Buying and selling an aesthetic medical practice can be complex, especially when a real estate transaction is also part of the practice sale. In this interview with Aesthetic Insider™ Radio, Rod Johnston, MBA, CMA, an expert in medical practice transitions and owner of Omni Practice Group, a provider of practice sales, valuations, consulting and real estate services, discusses what doctors who are considering selling their aesthetic medical practice need to know in advance of a sale. He also outlines the important key elements that doctors who want to purchase an established medical practice should look for. Rod’s background in accounting, finance, sales and real estate make him one of the most well-rounded practice transition consultants in the USA and with a team of qualified appraisers, brokers and real estate professionals, his company is licensed in 15 states. To learn more about Rod Johnston and Omni Practice Group please visit www.omni-pg.com, or call 877 866-6053.
What are the main reasons a doctor may want to sell a medical practice?
One of the top reasons is more related to the business side of things, rather than the treating of patients. Running a medical practice is a lot of work and is reliant on a good staff which can be hard for many doctors to find the right balance. On top of that is dealing with insurance, credentialing, long hours and so on. Many of the doctors we work with realize that they want to be able to leave at 5pm and spend more time with family, rather than working round the clock. They realize if they take away the ownership piece, they can have more time for other life enjoyments so selling the practice makes sense to them. For others, it could be retirement, relocation, health reasons, and so on. Many just get to a point in their career, look at the potential tax increases on the horizon, think about what they might be missing in their lives, and just say, now is the time to sell.
How long does it take to sell a medical practice?
There are many factors that go into selling a medical practice and at Omni Practice Group we advise doctors consider a five year plan. Some think they can sell their practice in 6 to 18 months, but we have found that the more successful sales are planned several years in advance.
What do you recommend a doctor do first once they have made the decision to sell?
They should get together with a financial analyst such as those we have at Omni Practice Group, and/or their CPA. They need to take a detailed look at their finances and consider how much they are going to need to retire, or to make a move. Some doctors have been surprised that their finances are actually better than they realized and that selling the practice soon is the best idea. While others find that they need to make adjustments to their earning potential and daily operations in order to bring the practice to a higher level of profit before putting it on the market.
What other factors should be considered when preparing a medical practice for sale?
1.Waiting to sell when the income is lower can potentially cost hundreds of thousands dollars in lost equity.
2. Look for areas where you can increase the value of the practice. The value is tied to the cash flow and profit levels.
3. Review staff costs and rent. Is the practice over-staffed, under-staffed? What about the square footage? Too much, not enough?
4. Don’t invest in any capital assets such as new laser equipment, etc. Many doctors feel these types of purchases are assets to the practice in terms of sales value, but they are not.
How long does it take to place a sales value on a practice?
We offer what we call a Snapshot Valuation where we look at the last few years’ tax returns and production reports if available. From there, we can quickly provide an idea of what the value is which, as mentioned earlier, can be a nice surprise to both the doctor and their financial planner. In other cases, it helps lay the groundwork for what has to be done to prepare the practice for the optimal sales price.
Do you also recommend selling real estate that is part of the practice?
At Omni Practice Group we are also licensed commercial brokers specializing in medical real estate so in addition to selling the practice, we can also assist with any attached real estate. When a doctor owns the building we first ask if they want to continue to own the building as being a landlord can bring sleepless nights and responsibilities the doctor may no longer want to hold. We also discuss the many stories we have to share from previous experience, as well as the pros and cons of continued ownership such as:
1. The new owner of your practice decides to move once their lease is up and build their own medical building close by, not only leaving your building empty and in need of upgrades, but creating competition for you. This could leave you with a vacant building that is designated as medical and could be more difficult to lease or sell in the future.
2. When the real estate market is high, it makes sense to sell. When it is low, it is worth considering the risk of holding onto it for a few more years.
Are you able to sell a practice that has a lease in place?
