Timing your Exit from your Medical Practice

Regarding succession planning, I have been approached by physicians looking to exit their practice anywhere from three months to seven years.  I cannot stress enough the importance of planning ahead, especially if you are a solo medical practice; anything short of twelve months and you will almost always find yourself on the losing side of the transaction.  This article is aimed at any physician contemplating exiting their practice at some point.  Perhaps you are finally at the point in life where you are considering retirement; with all the work you have put into your practice, retirement is a welcome sign and you are contemplating selling. Most physicians are caught on the “entrepreneur merry-go-round”, dealing with business issues, family, staff, banks and so on, and find it difficult even to plan this year’s strategy, let alone figure out whether it’s time to sell.

Initial questions to ponder

As you begin to contemplate selling, ask yourself why are you wanting to do so, because most buyers will ask you this exact question.  It is fine if you are retiring or looking for a new challenge, etc., just be honest with yourself.  Along those lines, consider why someone should buy your practice.  Do you have new equipment, a strong referral base, large patient volume, solid financials, etc.?  Remember that a new owner is primarily interested in how much cash the practice will generate.

The need to start planning early for an exit
If your passion has waned and you’re finding it more difficult to get excited about growing your practice, then now might be the time to consider selling. After all, if you’re not building your practice and continually thinking about next steps, it could start declining, making it more difficult to sell. It is much easier to sell a medical practice that’s on an upward trajectory.

If the business is going to collapse without you there, that will become apparent during the due diligence phase. If your practice has several physicians but you do not have proper succession in place, you’ll need to work on moving other physicians into the roles to replace you eventually.  You should seriously consider calling a transaction consultant who can help you through the process.  Ideally, you want to contact an experienced consultant at least two to three years before selling, to gather from him or her what housekeeping needs to be done in your medical practice to get it ready for market. Unfortunately, many physicians are so caught up in the day-to-day running of a practice that they put all of this off until they are less than a year from wanting to retire.

Major steps in selling your practice
When exiting your practice, you will certainly want to consider who your potential buyers are, and it may not be as easy as you think. Selling a medical practice is more than a tour of the office, a handshake and exchanging a check. It can be complicated, often messy and intense. It will take several months of data gathering, negotiations, analysis and various emotions before it’s over.  In its simplest form, here are four of the major steps in proceeding with the sale of your practice:

1.  Nondisclosure agreement.  The first step is giving the potential buyer just enough information to help determine a price. It’s important that you don’t give a potential buyer any information until they have signed a nondisclosure agreement. This will protect your information and ensure the buyer is only using it to formulate an offer.

2.  Due diligence.  After preliminary due diligence using the information you have supplied them with, as well as other research, the buyer will typically give a range of value for your practice, which may or may not be in line with your asking price. If discussions are going well, then the potential buyer will likely want to examine more items as part of their due diligence, including tax returns, key contracts and agreements, etc.

3.  Letter of intent.  Once the buyer has a cohesive picture of your practice, they can hone in on a more precise value. This is laid out in a letter of intent, which covers the purchase price, the structure of the deal, whether it is an asset or stock sale, the escrow parameters, the working capital allowance, and other details. While this is a very intentional document, it is non-binding.

4.  Purchase agreement.  After negotiation, review of legal terms and final due diligence, a purchase agreement is created.  This is the legally binding agreement which is agreed upon by both parties and will be a road map for how things play out once the deal is closed.

You may opt to stay on

While you might be thinking of selling your practice and retiring, you might instead wish to stay on in a consultancy role, part time. In fact, practice owners may be asked to stay on temporarily after a sale has been executed, even if only in a part-time role. This arrangement is somewhat common for many medical practices to ensure continuity because perhaps the biggest source of concern for prospective buyers is that existing patients will disappear when ownership changes. Any reductions would diminish the value of a buyer’s newly acquired asset.  There are a few considerations though that you might want to think about.  For example, as a seller you may anticipate less money up-front as this will be offset by a “salary” to help in continuity with patients and referring physicians.

Final thoughts

Selling your medical practice can be financially rewarding as well as give you the personal satisfaction that what you created will continue after you. Your patients will be happy, and the jobs your practice provides will continue. Also, you will give another physician a chance to be a small business owner.  While each medical practice owner chases success in his or her own unique way, there are some things nearly all physician practice owners have in common: hard work, determination, a vision of what could be, and the will to make it happen.  But there is also another common factor that binds together all physician practice owners: the need to someday transition your practice to its next owner.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Transitioning the Practice to your Children: Family Member Succession Challenges

Recently I was contacted by a physician regarding his desire to do succession planning.  He has two sons that are physicians who currently work at the practice and he is looking to start the arrangements to eventually hand off the reigns.  In my experience, succession planning with family members is usually straightforward, but it is always more sensitive of an endeavor.  Conversations around the next generation of leadership are inherently more complicated and emotional due to family dynamics, individual expectations, and financial concerns.  In the end, there are several major reasons that transitions from the founding physician to the succeeding son or daughter tend to fail:

