5 Points to Ponder About a Transition in the New Year
We have been involved in practice transitions since the mid-1990s. Our company has sold over 500 practices in 10 different states. Doctors have sold their practices for numerous reasons ranging from just being tired of owning and managing a practice to severe health issues forcing them to sell. In all these years and transactions we have performed, not one doctor has come up to us after the sale and said, “I wish I wouldn’t have sold my practice so soon”, or, “I wish I still owned my practice.” In fact, most doctors whom we talk with months, or even years after a transition, say, “Selling my practice was one of the smartest decisions I made. I wish I would have sold much earlier.” So, how do you know when is a good time to sell? Here are a few things to consider:
- The Current Sales Market – Is it a buyer’s or a seller’s market? A buyer’s market is when there are a lot of practices for sale, interest rates are average-to-high and there is low-demand. Currently, as of December 2019, we are in a seller’s market. Interest rates are quite low. The economy is doing well. The demand for practices is high. The demand for practices producing over $700,000 per year is ridiculously high. We can usually sell those in 3 to 6 months. This high-demand and low-interest rates are causing an increase in practice values. In a few years, this will change – and we will probably never see these high values again in our lifetime. You want to sell your practice in a seller’s market that is this hot.
- Being Forced to Sell – There are certain things that are inevitable in life. Getting older is one of them, and that includes all the aches, pains and other health issues that go along with it. Every year, we have seen several doctors sell their practice because of back, neck, hand, or eye site issues, to name a few. We have also seen more serious health issues that forced a doctor to sell. Cancer in all its’ forms, and other diseases, can happen when you least expect it. There have been several doctors who often tell me they are ready to sell, and yet, they don’t put their practice on the market when they’re still healthy. Only when they were diagnosed with cancer did they decide to sell. One of them sold their practice and then passed away the next day. We have story after story of doctors who sold their practice expecting to enjoy retirement with their family only to report back that they or their spouse got sick, or worse yet, passed away. Enjoying retirement and life is something we should all have the opportunity to do. Selling when it’s the right time ensures us of this.
- Harvesting the Equity in Your Practice – This is one of our favorite strategies in selling a practice. And, this hot market with high practice prices makes it even a smarter decision. When you started or bought your practice, you probably took out a loan with the bank. As you’ve been practicing, you have paid your loan down and have built up your practice. The difference between the potential sales price of your practice and any debt you may have on your practice is called equity. Many doctors may have hundreds of thousands of dollars, if not millions of dollars, in equity. This equity doesn’t do anything for you. You can’t do anything with it unless you harvest the equity. You do this by selling your practice. You put the hundreds of thousands, or million dollars into the bank, invest it, or pay off your house. Whatever you’d like to do. You can then work back in the practice you just sold, or work in another practice. Or, you can even go buy a new practice, build it up and harvest even more equity. It’s a beautiful thing.
- And now for Something Completely Different – (This heading is for the Monty Python fans out there!) We all get tired of doing the same old thing, day in and day out. We are just tired of the monotony, tired of staff, tired of the patients and just ready to do something completely different. We have doctors who are ready to change course completely. We have had doctors sell and tell me they want to be a real estate agent, a barista, or they are going to run a surf shop in Hawaii. If you’ve reached that point and are tired of the same old routine, remember – Life is Short, it’s time to take action and do something different. You can always come back years later if you decide you have had a long enough break and are ready to return to practice.
- Annual Production is Decreasing – Just for fun, go back and look at your last five years of profit and loss statements or tax returns. Have your annual revenues gone down year after year after year? How’s your income – has it also gone done year after year? We frequently see this as practice owners start to get a bit tired towards the end of their careers. They slow down their production, but the overhead stays the same, so their income goes down even faster. They then decide to sell and think that the price should be based on what the practice used to do before the slide in production. It doesn’t work that way. A practice’s value is what it’s doing today, not five years ago when it was double. Using the Equity Harvesting strategy (in number 3, above) would have given these doctors hundreds of thousands of additional dollars.
We are imparting this knowledge to you not to get you to sell your practice as soon as possible. We are simply giving you some things to think about and passing on some wisdom from prior experiences of other doctors. Thinking about these five things, in addition to taking action, may provide you more time with your family if you sell a few years earlier. It may also give you more money to have a happy retirement. Look at each one of the five items above and ask yourself, “Do I want to sell your practice when I have to, or when I want to?”