Selling your practice successfully for maximum value is best accomplished with a practice broker. An experienced broker has a proven strategy containing these vital components.

Opinion of Value

You’ll get multiple opinions from colleagues when you ask what they think your practice is worth. But best practice dictates an average of multiple valuation methodologies. Three years records of gross income, earnings before interest, taxes, depreciation and amortization (EBITDA), seller’s discretionary earnings (SDE), as well as an earnings multiplier determined by nationwide statistics should all figure in. Tax submissions are best, but profit and loss and balance sheets will work. There should be no charge for this analysis from the broker.

It’s important to note that value cannot be solely based on what you think a buyer will pay. Most buyers use bank financing and the bank requires financial history showing that a buyer will be able to service the debt and make a reasonable rate of return or wage from their investment.

An experienced practice broker uses all these factors to go to market with a reasonable and bankable asking price. Sometimes the analysis shows that it’s not the best time to sell and work needs to be done to improve profitability.

Marketing Savvy and Reach

A broker creates two marketing pieces. Initially a “teaser”, listing key points such as asking price, cash flow (either EBITDA or SDE), specialty and a short description of the practice’s desirability. And a second, much more detailed profile with limited financial information, pictures, patient bases facts, employee outline, description of the services provided, a sample buyer process, hours and growth opportunities. The profile should also include projections about the stability and status of the healthcare segment.

Privacy and Buyer Vetting

A good broker casts a wide, preferably nationwide net in seeking your best buyer. The teaser should be disseminated to the broker’s existing buyer pool as well as through a variety of websites regularly perused by buyers. The inquiries must be vetted to determine if they have the financial wherewithal, experience and/or licensing required. Those that qualify must be sent a nondisclosure agreement. Only after they execute the NDA should the confidential profile is released.

It’s vital to have tight control over this process. You don’t want competitors, employees or other business associates to know you’re seeking a buyer, usually until you’ve successfully closed on the practice sale.

Fielding Inquiries

Your broker will serve as the buffer between the seller and buyer. They understand and articulate the practice’s value, ensure privacy is maintained and control the flow of information. They will set up interviews and perhaps tours with qualified buyers.

Assessing Offers

It is common for buyers to offer less than your asking price, or perhaps ask for the seller to take payment over time, or base the total compensation for the practice on future earnings, referred to as an “earn out”. These are all acceptable means of practice acquisition. But anything other than cash at closing may not be what’s best for you. Your broker will help you determine if the offer meets your goals and will suggest appropriate counter proposals.

Banking Assistance to Buyers

A buyer may have the right assets and experience but not have a bank that understands healthcare’s unique financial model. Your broker should point buyers to SBA or commercial lenders with a proven track record in healthcare lending.

Due Diligence

An offer when accepted will specify a period for due diligence. The information required varies widely with the size and complexity of the transaction. Your broker will provide an online data vault for you, your accountant and attorney, to submit and make available to the parties information the buyer and their bank require to assure the assets or equity’s legitimacy. This can include but is not limited to carrier contracts, entity by laws, employee salary information, lease, licenses, tax returns, bank statements and more.

Additional Resource Recommendations

Not all attorneys are good choices for business acquisition transactions. As a seller or buyer you need experienced representation who will address legitimate concerns, but not needlessly run up billable hours negotiating minor points. Your broker has experience with qualified attorneys who handle healthcare transactions with efficiency and responsiveness.

Summary

A broker establishes a fair and supportable asking price, controls the buyer and seller communications, presents you with qualified buyers, negotiates with the assistance of your attorney and isn’t paid unless the transaction closes.

By – Craig Evans, Precision Healthcare Consulting
cevans@precisionhealthcareconsulting.com