  • Lack of will – – the founding physician simply doesn’t want to give up control
  • Lack of viability – – the practice is so dependent on the founding physician that it cannot operate without his or her continued, active participation
  • Lack of planning – – the successors aren’t prepared, trained or experienced enough to take over management of the practice

So, how then should you start the succession planning process and transitioning of the practice to your children?  Consider these key focus areas:

Begin an open conversation about the future of the practice

A lot of uncertainty and confusion can arise from the assumptions when family dynamics mix with business operations. As such, the first step to developing a robust succession plan for your medical practice as a family business should be to sit down and have a candid conversation with the physicians that are family members of the practice. It’s important to have a clear sense of who would like to take over the reins, and who would not. Working with family is rarely easy, and some degree of conflict is bound to arise. Just because you are family doesn’t mean you all have an identical set of core values, and having a core set of values that everyone agrees on can help guide you through these challenges. Remember that any decision your practice makes should be in support of its values and mission. That way, even if there are disagreements in style and process, all family members will be working in the same direction towards shared goals.

Establish a talent development plan

Once you have a sense of who is interested in taking on leadership of the practice, it can be helpful to provide some structure around a path for onboarding into the practice. This process can help to clarify the expectations for each family member who joins the group. If you have more than one child who is a physician, then identifying the right successor is one of the most significant steps in succession planning. The primary successor should be identified by competence, not by any other considerations and compulsions. One way to do so is to first identify the qualities or attributes a successor must possess to succeed in the practice. The family member who possesses the maximum of so identified attributes should be selected for succeeding you.  If you are handing off the practice to two children, then setting up clear governance will be extremely important.

Formalize the succession process and prepare an exit plan

Having a talent development plan in place for onboarding family members into the practice is important, but it is not sufficient for ensuring a successful transition of power from one generation to the next. Adding structure and accountability to this plan by having a formal succession plan in place is key as it also communicates your plan for the future to all staff members of the medical practice. Bringing in an external consultant who has experience with physician group succession planning is a great way to add some objectivity to this process, thereby increasing the perceptions of fairness around how you make various decisions. Clarify in advance under what circumstances the succession plan will take effect: whether on retirement or unplanned departure or changing financial situations. These questions help determine what the succession plan should detail most. Keep in mind that an early or late exit of the physician owner can have advantages as well as disadvantages for this medical practice as a family business.

Groom the successor and respect the transition of power

Once you are prepared to have your son/daughter succeed you, he/she needs to be groomed and developed to assume the helm of the business. It can be done through various ways like giving on-the-job training, working under mentors and advisors, and delegating some authority to the successor much before the actual passing on of the baton takes place. Of course, grooming more than one member to become the successor of business is not a bad idea, but at times it may create confusions and complexities leading to strenuous succession battles; therefore, if you are handing the practice off to two children at once, clear governance will be paramount. The last step in handing over control to the next generation is respecting the process. This means taking a step back when necessary, and letting the new leadership take over. It can be difficult for some to let go of a practice where they have spent most of their medical career, or perhaps even built from the ground up. If you have followed the steps of a formal succession plan, and spent a good deal of time gradually making this transition, you can leave confident that your successor has the skills and expertise necessary to move the practice into this next phase.

Final thoughts for your success

I cannot stress enough the importance of clear communication and the cooperation and commitment of everyone involved.  This includes key staff members such as your administrator, nurse practitioners and physician assistants, but also trusted advisors such as your accountant.

For those contemplating succession planning, remember it’s never too soon to start.  Succession planning helps you balance both personal and business interests and helps ensure that your family-run medical practice gets through the transition successfully.  Without formal succession planning, these practices run the risk of not being sustainable. Some physician owners regard succession planning as simply a question of informally handing over the practice from one generation to the next. They do not want to plan or think about their withdrawal from the business. This reluctance typically arises from a strong sense of attachment to the practice, an aversion to letting go of control and power, fear of retirement, and also the inability to make succession choices between their children. Financial factors often also play a part.  Just remember, if you want your practice to survive and your patients to continue to be cared for, you will eventually have to hand off the reigns.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Working Through Physician Partnership Issues

When deciding to enter into a physician partnership, it is beneficial to take actions to ensure you are going into business with a reputable and reliable individual.  Starting a physician partnership is an exciting time, full of new challenges, shared vision and celebrations of small successes. During the good times, keeping a relationship on solid ground while running a practice is easy. But what do you do when you do not agree, and the honeymoon period is over? Whether you are discontent with the level of effort of one partner over another or you suspect your physician partner of outright dishonesty, disputes are going to arise.

