Strategies to Consider When Preparing to Sell Your Practice
The decision to exit your medical or dental practice - or any business for that matter - does not come lightly. You likely have myriad factors to consider: replacing your current income, loyal staff and patients, debt obligations, kids heading off to college, and on and on. The good news is that a successful exit is possible if you have the right plan and team of advisors in place. In this article, we touch on some of the key factors to both a successful sale of your practice and to ensuring you can maintain the lifestyle you want post-exit.
1. Have A Plan
You may have been in practice for 30, 40 or more years and are simply ready to hang it up. This is completely acceptable and well-deserved! But have you properly planned for the loss in income? While you will be receiving a sizable check, don’t forget about the perks that come with running a business (bonuses, benefits and write-offs). Be sure to have candid discussions with your CPA and financial planners well before going to market to make sure you are able to continue the lifestyle you enjoyed while in business. So many owners exit, only to find themselves needing to return to practice part-time. A proper plan with the right team will help avoid this and, in turn, allow you to maintain a healthy mental state throughout the sale and beyond.
2. Avoid A Swift Exit
You likely have generations of families that have been coming to see you. If you exit the day you sell – particularly if you have not been able to discuss the upcoming transition with your patients due to confidentiality agreements – you may feel a major void as you walk out the door one last time. The good news is that today, many DSO and MSO group buyers want to keep you around for a while. In fact, they likely will even tie your total compensation package to performance in the form of an earnout. While suddenly walking into the business YOU started and having a new boss may not be your view of an ideal exit, it can be a win for everyone. The buyer takes comfort in knowing there will not be major disruption to your business, and thus, they will be willing to pay you more, you get to phase out on your terms, and your patients will see that the “new guys” are not so bad after all. It goes without saying that you should have your advisors and legal team advocate well for you in structuring an earnout (along with the terms of the entire acquisition), but generally, all parties want to see a smooth transition and keep the founder around as long as he or she is willing to do so.
3. Considering Putting Skin in the Game
As the seller, you may be focused only on how to get top dollar as fast as possible. While there is certainly nothing wrong with that line of thinking, the concept of a rollover can be hugely beneficial to your long-term wealth strategy. Consider two scenarios… in Scenario A, you are paid at the chosen EBITDA multiple and are either on your merry way or spend a few years as an employee of the organization. In Scenario B, you “roll” some equity into the new entity. What does this mean? Generally, you still get a check at closing, albeit a smaller one. You still have your job and benefits if you signed an employment agreement. But now you own part of this growing company going forward. Make no mistake about it, the focus of a private equity-backed DSO/MSO is to find practices that are performing well, scoop them up, and outperform more liquid investment opportunities. As a part owner of this new group, you now get a “second bite at the apple” when the firm buys again, thus increasing the overall value. The goal here is that you will still retain some ownership when this thriving enterprise finally decides to sell for a much higher valuation than your practice could achieve standing on its own, and boom, a much bigger pay day for you! Yes, it is a gamble. You must believe in the group buying your business and that management decisions will made will be in the best interest of the organization. If you are not confident in the buyers, well then, are you sure you even want to sell to them? As mentioned, if all you are focused on is a single payday and exit, maybe that’s fine. But if you believe in the new owners, can negotiate to have a seat at the table for board meetings (and thus a voice in management decisions), and can help drive the business to the next level, you should be thoroughly rewarded if you stick around and roll equity.
While these are just a few of the considerations upon the decision to exit, the right strategy will maximize your return and set you up for long-term wealth and comfort. If you are considering buying or selling a practice, please do not hesitate to give us a call at (860) 552-7770 or email us at firstname.lastname@example.org.
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