Getting a
Good Deal on a Practice Sale
The sale of a medical practice is a complex transaction. If you are
considering selling your practice to a hospital, group or individual
physician, careful planning can help you realize the most favorable outcome.
Address Any Weaknesses in Advance
Start your planning by objectively evaluating your practice’s current
financial condition. Recognize that a practice experiencing poor
collections, weak cash flow or low physician productivity will have limited
appeal to a buyer. Since it may be possible to fix such problems, they
should be addressed before you begin a sales effort.
Value the Practice
It will be important to find out up front how much your practice could
realistically be worth to an interested buyer. For that, you’ll need an
appraisal by a qualified professional who will examine your financial
statements, tax returns and other financial data to value your practice’s
tangible and intangible assets.
Although valuing medical equipment, computers, furnishings and other
tangible assets is relatively easy, tangibles are generally a minor part of
a medical practice’s total value. Often, a major part of that value is an
intangible—goodwill—that
is more difficult to value. But methods are available to establish a fair
estimate of goodwill. Accounts receivable will also factor into the
valuation.
Target Potential Buyers
Unless you have received an unsolicited offer, you’ll probably want to
involve a broker who specializes in selling medical practices to more
effectively identify qualified potential buyers. Your personal plans will
affect the deal you seek to develop.
If you want to retire, an agreement for a gradual buy-in by a physician who
will take over your practice may be the most desirable goal. You might
initially employ the prospective buyer and, after a trial period of a year
or two, offer a partnership with a well-defined exit arrangement for you.
This might be a buy-out option or a severance package.
If, instead, you are seeking a buy-out that will let you continue to
practice without ownership pressures and responsibilities, you may look to
sell to a group practice, hospital or other corporate buyer that will employ
you afterwards.
Evaluate Offers Carefully
If an offer is made, you’ll need to evaluate it carefully with your
professional advisors. If you are retiring, concentrate on the buyer’s
financial condition and the payment terms. If you will continue working with
the buyer, the chief considerations, besides your compensation and benefits
package, will include indemnifications, transfer expenses and malpractice
terms. As important, or more so, may be the buyer’s business strength and
your fit with the buyer’s organization. Make sure you will be comfortable in
the new culture and that your input will be welcomed and considered.
Consider the Tax Impact
In either situation, the tax implications of your sale need to be
carefully considered in advance and the optimum terms included in your sales
agreement. For example, it will usually be advantageous to maximize the part
of the sale price that can be classified as a capital gain—rather
than ordinary income—since
long-term capital gain is taxed at a more favorable rate, generally 15%
through 2010. In contrast, the highest tax rate that applies to ordinary
income is 35%.
Let Us Help
Our professionals are experienced in helping physicians exit their practices
advantageously. We can help you assess your situation, evaluate a deal and
secure financially beneficial terms. Please
contact us if you would
like assistance with selling your practice.
Health Care Commentaries is
provided by Somerset’s
Health Care Team
for our clients and other interested persons upon request. Since
technical information is presented in generalized fashion, no final
conclusion on these topics should be made without further review. For
additional information on the issues discussed, please contact a member
of our Health Care Team. This
document is not intended or written to be used, and cannot be used, for
the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
http://healthcare.somersetcpas.com
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