Have you decided it’s time to sell your healthcare business? Perhaps you own a medical or specialized practice, an imaging center, a rehab clinic, a medical device or pharmaceutical sales business, or a physical/occupational therapy practice. Regardless of your specialization (or your reasons for exiting), there are unique factors to consider when selling any medical practice or healthcare business. Industry-specific challenges make selling a medical business notably complex, but an experienced professional or business advisor can make all the difference. Having represented many healthcare business owners through the Viking selling process, below we will share four key considerations from our experience and success.
4 Essential Considerations When Selling a Healthcare Business
1. Deal Structure
First, it is essential to connect with a business advisor who understands the deal structure necessary to complete a healthcare business sale. Most sales involving healthcare and medical companies can be complex, resulting in different sale structures that can change the entire deal. It will serve you well to employ a professional business broker who is well-versed in both stock and asset sales, and the benefits and consequences of both, including the tax implications for both the buyer and seller.
2. Post-Sale Transition
How involved are you in the business? Are you seeing a majority of your patients? What does your staff consist of? This will affect the post-sale transition. If you are, for example, the main practicing physician, you may need to be willing to accept an employment agreement or be willing to stay on for a longer transition period. Bear in mind that a longer transition period (1-3 years) is often required for a single-provider practice in order to properly transition patients to the new provider. Multi-provider or non practicing owner practices can normally expect a transition period of 3-12 months. If you are not directly involved in a patient-facing role, a transition might involve greenfield work to open up new practices for the office or group. Begin thinking early on about what is acceptable to you, and work with a business advisor to establish expectations for the post-closing agreement.
3. Licensing/Insurance
Understanding and considering what license you may hold to operate the business or what license may be needed to operate the business is one of the most important aspects of a deal. In most cases, a buyer must have proper licensing to buy a medical practice or healthcare business to operate. You must also consider what patient insurance(s) you currently accept. Is this tied directly to the business EIN number? Ask whether these can be transferred to new ownership, as this may affect your patient base. These stipulations also, of course, impact the buyer pool and structure of the deal. An experienced business broker can help you navigate regulatory requirements as well as the impact on your qualified pool of buyers.
4. The Buyer’s Perspective
When selling any type of business, It is wise to consider a business sale from the buyer’s perspective. In the healthcare industry specifically, a buyer’s main priorities include your business or practice’s referral sources, payor mix, and profitability.
- Referral Sources
It goes without saying that a practice with a diverse and long-established base of referral sources will be more attractive to a buyer. Additionally, the more specialized you are, the stronger a referral base is needed.
- Payor Mix
What type of patient payments do you receive? How much does your business rely upon taking insurance? Consider your mix of cash payers, private insurance, and government coverage like Medicare and Medicaid. A diverse payor mix is a selling point.
- Profitability
Consider your revenue and cash flow. For most buyers, consistent revenue is a top priority. Be sure to get your financials in order with the help of your CPA, and consider getting a healthcare business valuation from Viking to help establish the big picture of your practice’s profitability.
It is critical that you weigh these considerations, ideally with the help of business advisors like ours at Viking, who are experienced in selling healthcare businesses. To learn more, contact us to schedule a confidential consultation.