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Medical Practice Sales, Appraisal and Financing

Medical Practice Sales, Appraisal and Financing

The medical practice environment has gone through some extensive adjustments in how business is conducted with the new healthcare initiatives. What hasn’t changed when selling a practice, or buying a practice are the details and legal preparations needed to complete the process.  It’s important to work with a medical broker experienced in maximizing the value of the practice for sale, and knowledgeable of the recent healthcare law requirements to avoid federal penalties.

When selling a practice the most critical factors is determining the value of the medical practice according to the market segment, economic development of the region including the region’s professional and social amenities. It’s no secret that the demand for medical practices has multiplied as a result of the increased healthcare issues affecting the growing retirement and Millennials populations.

The success of the sale hinges on working with an experienced medical broker specializing in the healthcare business organizing and arranging a smooth transition of ownership. Something to keep in mind, not all medical practices are the same, they do however share common obligations to the industry requirements and they have similar business functions for determining the value of the business when establishing the sales price.

Here are five business actions that take into account both the market value and the strategic value for a specific buyer looking to take complete ownership or buy into an already established medical practice.

Assessment of Value

Medical brokers are part of the professional trade and most belong to the accredited business associations, but more important is their knowledge of the medical industry.  A good assessment is based on the actual business value not the owner’s emotional opinion and supported with clearly defined information consisting of the current market findings, rational summaries and accurate calculations easily understood by the seller.  Part of the assessment considerations for medical practices today are assumptions, which may play a role in determining the final sales price.  The assumptions are mostly due to the recent changes in healthcare requirements and the potential future changes affecting the business practice.

Business Asset

One critical asset for the healthcare business today are the business and industry training accreditations and healthcare certifications belonging to the medical practice.  Although medical records are considered intangible assets this data cannot be sold, or transferred without the authorization of the patient. Attention to the Health Insurance Portability and Accountability Act (HIPPA) rules outlining industry liabilities and federal health violations in handling medical records are vital during the sales process.  When assessments are done for the business, the true value of these records is to confirm the current revenue and real-time history of business along with future projections of continuing business.

Real estate trends are changing and owning a building generating revenue and accumulating equity becomes a matter of interest depending on the seller's post plans. This asset may be completely separate from the medical business value, yet in terms of selling the business it can be a significant negotiation point to the sale of the practice with transfer options of the real estate property. 

Operations

Staff and computer systems play vital roles in handling business and medical activities.   What these two components share is information about business relationships established and influencing not only current clients, but the future ones when changing occur within the office.   As one of the major values in the healthcare business being sold is its electronic systems for maintaining medical records.  As of 2015 medical offices were mandated to implement digital technology for record keeping in the office.  Failure to do so jeopardizes certain aspects of reimbursement revenues for particular medical services.  There’s no doubt about it non-compliance at any level affects the value of the business.

Market

Whether the medical business is sold or partnerships are created the distinctiveness of the medical industry requires a medical broker because of the complexity of the business consisting of today’s healthcare requirements, medical practice rules and legalities along with regional differences.   Like a realtor, medical brokers understand not only the market environment, but the prospect’s prerequisites or wish list for negotiating a successful sale.  As the sales representative, the process has to make sense for the seller and the buyer to reach an agreed price.  The marketing information promoting the sale uses only relevant facts within a specific timeframe for the particular business. 

Brokers carefully review all the facts and statistics for the practice and share the limitations of the region or healthcare sector, making certain the reports demonstrate the profitability of the practice related to its value.  It’s this whole process that expedites the negotiation to the final closing stage, where brokers are engaged in monitoring the escrow and legal services as part of the transaction.

Transition

Depending on the terms of the sales agreement, it’s typical for the seller to remain at the medical practice through the transition of new ownership.  This strategy is a good idea since the health industry holds the original physician responsible for a smooth transition to the new treating physician. The method serves another purpose by developing a seamless transition without interruption to the business practice.  At this phase, the medical broker works with all of the parties, including legal and escrow as part of the sales negotiation, including a timeline for making the announcements and the introductions to the existing patients receiving treatment.  

The same goes for the office staff, they need to be aware of the ownership changes within the practice and prepared to share information about the medical services and patient systems needed to provide care. More important is an understanding of how the new ownership will affect their employment.  Practices are sold every day, some for a fair price, others net a profitable sale for a high return of investment, making a seller’s time in building the business worth the value.  Like all business, when considering the sale of a medical practice, preparations to exit an operating and thriving practice requires planning and an expert medical broker.

Written by Transition Consultants

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