Mistakes to Avoid when Selling Your Practice

Mistakes will happen when selling your dental or medical practice. They are inevitable. Some, however, are avoidable. Not catching some mistakes can be costly or slow down the transaction. Listed below are 7 mistakes practitioners can easily avoid.

1. Failure to Engage the Right Professionals Early in the Selling Process.

   You are good at serving patients and providing quality care. You are not good a selling your practice. It is not something you do everyday. A healthcare intermediary can assemble a team of professionals for you early in the selling process. Professionals such as estate planners, personal financial planners, tax advisors, attorneys, and bankers can help you properly prepare for the sale. Serious buyers look critically at practices for sell if the sale is well organized and represented. If not, they quickly more to the next offering.

   
   

2. Misrepresenting the Practice to Get a Quick Sale.

   Misrepresenting material facts about the practice is unethical and probably illegal. In its broadest sense, a material fact may be any fact that may be important or relevant to the buyer. If you fail to disclose a fact that may affect how the buyer views the transaction, it is probably a material fact. These material facts could be:

   
   

   1. facts about the practice (e.g., financial statements, status of license),

   2. facts that relate directly to the practice (e.g., terms of the insurance payers agreements, terminating office lease),

   3. facts directly affecting the owner-practitioner's ability to complete the transaction (e.g., the practice is currently under receivership, the practice is subject to a legal proceeding), or

   4. facts that are known to be of special importance to a party (e.g., buyer practitioner to you he only wanted private pay clients, buyer practitioner wants a pediatric practice).

   
   

   Negligently misrepresenting facts can also cause problems.

   
   

3. Pricing the Practice Out of the Market.

   Pricing the practice for an unreasonable price wastes everyone's time. Inexperienced practitioner-sellers sometimes believe if they get a hit on a higher price, they might score big. There are many problems with this approach. First, as the buyer-practitioner conducts due diligence, they will discover that the practice is overpriced. They will either renegotiate the price or walk away. Second, if the buyer-practitioner is securing bank financing, the bank will conduct an independent appraisal of the practice. That appraisal will fall short and the buyer will need to contribute additional equity to get the deal done. The buyer will most likely come back to renegotiate the price or walk away. Third, overpriced practices tend to stay unsold which gives the impression that something is wrong with the practice. So, serious buyers tend to discount these practices. Finally, serious buyer-practitioners know what a fair price is. So they tend to ignore overpriced practices and move on.

   
   

4. Not Preparing Your Staff for Ownership Change.

   Doctors and dentists are well-known for doing the bulk of the practice's work. The problem is if the practice goes home with the practitioner every day, there is nothing for the new practitioner to buy. Owner-practitioners must develop a playbook of who does what in the practice. Do the nurse practitioners or hygienists know what to do? Do you have practice procedures in place? Are the administrative staff using best practices for client appointments, client post-appointment engagements, and billing and collections? Do you have a written onboarding procedure for new doctors or dentists? The easier you make it for the new owner to jump in, the more attractive the deal looks.

   
   

5. Failure to Get Organized Prior to the Sale

   Transactions happen faster and smoother when documents are in order. Owner-practitioners should have these minimum documents before going to market:

   
   

   1. 3 years of practice tax returns including all schedules,

   2. trailing 12-month operating statements,

   3. 2 years of billings by client (redacted)

   4. 3 years billings by billing code

   5. 3 years' breakdown of billings by payer type

   6. 3 years of operating expenses detailed by spending type

   7. operating policies and procedures

   8. organization chart by job description

   9. copies of office lease and equipment contracts

   10. staffing schedule (redacted)

   11. list of tangible assets included in the sale

   12. list of tangible assets not included in the sale

       
       

6. Not Maintaining Confidentiality During the Selling Process

   Knowledge about the sale of the practice should be on a need-to-know basis. Bad rumors, untruths, and assumptions can hurt relationships with clients. It may scare employees into seeking other employment. What is worse is when a prospective buyer make an unauthorized visit to your office to discuss the deal. Awkward and uncomfortable. Buyers should work through the healthcare intermediary to address questions and concerns about the practice. The healthcare intermediary acts as a buffer so the owner-practitioner can do what he does best - serve his patients.

   
   

7. Failure to Promptly Negotiate Key Sale Terms and Conditions.

   Price is only one key term and condition. Consider these factors early in the negotiation process:

   1. Noncompete time period and scope

   2. Transition period and post-closing employment

   3. Bank financing, seller financing, or both

   4. Status of key employees post-closing