Unfortunately, there are physicians in a long standing medical practice partnership who are not satisfied with the status of the relationship. They may feel stuck, frustrated, angry…or all of these. They know they’ve been silent far too long, but just don’t know what to do. Like many married couples, physician partners often disagree about money and how it should be allocated. Even the best of physician partnerships go through rough times. But what if your partnership has issues you think cannot be resolved? What can cause such a change in a relationship that started out with high hopes and good feelings? In this article we address some of the most common problems medical practice partnerships face and ideas for how to deal with them.

Unfair workload

Perhaps one partner feels like she is carrying the bulk of the workload. This may have happened because there wasn’t an agreement about who would do what. Job roles, responsibilities and accountability have not been discussed.

Unmet expectations

Expectations may be quite different for each partner. When expectations aren’t met, it’s a set up for negative feelings. It’s important that each partner knows what to expect from the others.

Losing interest

It is possible that a partner has lost interest in the practice or changed thinking. Over time new attractions and options will continue to present themselves to all physician partners. When a physician partner becomes disenchanted with how the partnership is going, he is more likely to lose interest over time.

No communication

Communication is so critical to maintaining a viable medical practice partnership. When physician partners get so busy doing their own thing that they can’t find time to sit down with the other(s), they will likely start to feel less engaged. An unresolved issue can also lead to partners being unable to talk about certain things.

Mismatch

Unfortunately it may just be a wrong partnership. Sometimes the physician partnership has been a bad match from the beginning, but it was maintained for a variety of reasons. When the primary reason for the partnership was based on personal needs more than on business needs, if those needs are not fulfilled, the medical practice partnership will flounder. Maybe one physician thinks and acts fast and the other wants to research things in great detail. These physicians may never be able to function well together. Basic behaviors and traits will not likely change even if the person tries. Even if you think it may be a wrong partnership for your practice, it’s worth making the effort to see if it’s salvageable.

Being proactive and clear

If you want things to change, it’s up to you to change them. Make the decision you are going to break the status quo, but you’re going to do it strategically. It is extremely important that you are clear about what you want.  Start by thinking about what you want for yourself and the practice. For a physician partnership to be successful, all of the physician owners must agree on the same strategic direction for the practice. If one partner wants to build a well-known physician practice and the other partner only cares about earning a decent living, the practice is destined to fail. Set a clear, agreed-upon course for the practice that meets the needs of all physician owners.

Schedule partner meetings

I cannot stress enough the importance of scheduling partner meetings regularly.  When issues have arisen, you may also need to schedule a separate meeting to address them head on.  Give your partner plenty of lead time and full disclosure about what the meeting is about. Let them get prepared for the meeting, but don’t let it be put off because someone “doesn’t have time”.

Discuss actions and draft a plan

At your meeting, be prepared with actions you are willing to take. You can request or suggest actions from your partners, but leave the topic open for discussion and agreement. Once you reach agreement, set goals for yourselves and the practice. To keep things moving in the right direction it’s a good idea to schedule periodic meetings to iron out details. This is the perfect time to start the habit of regular planned communications.

Set a timeframe for evaluation

Three months is a reasonable timeframe to see if the plan is achieving the results you want. Schedule an actual time where you will sit down together to see what has been accomplished toward the goals you set. If you see progress, you may want to give it another three months. If your evaluation tells you there is no hope, it may be time to make that very difficult decision to end the relationship. If you cannot come to agreement or you are clearly going in different directions, it’s probably time to part ways. Why waste any more time on a losing proposition? Yes, it’s like breaking up a marriage, but sometimes it has to be. Rather than feeling defeated, congratulate yourself on gaining the freedom to move on to something better.

Finding a physician partner may seem hard, but finding your rhythm with your partner is much harder. Just like any other relationship, a business relationship too has its fair share of ups and downs. No matter how strong your relationship is with your physician partner, disputes are bound to arise sooner or later. When physician partners are disputing, their quarrels tend to disrupt the daily operations of their practice. If they are not careful about keeping their disputes between themselves, it can result in the failure of their medical practice. Remember, a strong physician partnership is built on open communication. Meet on a regular basis so you can share grievances, review roles, provide constructive criticism, and discuss future plans for the growth or direction of your practice.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Four Myths of Succession Planning For Physician Practices

While busy physician owners have many competing time pressures, succession planning is one of the most effective ways to give you peace of mind and ensure you are prepared for any unforeseen event or for retirement. When successful physician practice owners reach a certain age, it becomes imperative that they address the issue of succession planning.  Many of them may have been dodging this particular conversation for years, yet they sometimes approach me with seemingly ironclad convictions about how they would like the succession to play out. That doesn’t mean that they actually know what they want. The physician owners may have met with their accountant or a financial advisor to learn about avoidance of future or current tax liabilities related to ownership changes.

