Over my years working with physician owners and practice administrators, I’ve learned that timing makes a big difference when selling a practice. Simply put, when you decide to sell can make a big difference in how much you’ll sell it for.

Are you thinking I’m referring to the economy? Market trends in your field? Or the current direction the political winds are blowing?

External factors like those could impact your ability to get the best price for your practice. If you’re just not ready to sell when private equity roars through your specialty market, well, that can leave you feeling like you missed the one great opportunity to cash out. Or if a recession hits, maybe you’ll worry that prospective buyers will prefer to hunker down until the economy turns around.

But these are factors beyond your control. The timing issue I’m talking about is something you have more control over—and it’s a pitfall I’ve seen physician owners make in both highly favorable and unfavorable markets. The bad timing I’m talking about here is when a practice owner feels pressure to sell immediately.

If you’re tied to a looming deadline or otherwise desperate to sell fast, that urgency will likely result in a much lower price than you would otherwise have attracted. And, in my experience, this desperation can usually be avoided.

Here are a few examples from my experience.

Solo practice down the street

An allergist client of mine called me about making an offer on a longstanding solo practice that had suddenly come on the market. The practice for sale was located just a few minutes down the road from my client’s satellite office, so my client thought this could be a fast, easy way to expand that location. He was worried, though, that the price suggested the seller’s view of his practice’s value was inflated. Despite this concern, my client thought he should move fast to pull together some kind of offer. Apparently, other parties were interested—at least according to the seller.

But in telling me all this, my client left out the most important part: the practice owner had already told all his patients that he’d be closing his doors in 60 days, and that they needed to find a new home for allergy care. In fact, my client said he’d first learned that the seller was closing up shop from patients who were calling my client’s office to book appointments!

An unnecessary rush to sell creates a fire sale

I suggested my client tread cautiously.

By announcing an imminent closure, I believed the seller had inadvertently turned his business sale into a going-out-of-business sale. With his patients rushing to find new doctors, the practice’s value would likely decrease precipitously as the 60-day deadline approached.

I suspected the other interested parties—corporate medical groups with business analysts of their own—would see things like I did. The practice’s value would largely based on its existing patient base. Without ongoing patient relationships and revenues, the remaining practice business would be just a shell of physical assets that aren’t hard to replace at relatively low cost.

There were already signs of this: my client was already attracting many of the abandoned patients without spending a penny. His satellite office was the closest option for these patients. A minimal marketing investment might bring the rest of them to his door—without the risk, cost, and hassle of a practice acquisition.

It turned out this was exactly what happened. My client grew his business substantially, spending very little on marketing to do so. And the seller’s practice, unfortunately, wound up unsold, the owner receiving nothing for the practice he’d spent years building.

Don’t wait until you break

How did this poor seller end up in this unfortunate predicament?

Apparently, over his last few years in business, this owner had become more and more disheartened by dealing with insurance. I doubt I need to convince you that this is an understandable frustration. But by waiting until his aggravation led him to announce his practice closure in disgust, this owner sealed the fate of his practice.

This owner had pushed through his dissatisfaction for years until he simply couldn’t take it anymore. What if he had been less hard on himself, and acknowledged his boredom and aggravation when they first surfaced? What if he instead had made a plan to sell in three or five or ten years?

Such a plan might have reinvigorated this physician’s interest in the business. He’d have had an end goal in sight to buoy his optimism and new information to learn to hold his interest. He would have had time to learn about how to market his practice to prospective buyers. And he could have optimized the practice’s profitability to command the best possible price, or perhaps brought aboard a partner who might want to take over. All of these steps could have helped him avoid the financial blow of an unsold practice, and he probably would have enjoyed the journey more.

Don’t wait until your practice is unmanageable

Another common scenario that can unnecessarily suppress practice sale value is when groups seek relief from management hassles through acquisition by a “supergroup” or MSO-type structure.

I’ve worked with several larger group practices who faced seemingly intractable management issues and were longing to make their administrative pain go away. The promises of a supergroup structure can sound like the perfect escape hatch in this situation, offering the clinical freedom of private practice while someone else runs the business. In theory, and sometimes in practice, these structures can be just that. (The devil’s in the details, for sure.)

But even if you’ve chosen wisely and found the ideal group to sell to, if you’re racing to that exit and haven’t first sorted out your administrative issues, you’re probably going to leave money on the table—potentially a lot of money.

Now, I understand that if you’ve been grappling with dysfunction on the business side of your practice, putting more energy (and even money) into trying to fix vexing problems could be the last thing you want to do. But here’s the thing: even small improvements to your practice financials could make an outsized difference in the value of your business to an acquirer. That’s because the offer you receive will not just be tied to your financials, it will likely be a multiple of a revenue or profitability (e.g., EBITDA) metric that you could improve.

And, of course, if you manage to improve profitability, you’ll gain the advantages of that improvement in the short term, too. If you have debt, for example, paying some of that off could also greatly improve your negotiating position and net sale proceeds.

You don’t necessarily have to fix everything to make a difference in your selling price, either. Sometimes, just identifying and fixing revenue leaks or “invisible” costs makes quick bottom-line improvement possible.

Plan for the worst

It’s not the most comfortable thing to discuss, but another time when a hurried practice sale could be forced is if you pass away while still owning it.

Here in California, like many other states, corporate practice of medicine laws prohibit non-physicians from owning medical practices. If you’re a solo practice owner and, say, your spouse or other family member is set to inherit your practice after you’re gone, odds are that they will face a deadline to sell. This will automatically put some downward pressure on the price, but preparing for sale before it has to happen can help. For example, making sure your finances and technology are in their cleanest, most efficient, most comprehensible form will make it easier to move quickly (and make your practice more appealing to a buyer, too).

Groups can be affected by the death or even the disability of an owner, too. Depending upon the financial positions of co-owners, forced buyout provisions can lead to forced practice sales, which could be lose-lose propositions for everyone involved.

Good legal advice and advance planning can protect partners or heirs in these situations. For example, the terms for buying out heirs or disabled/departing partners can be spelled out in the agreement. Funding can be pre-established, such as through insurance policies or escrow accounts.

The bottom line is, effective planning protects your practice asset, your estate, and your peace of mind.

If you’re concerned about leaving money on the table as think ahead to a practice sale, there’s a good chance we can help. Please feel free to contact us!