your practice, don't neglect curb appeal.
In the days of smaller physician practices, when it was time for retirement, an older doctor would hand the practice over to a younger partner who had put in time over the years. Robert Provenzano, MD, vice president of medical affairs for DaVita HealthCare Partners Inc., said this was often performed without any money changing hands. Such transactions are rare today, so physicians need to think of a retirement as a business transaction with assets to sell and money to make instead of slowing down and going gentle into the good night, Dr. Provenzano said.
“We see a lot of doctors run the practice on a shoestring until they retire and it is a problem,” Dr. Provenzano said. “We try to agitate doctors that this is a viable business that they can sell and have equity in.”
Understanding the market is one of the most important aspects of selling a practice. Not all practices have 5 buyers as soon as a sale sign is put up, said Rick Cameron, managing director in Navigant's healthcare practice. “They need to know how long it takes to sell in the market; if it takes a year or more to sell, that should be factored in.”
Practices are often purchased because of location, said Keith Borglum, of Professional Management & Marketing. The best bet for a urology practice is to find a strategic buyer. Borglum uses San Francisco as an example. It is difficult, he said, to get on insurance plans there because the market is flush with urologists. Because of this, another physician might pay well for a practice to take over a retiring doctor's contracts.
For nephrologists, it might be wise to seek out a chain that has an interest in moving to the market. A big chain wanting to keep competitors out often has the resources to offer high purchase prices, Borglum said. Chains also don't have the same regulatory challenges as hospitals, so their purchases can be more competitive.
Regardless of the buyer, if a doctor lists a practice for sale on a site like bizbuysell.com, the best candidate will often reply within days or a couple of weeks of the ad, Borglum said. If there is no response, it's not a good sign.
“If you don't have a good candidate within a month, there is not someone looking right now for your location,” he said.
Increasing your value
Before putting a practice up for sale, it is wise to do an assessment and valuation, Cameron said. An assessment, typically performed by an accounting firm, will give a physician an idea of how the practice is performing financially. A valuation will provide an estimation of what the business might be worth and the factors affecting its value positively and negatively.
There might be times that health or family issues cause a physician to retire quickly, but, if possible, it is best to try to plan 2 to 3 years out. This allows physicians to fill in gaps and increase a practice's value.
“Like in any business, a buyer is looking for a well-managed and well-run business if they are considering acquiring it,” Cameron said.
Because the value of the practice is based on income, you are going to want to increase that for a few quarters to a year to improve the books. One way to do this is putting a mid-level practitioner or 2 in place to generate greater profit (although this only works with practices that have enough business to make it worthwhile). Another option is improving the revenue cycle by ramping up collections and accounts receivable. Dr. Provenzano recommends hiring a professional manager to run the business side, which he said can net a 5% to 30% return in a nephrology practice.
Having a good staff is an important component to selling a practice. It is best, when selling, to have a workforce in place and one that is well trained and current on business practices. Because of this, doctors shouldn't underestimate the need to be open and honest about retirement. Cameron recommends telling staff about the retirement and considering a bonus retention program so they will stay on for the new doctor.
A final area that would seem obvious, but it isn't always: making sure the practice has curb appeal. Clean carpets, new paint, and new staff chairs and uniforms are easy upgrades to improve the look of a practice. Borglum has doctors completely strip out the office to have it cleaned and painted. When they put it back together, he tells them to only bring back what they absolutely need – that doesn't include old journals and books.
“You would be amazed at how often I walk through the door of a practice and it's shabby and not clean,” Cameron said. “The docs come in and out through the back, so they never visit the front part.”