To be honest, physician owners often contact me fully devoted to a set of myths, beliefs and emotions that are almost always counterproductive in the early stages of the process. The first step by any qualified consultant should not be a discussion of strategies or tools.  It should be a frank discussion of what the physician client really wants. That discussion requires breaking down some myths that are almost universal amongst physician practice owners and confronting not only the realities of succession planning, but also the emotions and physician dynamics that are powerful forces in many medical practices. 

 Myth One:  There’s Plenty of Time

In physician practice succession planning, time is either your ally or your enemy. You can spend time planning for succession during your active business lifetime, or postpone planning and wait until the more chaotic, uncertain and expensive succession planning occurs post-mortem, when the choice is no longer yours.

Reluctance to accept the realities of time can have disastrous consequences, especially since timing issues are often beyond an owner’s control.   Just as the aging CEOs of major corporations are pressed by shareholders who demand a succession plan to protect their investments, so too a physician owner should implement a succession plan to protect the interests of all stakeholders. The lesson? Start early. Select your successor(s), and work with an experienced consultant to develop a succession plan before it’s an issue.

 Myth Two:  It’s Easier to Just Sell It

Really? To whom? When? For how much? Finding a willing buyer for any medical practice is rarely just a matter of hanging up a “for sale” sign.  Buyers are not necessarily prepared to wait until the time is right in a business’s life cycle before making an offer.  And it is even more difficult for solo physician practices.

The same issues of timing influence the way medical practices will be valued. Some physician owners have an idea of the worth of their practice based on revenues, fixed assets, profitability and a variety of balance sheet items.  If you are not one of those, then a valuation of the practice may be needed at some point.

What the physician owners want is fair value paid by the buyer, as if that was a constant or objective number.  Fair market value (as defined by the United States Board of Tax Appeals) is “The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts.” The truth is that valuing a medical practice is a detailed process (as I have written about several times in the past) and when the time comes for a valuation, you should will need  an independent valuation of the practice, documentation of the business valuation data and methodology and perhaps periodic review of the valuation.

 Myth Three:  A Successor Will Be Ready When I’m Ready

It is not surprising how many physician practice owners approach me wanting a succession plan without a successor clearly established. “Established” means more than simply identifying a successor.  It’s also preparing that successor, which may require a long apprenticeship. The apprenticeship will certainly involve learning all the operational tasks required in the business, but it may require much more from both the successor and the current practice owner.

Growth is the lifeblood of any business. In most medical practices, growth comes not only as a result of outstanding clinical performance, but also the careful management and expansion of relationships with patients and referring physicians. A successful succession plan builds into the apprenticeship not only the mastery of business tasks but, equally as important, the building of business relationships. The outstanding taskmaster does not always turn out to be the best rainmaker, and that’s an important thing to learn when identifying a successor.

The physician owner may also have handpicked a successor that has very different ideas as to how the practice should eventually be run. Now the owner has to listen to new ideas about a successful practice he or she has built. It’s not easy. That’s why a consultant should stress a long apprenticeship as part of the succession plan.

 Myth Four:  Giving Up Ownership Means Losing Control and Income

Too many physician owners see a succession plan as “all or nothing”—that changing ownership necessarily means giving up control and reducing income.  However, it is entirely possible to create a succession plan that transfers business ownership to an eventual successor without losing control or income or—as is vitally important to many founders —the continued opportunity to build a legacy.

It is possible for a physician owner to still run a medical practice and be paid for that role without the loss of title or any of the other satisfactions of operating an independent physician practice. However, the earlier a physician owner begins transferring ownership to a successor, the likelier it is for a succession plan to be a success, both emotionally and financially.

Final Thoughts

Think of a succession plan as a living document that records exactly how you want the next chapter of your business story to unfold – a tool designed to ensure your practice continues to thrive for many years following your departure. Know that once you’ve made the succession plan, it can change. New circumstances, unforeseen needs, or a new vision can all inspire changes to your finished plan. The good news is you can change course and make corrections as you go, especially if you see any vital errors. But you must also trust in the training process and in your successor’s decisions.

So relax. You have to give up the reins sometime. Let go of the responsibilities of leadership, and look toward your future. Decide what legacy you want to leave behind, both professionally and personally, and greet it with promise and hope by making a rock-solid succession plan. it is helpful to work toward deadlines for completing your succession plan.  Allow yourself a generous amount of time to seek advice and carefully weigh the right decisions. 

People often say change is inevitable, but it is possible to cultivate a change for the better by planning in advance for your medical practice succession.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Contemplating Succession Planning: The Solo Physician Dilemma

The decision to sell your practice is never one made lightly.  It takes years of hard work and unwavering dedication to build a successful physician practice.  No matter how rewarding the practice is though, no wants to work forever and eventually physicians will want to retire.  As you move closer to your ideal retirement date, you begin to wonder what will happen to the practice, how will you handle the transfer of ownership, and will you make enough from the sale.  There are multiple options when it comes to selling your practice, but the best decision for you will depend on your unique circumstances and personal preferences; do not let any outside professional attempt to get you into a boilerplate succession planning model.  Every physician will have different goals and visions for themselves and their practices, but having an idea of your options will help you prepare for a smooth and rewarding transition.

