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Financial Implications of Transitioning a Practice: How to Maximize Your Return

Citizens Bank

The merger or sale of a medical practice is a complex transition requiring advanced planning and thoughtful consideration. Maximizing your return while ensuring continuity of patient care during the transition is a highly desirable goal. Transitioning physicians must work with their team of advisors to determine the optimal selling price of the practice and navigate the numerous legal and business considerations inherent in any transition transaction.

Determining the Optimal Selling Price

Once you have made a decision to sell your practice, determining the selling price that maximizes your investment is the next step. But don’t go it alone. If you haven’t done so already, make sure you put together a trusted team of advisors who can offer important input that affects your determination of the selling price. Your team should include your CPA, an attorney, your insurance broker, and a banker who specializes in the healthcare industry.

When determining the value of your practice, there are several factors you should consider:

  • What are the demographics of the community? Demographics can play a significant role in assessing the value of your practice. Large metropolitan areas offer retiring physicians more choices and increase your pool of potential buyers. Is the practice located in a high growth area? Is there an aging population? Are younger families moving into the area? Demographic trends should not be overlooked as they can exert both a positive and negative impact on the selling price.
  • Does the recent financial performance of the practice warrant a higher than expected purchase price? It is important to understand the gross revenue trends of the practice. Are they increasing, and has the practice enjoyed robust growth? Has the net income of the practice fallen in recent years? Understanding revenue and profitability trends can offer important insights and serve as determining factors in establishing the purchase price.
  • How visible is the practice? Is it located in a high traffic area? Is there ample signage on the street? The easier the practice is to locate, the more likely patients will use the practice. Low visibility from the street and a hard-to-find location can have negative impacts on the purchase price.
  • Does the practice have ample parking? While often overlooked in determining the value of the practice, insufficient parking can limit a patient practice and its overall financial performance.
  • Are there expansion opportunities? Will the new owner have an opportunity to expand the practice within the current space? Prospective buyers will want to know they have options – including the option to expand the practice. If this option exists, it should be highlighted in marketing materials and factored into the selling price.
  • Has the practice been updated? The desirability of any practice is greatly influenced by the investment a physician has made in technology, the aesthetics and functionality of the office space, and the efficiencies of the staff in maintaining a profitable practice.
  • Is real estate part of the purchase price? If real estate is owned by the transitioning physician, the doctor should consider whether to include it as part of the transition or address it separately. This can serve as a significant negotiating point when determining the price of the practice.

Working with Your Team of Advisors

Establishing the purchase price is just the first of many decisions the transitioning physician should make with input from a team of advisors. As mentioned earlier, these advisors should have expertise in banking, investment strategies, tax implications, insurance and legal matters, particularly those involving sensitive patient records. Careful advance planning for the transition is essential due to the host of legal and business considerations involved with any medical practice transition.

Considering Your Banking Needs

Transitioning Finance

  • Those who require assistance in the form of an acquisition loan should seek the help of a financial institution with a healthcare specialty. A healthcare banker is well versed in medical practice transition financing. A well-positioned bank should be capable of providing customized loan packages that offer up to 100% financing for established practice acquisitions with up to 10-year terms and competitive rates.

Post-Transition Considerations

  • Prior to the sale of the practice, you should negotiate the terms of the transition period including how long you will stay on at the practice. We have found an optimal transition period to be no more than 90 days. Also, how will you be paid during this period? How many days will you work at the practice?
  • Transitioning physicians will want to assemble a post-transition plan that governs how bank accounts will be managed following the transition. Who will monitor the accounts and their activity after the transition? For how long?

Careful planning and execution will maximize the return for the transitioning physician. With the right support team in place, medical practice transitions can be successfully navigated with a seamless shift and minimal disruptions to day-to-day operations.

Citizens’ team of healthcare practice specialists take the time to understand your needs and offer holistic solutions for your practice and employees, including practice acquisition loans, flex loans, lines of credit, business checking accounts and business credit cards, education refinance loans and wealth management services. To find a Citizens’ Healthcare Group Specialist near you, visit businessbankinghealthcare.com.

More information about the unique challenges facing the nation’s small, privately held medical practices during the next five years can be found in the Citizens’ 2016 Healthcare Outlook Study.

To learn more, please contact Lisa Enright, Director, Senior Vice President, HealthCare Practice Banking, at 860.440.4217 or lisa.m.enright@citizensbank.com.

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