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Ask-A-Consultant: Selling practice upon retirement

Q:

I am a solo urologist and am considering retirement after 30+ years in practice. I am still relatively busy, but am starting to see some fall-off in my referrals. I would like to sell my practice and have been told that I should expect to receive approximately one times my annual gross income. However, no one seems interested in taking the risk to buy my practice given the state of managed care in my area. I am concerned that I may just have to close my practice and refer my patients to my call group. What should I do?

A:

To begin, you need to get an assessment of your practice and a realistic appraisal of its value. The rule of thumb of “one times gross” is not an accurate measure of value and could vastly overstate or understate the true value, depending on the practice’s underlying assets, its profitability and the potential transferability of your base of business to a potential buyer.

After you obtain a fair market appraisal, you may want to consider restructuring your asking price to make the practice more marketable (and less risky to potential purchasers). To begin, you may want to retain your accounts receivable or have the purchaser collect the receivables on your behalf. You might also want to consider breaking up the purchase price into that portion attributable to the tangibles (furniture, fixtures, supplies, etc.) versus the intangibles or “goodwill”. The price for the tangibles should be fixed and possibly payable by the purchaser over a period of several years. The portion attributable to the intangibles might then be converted to a percentage of the practice’s collections for a period of time following your retirement. This approach substantially limits the buyer’s risks while relieving you of the responsibility of disposing of your medical records. Of course, you need to be comfortable that the buyer will be able to retain your patients, will have the proper accounting systems in place to allow you to monitor collections and can be counted on to make payments in a timely fashion. In addition, it is very important to structure the sale of the practice in conformance with the applicable Medicare/Medicaid Safe Harbors for such a sale and to consider the tax implications to both you and the buyer.
 

Charles Y. Thomason III
President

MMA does not provide legal, accounting, or tax advice.  If you need assistance in these areas, we recommend that you consult a qualified professional.  In addition, please note that a client relationship with MMA is not established by the submission of a question to this forum or by the publishing of MMA's response.



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