Selling to an outside party

Opting to sell your practice to an unrelated party carries its own sets of emotions and complications, but that is the course laid for solo physician practices.  Outside of finding a buyer, you must decide on a value for your practice and also determine the exit plan.  As I have detailed in previous articles on the valuation process, the value of a physician practice is typically based on the previous three years of data.  During that time, you may have been increasing patient volume, revenue, and profitability.  You have undoubtedly added new patients and may have updated technology in the practice including making major equipment purchases.  All of these items can help to maximize the value of your practice before a sale.  When you are ready for the final push to entertain a buyer, what can be done to improve the value of the practice, especially the curb appeal?  You need to look at your practice through the critical eyes of a potential buyer.  Here are a few items to consider.

New patients

It is imperative to keep new patient numbers up as this is a key metric that purchasers review and consider an indication of practice vitality.  If the rate of new patients is falling off, it sends off warning signs to a potential buyer.  If needed, engage an experienced marketing firm that has success in attracting new patients.  They might suggest items such as launching a new website, running social media campaigns, and asking for online reviews from patients.

Website

Speaking of websites, when was the last time your website was updated?  The website introduces and describes your practice to the community.  Reviewing your website is one of the very first (if not THE first) tasks a potential buyer undertakes.  Is the site up to date, inviting, informative, and user friendly?  Are there recent professional photos of the facility, the physicians, and of all staff members? 

Cosmetic

Ensure that you tune up equipment and declutter the facility.  Have maintenance and repairs performed on all equipment as needed, although you want to avoid making any last-minute big equipment purchases unless absolutely necessary.  Replace damaged fixtures and dispose of old plants.  Consider installing new carpet, replacing worn furniture, and refreshing the paint.  Fresh paint and some new décor can help freshen the look without breaking the bank.  Ask a friend or hire a consultant to walk through your office and provide candid feedback on the aesthetics.

Revenue and Procedural Volume

Sometimes practice owners start to slow down before retirement.  This results in an exponential decline in profit and practice value.  It is important to maintain the historic growth rate of the practice until the sale closes.  The year before you sell your practice is not the time to cut back your schedule or take an extended vacation.

Accounts Receivable

A practice sale requires a lot of information be provided to the prospective buyer.  Most likely you will hire a transactional consultant (different from a practice management consultant) to facilitate the entire process. That consultancy can discuss with you a checklist of due diligence items that will be needed for prospective buyers to review.  Additionally, you should be proactively reviewing accounts receivable and cleaning up accounts outstanding over 90 days if A/R is going to be addressed in the valuation and/or purchase agreement.

Staff

Nothing good comes out of trying to hide a practice sale from your staff.  Set the tone with the team that the transition will be welcomed and embraced as a positive step forward.  If your spouse works at the practice, then they will obviously need to step aside with the transaction.  If there is a position in the office that needs to be filled, consider hiring and training someone before the sale because you need to continue operations as normal and not attempt to hand off a practice that is lacking staff at the last hour.

Planning your exit strategy

Remember too, that transparency is crucial both internally and externally.  Proactive communication about leadership changes alleviates the normal fears associated with change and uncertainty.  Plan for this.  Poor management of this process shakes organizational credibility and effectiveness.  The bottom line is that transitioning from a practice takes time and preparation.  There are a variety of issues that must be considered, which is why it requires education and adequate planning to ensure the handing over of your practice is seamlessly executed. Someday the time will be right for you to sell your practice.  The best exit strategy is the one that best fits your practice and your personal goals.  Decide what you want to walk away with and a transactional consultant can help you decide how you will accomplish that.  Once you have made a decision to exit your practice, you can never start too early to prepare for a future practice transition.  Starting early can ensure a smooth and successful practice sale, but you must have a carefully thought-out roadmap with timelines.  And don’t be afraid to ask for help; it’s not every day that you sell your practice, but there are experienced professionals out there who can advise you.  Don’t seek the advice you want to hear, but rather the advice you need to hear.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Transitioning from Solo Practice to Partnership

If you are a solo physician practice, there may come a time when you decide to bring on a partner.  Whether it is for growth reasons or succession planning, bringing in a physician partner has many advantages: A partner may help your practice grow and become more successful; partners allow you to share the workload and to combine skills with another provider; and you can enrich your practice by having a solid teammate. However, business partners can become your greatest asset or worst liability. Deciding whether or not to share your practice with someone else may be one of the most important business decisions you ever make. Deciding who you go into business with can be just as important.

