12 Jul When is the Right Time to Sell?
For most doctors, the sale of their practice is something they think will happen far off into the future when they are ready to quit and have plenty of money to retire. Most don’t spend any time thinking about, much less pre-planning, a practice sale.
Strictly from a financial perspective, the best time to sell a practice is obviously when the practice is at its peak market value. A practice goes through 3 stages. The GROWTH stage lasts until the doctor/owner reaches what we call his or her “Maximum Capacity’ (typically 10 to 12 years. The “Maximum Capacity’ is the point where a doctor reaches the limit he or she can personally. This could be caused because the doctor truly is doing all he or she can physically do or it could be that the doctor simply does not want to expend any more energy than he or she is already. Whatever the case, once the doctor reaches this production threshold, the practice is no longer in a growth mode.
A practice then transitions from the Growth stage into the practice’s MATURITY stage. Other than slight annual increases in practice production due primarily to annual fee increases, the Maturity stage signifies that the practice production has peaked. For all practical purposes, a practice is about as large as it will ever be at this point, unless the doctor considers one of the various growth transition options available such as a practice merger, associate leading to co-ownership, etc.
So, a practice owner will achieve the highest equity return if the practice is sold at some point in the MATURITY stage. But, unfortunately, most practices are not sold until they start or have taken a plunge into the DECLINE stage and at a point that is far, far below the practice’s peak market value.
Why do most practices sell below their peak market value? Most doctors wait too long and simply miss the opportunity to sell at the most opportune time.
Why do most doctors wait too long before they sell? Two primary reasons: Doctors frequently start to slow down before recognizing they are in a decline; and, many doctors don’t fully understand the valuable transition options they have as practice owners.
Most practitioners don’t understand that they don’t have to own a practice to continue to treat clients. Many other options are available these days. And, depending on the size of their practices, a few doctors discover early in the MATURITY stage that they can sell their practice at its peak value, thereby converting the practice equity into useable cash and continue to practice as an associate for the purchaser, in their own practice, for as long as they wish. The financial advantage of having the cash from your practice equity, 5-10 years before retirement, instead of at retirement is staggering – particularly in these uncertain economic times.
Are there risks to waiting to sell once the practice has reached its peak value even though the practice may hold this peak value for 10 to 15 years? Yes, absolutely! The current overabundance of “baby-boomers” who are considering retirement far out- weighs the numbers of good quality buyers in many markets. This unfavorable supply and demand gradient will certainly affect the selling price of many practices. In fact, we have already begun to see the effects of this in many areas across the country. Remember, when you are selling your practice, you are competing with everyone else in your area who is trying to sell theirs!
It is hard to say what other tax issues may be coming down the pipe that might affect the cash you have available for retirement. Getting out while the getting is good is a whole lot different than just getting out! Then, there is the question of health. None of us are getting any younger. Anything that happens to the health of a doctor after reaching the MATURITY stage can only lower the value of the practice. A disability or an extended illness will just make the practice less productive and thus less valuable. And death? If you are thinking that the sale of your practice will act like an additional insurance policy for your spouse or a financial legacy for your children, keep in mind that the market value of your practice will drop by as much as 50% within just 45 days of your death.
With all of this logical advice and guidance, why do so many doctors neglect to sell when they should? We honestly wish we had an answer for this question. Once a practice reaches its peak value it makes no financial sense not to sell. Call TODAY for a complimentary consultation to learn what your options are!
For years, Tabitha Jaquay-Fernandez has worked as a Practice Transition Advisor. Analyzing your systems, providing direction to reduce expenses, looking at ways to work smarter not harder while producing and collecting more and increasing new revenue flow. Her passion to help clients reach and exceed their goals drives her motivation.
Regardless of how long you have been in practice, Jaquay Enterprise can help you transition to the next chapter of your career!