Arizona doctors who are thinking of selling their medical practices will want to carefully consider all the implications of such a move. While there can be many advantages to selling, there are also a number of factors that need to be taken into account. In this blog post, we’ll take a look at some of the key things you’ll need to think about before putting your practice on the market in Arizona.
The Value of Your Arizona Medical Practice
The first thing you need to do is determine how much your medical practice is worth. This can be tricky, as there are a number of factors that will affect the value of your business, such as its location, the size of the patient base, the type of practice, and more. You may want to hire a business appraiser to help you determine an accurate value for your practice.
Once you have an idea of how much your medical practice is worth, you’ll need to decide whether you want to sell the entire business or just a portion of it. For example, you may want to keep the real estate and lease it to the new owners. Or, you may want to sell only the patient list and equipment.
If you decide to sell only the patient list and equipment, this form of sale is referred to as an asset sale. An asset sale is when the buyer purchases certain assets of the business, but not the ownership interest. This type of sale is often used in medical practice sales, as it can be simpler than a stock sale or membership interest sale (more on these below).
With an asset sale, you’ll need to negotiate which assets are included in the sale. This means you will want to be careful to explicitly exclude assets that shouldn’t technically be bought like the vehicle you use every day, but is owned by the business. The purchase price will need to break down in an allocation showing the value of the various assets being bought.
It’s also important to note that with an asset sale, the seller typically retains liability for any debts or other obligations of the business. So if there are any outstanding loans on the practice, the seller will still be responsible for paying them off.
Membership Interest or Stock Sale
A stock sale or membership interest sale is different from an asset sale in that the ownership of the business is transferred to the buyer. This type of sale is often used when the seller wants to completely exit the business and have no further involvement.
With a stock sale or membership interest sale, the purchase price is typically paid in full at the time of closing. The liability for any debts or other obligations of the business also transfers to the buyer allowing the seller to walk away from the business free and clear.
The downside to this type of sale is that it can be more complicated than an asset sale. For example, the buyer will need to go through the process of transferring the ownership of the business with the state. The buyer will also need to obtain any licenses or permits that are required to operate.
Sometimes, the structure of the disposition is not up to the physician but rather is determined by the corporate buyer.
Alternative Structure: Merger
In addition to buying or selling a medical practice, another option is to merge with another practice. This can be a good way to expand your business and gain access to new patients.
When considering a merger, you’ll need to decide whether you want to merge your assets, stock, or membership interests. You’ll also need to determine the price of the merger and how it will be paid. For example, the two practices may agree to exchange stock at a certain price. Or, one practice may pay cash for the
Ultimately, it’s important to make sure that the practices are compatible and that the merger will benefit both parties involved.
Find the Right Buyer
Not just anyone can buy a medical practice—the buyer must have the proper credentials, such as a license to practice medicine in your state. They should also be someone who shares your vision for the future of the practice and who will treat your patients with the same compassion and care that you have over the years. Take your time finding the right buyer; this isn’t a decision that should be made hastily.
Selling to a Strategic Buyer vs. Corporate Buyer
When you’re selling your medical practice, you’ll also need to decide whether you want to sell to a strategic buyer or a financial buyer.
A strategic buyer is typically another company or licensed physician in the same industry that is looking to expand its market share or add new locations. For example, an Arizona hospital or local physician may be looking to buy a nearby medical practice in order to increase its patient base.
The advantage of selling to a strategic buyer is that they are often more familiar with the industry and can offer a higher purchase price. The downside is that they may be more likely to impose conditions on the sale, such as requiring you to stay on for a certain period of time or not compete in the same market for a number of years.
A corporate buyer is a company that is not in the same industry but is looking to invest in a medical practice or the health care industry as a business opportunity. For example, a private equity firm may invest in a number of different businesses including a medical practice. Private equity firms are prohibited from owning physician practices in most states. Because of this, a typical acquisition strategy involves linking a private-equity owned physician management company with a physician-owned medical group.
The advantage of selling to a corporate buyer is that they typically have more money to invest and can offer a higher purchase price. The downside is that they may not be as familiar with the medical industry and could impose conditions that are not ideal for you.
It’s important to note that you don’t have to decide between a strategic buyer and a corporate buyer. You can try to attract both types of buyers and see who offers the best deal.
Enlisting the Help of a Broker
If you are worried about finding the right buyer, you can always enlist a broker. A broker can help source potential buyers while you remain focused on practicing medicine and the day-to-day operations of your business. Keep in mind, a broker typically charges a percentage of the purchase price as his or her fee.
Negotiate the Sale Price
Once you’ve found a qualified buyer for your medical practice, it’s time to start negotiations. Again, this is where having an experienced business appraiser on your side can be extremely helpful, as they can help you negotiate a fair price for your business. Remember, though, that ultimately it’s up to you to decide how much you’re willing to sell your practice for—so don’t let yourself be taken advantage of during negotiations.
The sale price of your medical practice will be determined by a number of factors, including the size of the practice, the location, the number of patients, and the overall financial health of the business.
Determining Payment When Selling Your Arizona Medical Practice
You’ll also need to decide whether you want to sell your practice for cash or if you’re willing to finance part of the transaction either through a promissory note (seller financing) or a buyer obtaining a traditional loan. Sometimes, obtaining a loan can take time while the buyer is waiting for approval and thereby delay the sale. If you’re in a hurry to sell, then you may want to consider accepting less cash upfront in exchange for the promise of future payments.
Once you’ve reached an agreement on the sale price, it’s time to move on to the next step: due diligence.
What is due diligence?
Due diligence is the process by which a seller investigates a potential buyer to make sure that they are qualified and have the ability to purchase your medical practice. The buyer will conduct a similar process by investigating the seller to determine whether the business is a good fit, whether the seller is being truthful about the condition of the business, and to determine whether the practice is profitable.
During due diligence, the buyer will likely request a number of documents from you, including tax returns, organizational documents, financial statements, lease agreements, employee contracts, and insurance policies. Financial statements like profit and loss statements and similar financial records help the buyer to determine revenue flow and profitability.
The due diligence process will be easier if you begin preparing this documentation prior to listing your medical practice for sale.
The buyer’s team may also want to tour your office and meet your staff. This is especially true if the buyer intends to retain your key employees post-closing. Related to retaining key employees, the buyer may wish to see the relevant documentation for the employees to ensure they hold the proper certifications and licenses for their role.
Recommended Reading: Sell My Business Series: Legal Documents You Need
Selling your Arizona medical practice can be a great way to retire comfortably—but you need to ensure you’re making the right choices through the process. Choosing the right buyer, proper structure and a fair purchase price can all be important factors that play a role. If you’re looking to sell your Arizona medical practice, an attorney can assist you with drafting the important key agreements that protect your best interests both during the sale and after.
Nocturnal Legal is a full-service law firm that helps business owners like you with their legal needs. Our experienced attorney assists with everything from drafting key agreements to handling mergers and acquisitions. She can skillfully assist you in selling your Arizona medical practice. Contact us today to schedule a consultation.