The business side of practicing medicine is a lot more fun when you can share it with someone else. There’s something exciting and exhilarating in facing challenges together, and if you’re blessed with a partner with a sense of humor that meshes with yours, work becomes like play. Managing employees and a practice is exhausting. On the days when you just need a break, your partner is there to pick up the slack. A physician partner provides motivation and support. Not only can you bounce ideas off each other, but in difficult times you can find encouragement in one another. Also, you will often find that you work harder because there is pressure to perform and to not let the other person down.

Pause to reflect.

There is no way to guarantee a potential partnership will work. Consequently, weighing the advantages and disadvantages of having a physician partner, and carefully analyzing the reasons for choosing a partner can help ensure that you find the right person to entrust with your practice. Identify what you really need from a physician partner before you start looking for one. Once you have completed this essential first step, you can begin the process of choosing a partner.

What does the partner bring to the table?

Your partner should have strengths that you lack, and vice versa. Perhaps you need a more detail-oriented partner. Or if you are shy, a good “people person” may be needed to balance the dynamics. Although it might be more comfortable if the partner is similar to you, but it may not be what your practice needs. You need a partner who complements your skills and personality. Great partners band together to compensate for each other’s weaknesses, so that individually they can focus on using their strengths. Tasks are done more efficiently and the practice is able to get more accomplished, precisely because partners have different skills and areas of expertise.

Discuss your vision with your potential partner.

Partnerships promote greater creativity and can spur innovation. The purpose of evaluating a potential partner is to understand if your business principles, company goals, and personalities are compatible. It’s hard to brainstorm alone. Most physicians’ creativity flows more freely if they can bounce ideas off others. And things get really interesting when you have partners who bring their own ideas and perspectives to the party — that’s often when the biggest leaps of innovation occur. A physician partner means more ideas coming from a different background. Take as much time as you need to make a well-informed assessment of whether your business partner is actually a suitable one. While you do not want overlapping skills, you should share a sense of vision for the practice.

Taking your practice forward.

Sometimes it takes another physician’s perspective to shake a successful practice out of complacency and see an old practice in a new way. A physician partner can help you narrow down the list by offering unique perspectives and opinions that you yourself may not have been able to think of, which can save you time and money later on. A good partner can challenge you to take the kinds of risk that will help your practice grow. Partners also can encourage each other to be more daring simply because each partner figures the other will be there to pick up the pieces if the risk doesn’t pan out. Having a good physician partner will help you tackle large initiatives, but also will help pull you out when things go wrong. Similarly, a good partner will tell you when an idea is misguided and keep you from taking on too much risk.

Be open about expectations.

Assess the potential partner’s expectations on the time involved. Partners don’t have to spend the same amount of time, but it is important that they are on the same page as to each other’s expected time commitments. How many hours a day does your partner expect to put into the practice, and do her expectations meet yours? Your partner’s commitment has to equal yours, otherwise they may lose their enthusiasm and end up damaging the practice’s reputation daily.

Other evaluation considerations.

When evaluating potential partners, it is important to disregard any friendship or emotional ties. Construct criteria that you are looking for and determine how well a potential partner lives up to it. Your potential partner should also have questions for you and should want to know about your character, reliability, and expectations. Of course you will want to weigh their standing in the referring physician community too. A business partner who is adept at cultivating relationships with your referring physicians adds value to the practice. Also consider how they interact with employees and patients.

Utilize the consultant/attorney team.

An attorney can create essential information into governance documents, such as how the work will be divided, what will happen if more startup money is needed, and how decisions will be reached. Although partnerships need to be written up, remember that people make partnerships work, not legal documents. And remember, the best time to address potential problems with your partner is at the beginning of your venture, before emotions run high. You can’t predict every potential problem, but a good healthcare attorney and consultant can help you work through some of the common problems and put a framework in place to help address unforeseen circumstances. You may find it beneficial to work with a consultant before having an attorney draft up the legal documents.  Additionally, it is very wise to use a consultant after the partner joins to ensure communication and business training happens between you and the new partner.

Final thoughts.

Physician partnerships are often a great idea providing you give thought to how you will structure one and why you wish to create a partnership. Sometimes physician partnerships aren’t so successful — so it is crucial to choose your partner well. This is somebody who you’re going to spend a lot of time with and who, like your spouse and your family, will probably see all sides of you, in full Technicolor glory! Even if you’re not looking for leverage now, think about what a physician partner might do for you. What holes could he plug, what opportunities could she open up? Rugged individualism has its limits.

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Strategy Checklist for Medical Practice Acquisitions

With the everchanging healthcare landscape and the increasing competitiveness among physician practices and hospitals, many physicians are looking at acquiring other practices and bringing them into the fold.  Unfortunately, I have often seen physicians who would like to jump to valuations or due diligence of a medical practice without having first established their own strategy as it relates to potential acquisitions.  If your practice doesn’t already have a strategic growth plan, make one.

