Before You Sell Your Medical Practice …

Are you considering selling your practice? Who are the potential buyers? Will they pay for goodwill? Will you be subject to a restrictive covenant? There are myriad questions that arise when a physician considers selling out. And there are lots of reasons to sell. But, before moving forward, physicians should consider the following.

As a preliminary matter, a physician practice should get “its house in order.” What do I mean by that? This means to make sure that the practice’s organizational documents are up-to-date, that employment agreements are signed and accurate, that there are written leases for office space, that sort of thing. It also means that the practice’s taxes are paid, and that the practice isn’t in default with respect to debt payments or too late with respect to its accounts payable. Basically, that the practice’s business is operating as a business, in good financial and operational standing.

We all know that the health care business is highly regulated. This means that a prospective buyer will be looking to make sure that the practice has all of the permits and licenses it needs to operate, and that those licenses haven’t expired and are not restricted due to operational problems. And, it is crucial that the practice is operating in accordance with the Stark and Anti-kickback laws. This may mean that the practice should consider having an attorney and/or its compliance officer take a careful look to catch any issues before the prospective buyer does.

Another consideration before soliciting buyers is whether the practice has any key employees that it would like to protect. This could mean putting in place a form of severance agreement in the event that the buy chooses to terminate the employee following the sale for a period of time (for no reason). It could also mean putting in place a “stay agreement” providing for a payment at closing because the practice needed to make sure that the employee assisted in the sale process. The practice should determine, in any event, if there are any employees that merit this type of consideration.

While I could go on, one last thought before selling. How long do you want to stay in practice after the sale? You should have a clear plan and articulate it to prospective buyers. By doing so, you will help the buyer plan for recruitment to assure that the practice will survive and thrive. Also, most buyers will want you to make a significant time commitment post-closing and so rather than deal with this after significant time is spent on due diligence, by putting this issue up front, the parties will have open eyes from day one. That being said, if there are any other “deal breakers,” let them be known. You can avoid wasting time.