Best Practices

Selling your practice? Leave your emotions out of it

Anticipate your buyer’s perceived risks and challenges.

By Richard C. Koval, MPA, CMPE

Whether you add a co-owner or decide to sell your practice in its entirety, a valuation is a helpful first step in determining initial parameters for the sale price. However, the final price is determined through good-faith negotiation with a buyer. Here are guidelines to achieving constructive, fair negotiation.

REASON TO COMPROMISE

Typically, valuation reflects the worth of the practice at a given point in time. If we could guarantee no changes in the practice after sale, that value might be an appropriate sale price. But realistically, future performance will vary from what the practice has done historically.

The greatest variable will be found in goodwill value, representing the worth of the practice’s infrastructure, identity in the market, referral relationships and other factors contributing to profitability. That profit may be at risk if the buyer is unable to sustain historical revenue or cannot replicate the practice’s historical overhead.

In regard to revenue, if your relationships with patients and referral sources are based on your personality, reputation, and other traits not necessarily shared by the buyer, revenue will likely drop after sale, which will also reduce profitability. Similarly, if your overhead profile is difficult to sustain or reflects idiosyncrasies of your practice style, the buyer’s expenses will increase, again reducing profitability.

Whether the buyer’s fears are real or imagined, those factors will affect pricing and determine the likelihood of reaching a deal. A prudent buyer will mitigate perceived risk by reducing price, so the key to achieving a fair price is to reduce or eliminate the factors contributing to the buyer’s anxiety to the extent you can. At the same time, if your practice is built on characteristics a buyer doesn’t share, some pricing concession is likely in order.

GIVE A LITTLE, GET A LITTLE

All of this means that the price for a practice sale will often turn out to be less than the value of the practice. As a seller, you certainly can insist on nothing less than full value, but a more realistic view recognizes the uncertainties a buyer faces, modifying the price in a way that’s still fair to you as a seller but provides a reasonable level of comfort for the buyer. Ensuring consistency in your practice’s performance over time will help limit your future buyer’s concerns. OM

Richard C. Koval, MPA, CMPE is a principal and senior consultant with BSM Consulting, an internationally recognized health care consulting firm headquartered in Incline Village, Nevada and Scottsdale, Arizona. For more information about the author, BSM Consulting, or content/resources discussed in this article, please visit www.BSMconsulting.com.