Growing for growth’s sake really doesn’t make sense for you or for the potential target.  Instead, think about practices that might be interesting to acquire, geographies that might be important, capacity that might enhance operations, or perhaps even technology that could be transformational.  You want to consider what you need before looking at opportunities, because after the acquisition the integration follows, and that can be an extremely difficult process if there was no strategy beforehand. The discipline of articulating a strategy will guide you in finding and assessing acquisition targets.

Getting started

What is your vision for where you want your practice to go?  In developing your acquisition strategy, you should consider your goals (What is it that you want to do?) as well as your experience (What have you already demonstrated the capability to succeed at?). It is imperative that these two areas are fully thought out and written down before proceeding. As a physician owner, you need to know what strategic outcomes you ultimately want from engaging in acquisitions and consider the implication to both you, as the buyer, as well as the practices that may want to sell. Developing an acquisition strategy requires knowing what makes your practice successful now and what a potential acquisition can add to make your business even better in the future.  This strategy will help you clearly define the value proposition for both buyer and seller, as well as the value drivers that should guide acquisition decisions. In this instance, the value drivers are essentially capabilities that add worth to the practice.

Practices are continually bought and sold as a result of an opportunity being made available or because of a strategic plan. As the buyer, you are acquiring an established practice that’s hopefully making money and has patients and employees already in place. You also know that if you buy a good practice, you have the opportunity to make it a better one. From time to time, things come your way that are more opportunistic. Ask yourself, is the downside risk significantly less than the realistic upside opportunity? Are the seller’s goals aligned with what you want to do? Look at the fit. Will integration require a fundamental change in either practice? Unfortunately, the answers are rarely black and white thus the importance of having an underlying acquisition strategy. 

Defining the practice you want to buy

When your desires and experience intersect with a good acquisition strategy, you have the foundation for your plan. It is now time to look at opportunities, by first defining the parameters of the practice you want to buy.  What are the characteristics of the medical practice that you propose to buy? Items such as practice size, location, price range, and patient catchment area are just some of the key areas to initially think about. 

What is your plan to grow the new combined business? You should include both top and bottom line growth in your discussion. Are you looking for a troubled practice where you can create value or a practice that’s already on a fast growth trajectory? Do you foresee additional acquisitions? If so, what are the attributes of the prospective add-on medical practices. What will the new combined business look like as your plan moves forward?

Targeting a practice

Once this exercise is complete, you will be in a position to start targeting the right practice.  There are two ways of targeting a medical practice: find one already listed for sale, or approach a physician owner of a practice not for sale, and make an offer. Some key questions you want to keep in the forefront of your mind are:

  • How does the target make you, the buyer, better?
  • How do you make the target better?  Most often you’re buying the producer (the physician) so alignment with his or her personal goals is absolutely critical.
  • What are the risks that could impact the future success of the business?  What is your plan to deal with them?

The process of buying a medical practice can be narrowed down to one very simple question: Is the practice you’re buying actually the business that you think you’re buying? Some purchases are more straightforward than others. If you have a thorough understanding of the practice you are buying, then the process will be smoother. It is extremely important to remember that when you encounter an opportunity that does not align perfectly with your original strategy, return to the key questions that defined it. Local market dynamics may change your own practice and thus there may be a need to alter your acquisition strategy. There is nothing wrong with that.  In fact, I am a firm believer that strategy should be fluid and ever-evolving.  Just make sure that as your acquisition strategy changes over time, the practices you acquire still make your business better and more valuable.

Final thoughts

Essentially your strategy will become the roadmap for your acquisition initiatives and will serve you well at every stage. Thoughtful development of an acquisition strategy should tell you as much about the medical practices you should not pursue as those you should. You can use your refined strategy to help locate medical practices, seek investors and lenders, assess the value of practices, and structure deals. Most importantly, as you get caught up in the heat of the chase, it will help you to assess whether the deal that you’re working on is really going to be right for you.

The challenge is to stay true to your strategic direction, not allowing yourself to be distracted by acquisitions that don’t keep you on the intended path. Physician owners often make mistakes here. All the work you do to meet and evaluate practices, only to walk way, is not wasted. It’s part of staying true to the thesis and testing and achieving your long-term vision for your business.

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Negotiation Tips for Physicians

Negotiations are essentially human interactions seeking to discuss deals.  Physicians often call me when they want assistance negotiating a deal (perhaps for a merger with another practice, an acquisition by a hospital, a partnership with private equity, or even as part of internal physician governance matters).  Sure there is experience involved, but these are learned skills which everyone can practice and benefit from over time.  This article will cover just some of these tactics and skills which physicians may want to utilize the next time they find themselves in need of negotiations.

