For most of us, our business is something we put a lot of love, work and dedication into. Usually the idea to sell a business does not come easily. Either a change in lifestyle, a required move, or other life event can make it necessary to sell your practice. In other cases, it might simply be time to retire, or at least slow down. Whatever the reason, selling your dermatology practice can go smoothly, if you have the information and steps to accomplish this goes.
The first step is getting to the heart of the matter, so you know where you stand. To simplify this process, ask yourself two questions. The reason this is just about you right now is so that you can be completely honest about your intentions. Most importantly, why are you selling? Is it the right time for you, or are you feeling pressure from someone else? The second question is what is the magic number? That is to say the price you need to get from your practice in order to complete the transaction, pay everything that needs to be paid and walk away smiling. If you know that number from the outset, it will save a lot of time and aggravation during the sale.
From a real estate perspective, selling your practice can be similar to selling your house, business, or other property. Of course, it is more complicated but the steps are there to bring you through the process. As a dermatology practice has an actual physical location, the real estate aspects are crucial. Depending on if your office is located in a leased building, or you are the owner, you will need details of the physical address and legalities, including:
- Fully executed lease (including all riders or exhibits)
- Certificate of occupancy or land title
- Current rent bill with name of payee and TIN
- Floor plan with number of exam procedure rooms and other space
- Utilities location, cost and other information
The financial disclosure part of selling your practice might be the most daunting. Just as the business assets and property are accounted for, there is specific financial information that must be brought together for potential buyers. This forms the basis of information that buyers receive to better understand the intricacies of your practice. Take time to properly compile and prepare the following:
- Tax Returns: Keep and include all business tax returns for at least prior two years.
- Income Statement: A year to date income statement paints a financial picture of your property
- Financial statements: Including but not limited to profit & loss statements, balance sheet, etc.
- Employee information: Prior years w-2s, 2 current pay stubs. 1099 income or any outside income along with employment agreements.
- Collection summary (units, payments, & charges) by CPT code by provider (including modifiers)
An important note is to require a non-disclosure form before releasing any information, financial or otherwise, about your practice. Make sure to qualify a buyer to decipher if they are seriously interested in purchasing your practice. Hiring a consultant in different capacities is common and there are companies who will market your business and find qualified buyers for you, for a fee or a percentage of the sale.
You can save yourself time, throughout the process, by keeping certain specifics in mind when talking to a potential buyer. In order to protect your interests, qualify those who are interested. These are steps towards getting to know the intentions of people who inquire about the sale.
- Speak to them on the phone
- Ask questions
- Research their credentials and current practice/business if any
- Discuss their financial terms (i.e. how they are planning to pay you)
As you prepare your practice for sale, gather information regarding operations and day-to-day management as a profile on paper to showcase your business. This can be compiled into a portfolio with sections, as well as an introduction that serves as a quick summary of your practices highlights. Other information that should be included are CVs and qualifications for MDs and PAs/NPs (MM/YYYY format), W-2s and 1099s (MD & non-MD) and a description of the role and job functions of every member on your team. Also include a payroll report, up to date staff spreadsheet with the name, job requirements, hours and contact information for all employees.
As an added reassurance, a risk management section can be included. This shows your buyer you have done due diligence and can include things like a signed and completed risk management questionnaire for each MD and a claims history report. It is also valuable to have a declaration page (also called a face sheet) from all insurance carriers within the last 15 years. Once you have this portfolio complete, it serves as a guide and marketing tool for the sale of your practice.
Take time to properly consider all aspects of the sale. Sometimes, properly valuing your practice can require outside advice. Compiling these documents and creating your sales package can offer better insight into what your practice is worth. The fact is, people are often surprised when the valuation ends up being much higher than the magic number they expected. Often valuation in dermatology practices uses a formula to reach a sale price, such as 5 X the owner’s income – debt owed = sale price.
Whatever you do, you need to plan ahead. Don’t get yourself in a situation where you have to rush to sell. Also, it is recommended that you consult professional legal and financial advisors to ensure you are well protected. Maintain the upper hand so you can choose to do what is best for yourself and your practice.