Yes Doctor, You Can Sell Your Medical Practice

Keith Borglum, Professional Management and Marketing

Dr. X, a successful San Francisco specialist decided it was time to retire from practice. Dr. X had heard from other physicians that it was nearly impossible to sell his practice in California, that managed care had ruined the practice-sale market and practice values, especially for specialists, were minimal. His best option, he thought, was to close the doors, encourage his patients to find another physician, sell what equipment he could, donate the rest of the equipment to charity and find a custodial service for his patient charts that would forward them to patients' new physicians when requested. He would have to contact the Medical Board, the DEA, his professional associations, all his vendors, the landlord, all the HMOs, IPAs, insurance plans, etc. It appeared to be a complicated task, might involve some legal liabilities and would surely involve some cost. It was not something he looked forward to, especially as the culmination of a successful medical career.

He contacted the American Medical Association (AMA) to find a local consultant to help him properly close his practice. The AMA referred him to our Santa Rosa firm, Professional Management and Marketing, as a member of the AMA-screened panel of consultants, and because we were contributors to the AMA's book Closing Your Practice.

I get this call a lot. When I met with Dr. X, I wasn't surprised to find him in a funk. He was at first dubious about my belief that it might be easier to sell his practice than close it, and that it was worth a lot of money too.

Well, he did sell his practice and reasonably quickly. We even had three physicians wanting it badly enough that the price was bid-up to well above the modest asking price of $150,000. Dr. X got an excellent experienced physician to take over his practice. He left with the confidence that his patients were going to be cared for well. He carried the financing himself, getting a higher interest rate than he would have through a bank and got some tax advantage for spreading the payments over two tax years.

Think you can't sell a practice in San Francisco? Don't believe everything you hear in the physicians' lounge at the hospital. Practices sell here regularly, many for a good price, most with minimal fanfare. Not every practice sells, but not every practice is in a condition to be sold, nor does every physician properly try to sell his or her practice.

The truth is, the harder it is to start a practice from scratch in a particular location, the easier it usually is to sell an existing one and the more it is worth. If a physician new to San Francisco wants to have a practice, often the easiest and least costly way to do it is to buy one. It may be the only way to enter the market. Buying a local competitor's practice at the right price is also often a cost effective way to grow your own. The more competition there is, usually the more an existing practice's transferable cash flow is worth.

If you want to sell your practice, here are a few keys:

• Plan at least a year ahead.
• Don't slow down in advance, and even increase productivity if possible.
• Don't tell, or even insinuate your plans to colleagues or staff until the right time.
• Get a professional appraisal, both to price the practice right and to convince a buyer of its value.
• Prepare a proper promotional package.
• Clean up the office and your desk, to make them appear more modern and attractive.
• Consider using a confidential intermediary to protect the identity of the practice for sale.
• Be open as to who the buyer is. It might be your biggest competitor.

For additional information, see Mr. Borglum's article Appraisal of Medical Practice Value at www.PracticeMgmt.com.

Keith Borglum is a medical practice business consultant with Professional Management and Marketing in Santa Rosa, California, and a frequent contributor to medical publications nationwide. Keith and his partner Diane Cate are among the few medical business consultants in the nation that have been accepted collectively into the consultant panels of the American Medical Association, the American Academy of Family Physicians and the American College of Physicians.