Yes. It is very important to have an expert help with lease negotiation as there are many scenarios that can take place. The most important thing is to ensure that the lease can be extended to the new owner for a period of time that makes sense for them to profitably maintain the business. It is also important to make sure that the lease does not contain language such as building tear down, vacate notices or clauses pertaining to lease assignability. Many banks require that the term of the lease be the same or greater than the term of the loan they are providing to the new buyer.
What is the best type of medical practice to sell?
There isn’t necessarily a best type of practice as the value of the practice is the profitability. Saying that, the best practice is the one that gives the seller the highest value which would be a practice that has their overhead under control, and the practice is still growing. Production numbers should be up, rather than down and showing a steady increase. Both buyers and banks want to see steady growth and the potential of future profit margins.
How does Omni Practice Group work with a doctor looking to sell their practice?
We start with an initial phone call with the doctor to determine timing and needs. We always start with the valuation of the practice which requires discovery paperwork to be completed by the doctor and their providing us with the past five years of tax returns, as well as Company P&L Statements, (Profit and Loss Statements), production reports, etc. The initial valuation is usually delivered within 10 days. After that, we will arrange an in-person meeting with the doctor and spouse or partner to go over the valuation together, as well as take photos of the practice and discuss in detail what we are going to do to put the practice on the market, what may need to be done in advance of putting it on the market, and a fair market sales prices. Then we put together a very professional business offering/practice prospectus which is about 40 pages long and details everything about the practice including the demographics of the area, staff, marketing, profitability, and many other details pertaining to the practice and the surrounding area.
Do you also market the practice to potential buyers?
Yes. Once the business offering/practice prospectus booklet is complete, we begin marketing the practice and list and advertise it nationally across many platforms including national websites, State associations, mergers and acquisitions sites, biz buy-sell sites, and the other places buyers look. We also send out letters to potential buyers we have in our own database. The name of the practice and the sales price are kept confidential, but we do mention location such as Los Angeles, San Francisco, New York, Chicago, Miami, etc. When the buyers contact us, they are required to sign a non-disclosure which clearly states that they can’t mention the sale of the practice to anyone but their own advisors and our inner circle.
Do you assist with the actual showing of the practice to a buyer?
Yes. Like a real estate agent would show a home, Omni Practice Group shows a practice so the doctor does not have to do any of that which most of our customers prefer. During the showing, we discuss the practice, growth opportunities, staff, location, etc., and then if they are interested the buyer submits a Letter of Intent so they can proceed with doing their due diligence, and sales price negotiation. Unlike other firms, Omni only represents the seller in this instance, not the buyer. Once a price has been agreed, the buyer moves forward to secure financing and instruct their attorney to draft the purchase and sale agreement for the buyer to review, share with their attorney and amend as necessary to bring the sale to closure. From there the seller can sail off into the sunset, or go home and rest, whatever may be their dream.
Who typically buys a medical practice?
Buyers range from an individual who might want to own their own medical practice, to a small group that may own four or five other medical practices, all the way up to large corporate groups or private equity companies that are looking for opportunities to get into the aesthetic medical field.
What tips do you have for the doctor that is looking to buy a medical practice?
Buyers generally have different goals. It’s just like buying a house. Some buyers want a place that is ready to move in, needs hardly any work and is turn-key. While other buyers are up for a challenge and want to do a remodel. The buyer should decide before they begin their search just what it is they are looking for and get in touch with a firm like Omni Practice Group who can help set parameters and begin a search on their behalf, much like a home real estate agent would. In this instance we would work with the buyer to finalize the deal as they have become our customer at this point and we would assist with due diligence, looking at areas for growth and profitability and/or recommending changes to cut down on overhead. We also negotiate on their behalf to bring the purchase to fruition.
Is now a good time to buy or sell a medical practice?
Yes and for many reasons. The real estate market is great at the moment, but there is also a high number of doctors at or around retirement age (50% of doctors are over the age of 55) and are looking to start living their best life now!
To listen to the interview with Rod Johnston of Omni Practice Group at Aesthetic Insider™ Radio, CLICK HERE!
To contact Omni Practice Group, visit www.omni-pg.com or call 877 866-6053.