By: Jackie Bain
Thinking about selling a medical practice? Here are some steps for preparing your business in advance of a transaction.
- Visit your financial planner.
Be sure that you can afford to leave the business, if you are retiring. Most times, buyers will require a comprehensive non-compete and you should be absolutely certain that you are financially prepared to retire or sell before you sign that restrictive covenant.
- Visit your accountant.
Get your financial history in order. Review and re-review your tax returns and profit statements for the past three years to ensure that the business is appropriately reflected in those records. Take the time to clean up any “creative” bookkeeping so that the buyer is given a complete and accurate picture of the business they are buying into. You are likely going to have to make a representation that your financial disclosures are true, so take the time to get comfortable with that representation early on.
Your accountant can also advise you as to the assets of the business and their worth, which can help when it’s time to ascribe a certain value to them.
If your car or other expensive asset is a business asset and you’d like to keep it after the closing, make sure you know these facts early on. Sometimes transitioning assets out of the business, allowing you to keep them post-sale, takes some time.
Finally, if your practice is a professional entity (e.g., PC, PA, PLLC) or in your own name (e.g., Joe Smith, MD, PA) there may be some restructuring that needs to happen prior to selling it off. The buyer might require you to transition from one type of entity to another, or your accountant might counsel you to make that transition to protect some of the proceeds from taxes.
- Visit your legal counsel.
Much the same as ensuring that your business is financially ready to sell, make sure your business is legally ready for a buyer. For instance, if your practice is a professional entity (e.g., PC, PA, PLLC) or in your own name (e.g., Joe Smith, MD, PA) there may be some legal restructuring that needs to occur before any person can buy it. Do you want to sell off a business that is under your own name? Or should you consider renaming? If your business is a professional entity (i.e., a professional corporation), you might consider transitioning it away from a professional entity so that a business person can easily purchase its interest.
Alternatively, if there are contracts that are financially significant to your business, you’ll want someone to review them to ensure they can go with the sale (as they are likely part of the reason that your business is __ to a buyer). Loss of one of these contracts will either impact your sale price or allow the buyer to terminate the deal.
Finally, are there notices that must go out to insurers, vendors, Medicare, the Agency for Health Care Administration, or other similar entities? Are there approvals that must be obtained prior to closing? Get a list together and
- Prepare for due diligence.
Get your business and its documents organized. Due diligence is the part of the sale when the buyer reviews your records, licenses, certifications, contracts, policies and procedures to ensure that the purchase is right for them. The more organized you are, the easier due diligence will be. Moreover, disorganization is often a red flag to a buyer. If you can’t show them your business is primed and ready for sale, they’ll go find one that is.
- Negotiate the letter of intent with your purchaser.
Oftentimes, prospective purchasers will present a “letter of intent” to a business owner that outlines the deal and serves as a guideline for both buy and seller while the attorneys and accountants finalize the deal documents. This letter is negotiable and should be reviewed by your attorneys and accountants prior to your signing it! You do not have to sign the first offer that comes your way, take your time and make sure the deal is right for you. Savvy purchasers will understand your needing to have your counsel review these letters of intent.
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