Ophthalmology Business

APR 2013

Ophthalmology Business is focused on business topics relevant to the entrepreneurial ophthalmologist. It offers editorial, opinion, and practical tips for physicians running an ophthalmic practice. It is a companion publication of EyeWorld.

Issue link: http://digital.ophthalmologybusiness.org/i/115526

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Page 24 of 27

practice for sale D uring the Great Recession, many practitioners held off on retiring for various reasons. Now that the economy is recovering, Wall Street is booming so their stock holdings are stronger, and with the cost of converting to medical records, more and more practitioners are considering selling their practices and retiring. In this article I will discuss eight simple steps one can take to prepare a practice for sale and position it for maximum value. Be prepared to discuss why you are selling The first question one is likely to be asked is "Why is the practice for sale?" There are many reasons for selling a medical practice including retirement, burnout, illness, family reasons, relocation, etc. All potential buyers want to know there is a legitimate reason behind the sale before they pursue the opportunity. If you cannot honestly and clearly explain why you are selling, it is unlikely you will receive an offer for the practice's maximum value. Visual impressions matter Visual impressions are important. Two practices can have similar revenue diversity, gross collections, overhead and profitability. According to valuation formulas, their numbers would dictate similar values. However, the practice that has a more attractive "curbside appeal" will likely receive a higher offer. In most cases, one needn't undertake a major project to improve the look of the practice. It can be little things such as having the carpet steam cleaned, increasing the frequency of lawn mowing, having daily "trash pickup inspections" of the office and parking lot, etc. If your staff is aware of the sale, you may find it useful to assign one or more employees to keep certain areas of the office neat and presentable (more so than normal), especially in the days immediately preceding a buyer's visit. Financial diligence Soft issues such as location, visual impressions, etc. can influence an offer, but basic value comes from a practice's financial performance. As such, make sure you are collecting all that you can collect for the work performed. Not collecting all you can has a two-fold result in that the gross revenues look lower and the practice's overhead will artificially appear to be higher (when the expenses are applied to the reduced collections). Medicine is a service industry. The value of any business entity in a service industry is related to the amount of revenue and profits generated from performing that service. It then follows that the more cash generated from performing the service, the greater value your business will have. If you do not accurately collect and report all income, you inadvertently undervalue your practice. Additionally, most buyers (and lenders) will want to see three years of financial statements. More scrutiny tends to be paid to the 18-24 months prior to a sale. During this time, it helps to make an extra effort to maximize your productivity/collections and minimize discretionary expenditures. Although a professional valuator or experienced practice broker will account for discretionary expenditures when examining cash flow, in most buyers' eyes, a dollar of net income is still more attractive than a dollar of adjusted cash flow. Discretionary expenses most easily targeted for review are travel, entertainment, all forms of insurance coverage (property, health, auto, professional liability, etc.), and any inflated family wages. If you own the practice and real estate through separate corporations, you should match the rental payments to the current market rates. As for updating equipment, minor expenditures can be justified but any significant equipment purchase decisions, unless vital to ongoing operations, should be put off and left for the new owner's input. Accurate financials When one purchases a practice he or she is purchasing a job, an anticipated revenue stream. As such, a potential buyer needs to identify the true financial health of a practice. Any discrepancy in your financial statements and/or federal tax returns will need to be clearly and accurately explained to the prospect's satisfaction. Anything less raises doubts and could result in no sale or a reduced offer. Have supporting documents and other pertinent information readily available The financial statements and any appendices should provide an overview of the practice's monthly/ annual operations and portray an accurate picture of the financial health of the practice. To accomplish this, you should have complete, accurate, and neat financial statements as well as other supporting documents for the buyer's review. Areas to address in supporting documents are: • number of active medical records (i.e., a patient seen in the past three years) continued on page 26 April 2013 • Ophthalmology Business 25

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