Fundamentals

First, note that it is common to feel like you are “bad at negotiating” as indeed the very idea of negotiating often makes many of us feel uncomfortable, awkward or anxious.  Fundamentally, negotiation is actually not about money, or deal terms, or even “winning”, but rather about creating a relationship where both sides get the best result.  The central rule of every negotiation is to create agreement between parties with different interests and objectives. All that’s required of you is the ability to provide value to the other party and the willingness to step out of your comfort zone to get things done.

Strategy

Jumping straight into negotiations is ill-advised.  Before you start negotiations, you need to have a clear idea of what your priorities are. There are lot of ways to organize these, but the easiest way is to rank what you want from highest to lowest priority as this helps you stay clear on exactly what’s most important for your specific needs. It is easy to enter a negotiation thinking one thing, only to agree to something far less than you had hoped for. By writing down a list of your priorities in order, you can be sure the items at the top of the list stay in place, and you only compromise on the lower items.

Once you have a solid understanding of your priorities and those of the other party, you need to create the offer.  I have found that most physicians discover this during the negotiation process, but you’ll be more powerful if you can plan this in advance. The more prepared you are before you walk into the negotiation, the better you will be able to make your decisions. Doing your homework will give you ideas on exactly what the other party wants and needs. If you have to make a decision on the spot in your negotiation, you’re going to struggle to make the right choices each time. Instead, decide ahead of time exactly where you’re willing to compromise, and where you’re firm.

Equally important is to remember that price is not the only factor.  For example, if you are merging your practice with another entity and you have nurse practitioners currently in your group, it may be very important that those personnel are maintained in the transition.  Or, if you are allowing another physician to buy into your practice, you may want to maintain some control over certain voting rights.  Perhaps your practice maintains a presence at skilled nursing facilities and as part of the sale of your group to the hospital, you want to be able to continue to see patients at those nursing homes.  These are all illustrations of items that have nothing to do with the “negotiation price”.

Walking away

Based on your strategy, you should have some firm “lines in the sand” at which you are willing to walk away from the deal.  To be clear, this is not that you must have everything your way, otherwise it would not be called negotiation.  However, you have to know what your deal breakers are. If you don’t draw a firm line in the sand before you invest your time and energy into a negotiation, you are at risk of eventually losing track of what is good for your practice and will end up making concessions that hurt your own interests. Not all deals are meant to get done.

To go a step further, think about what the other party’s walk-away point is too. So often, we get caught up in what we need and what we want. But think about what is going to happen if the other party does not get this deal done, because that allows you to find out where they are flexible and where they are not.

Listen

To be blunt, close your mouth and just listen.  Using silence in negotiations is a skill. Don’t go into a negotiation feeling like you should do all the talking. Sometimes the best thing you can do when negotiating is to keep quiet. For example, if the other party presents a ridiculously bad offer then waits for your response, just keep your mouth shut and let them drown in awkward silence.

When you want your point of view acknowledged, acknowledge theirs first. You should be listening and asking lots of questions. To be fair, this is where experienced consultants add a lot of value because they have seen many deals and know which questions to ask. The goal is to understand what the other party’s circumstances are. What are their constraints? What are their timelines? What are they up against? It will help you frame how to get to the right results. When you acknowledge their point of view first, it helps bridge the gap and they will be more receptive to hearing your point of view. Remember to listen carefully for potential flexibility the other party may have.

Maintain emotional control

Oftentimes, negotiations become heated. While there are ways to de-escalate them, it’s much easier to keep a steady composure no matter what happens. My suggestion is to remain steady throughout the negotiation and look to perceive exactly what the other party is communicating. You should strive to keep both positive and negative emotions in check.  Also, clarify any communication you don’t understand immediately so that your emotions don’t run wild based on your own misinterpretation.

Never negotiate alone

Even if you opt not to use a consultant, make sure you do not negotiate by yourself.  Negotiations consume time and energy and the longer you have been engaged in the process, the more emotionally invested you become in making a deal happen.  No one is immune to this, which is why it is important to have someone else with you during the discussions.

Final thoughts

Negotiations in the healthcare space can be difficult to manage properly, and are often twisted with misunderstanding and miscommunication.  Unfortunately, when it comes to negotiations we usually think we’re better than we are, and we end up settling in the negotiation process. But that doesn’t need to be true for you and hopefully you have picked up a few tips in this article.

Lastly, keep a perspective on the fact that you may continue to be practicing in the same community after your negotiations (whether they were successful discussions or not). While it may make sense to be firm in the midst of the negotiation, always have a limit on how tense the negotiation is (another good reason to have a calm-headed consultant by your side).

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Traps to Avoid with Physician Practice Mergers

Any private practice physician understands the difficulty of starting a practice from scratch.  The countless hours and sleepless nights one must endure to achieve a successful practice is what truly makes these physicians entrepreneurs. However, it is also necessary to accept the fact that keeping the business alive is just as difficult, if not more so. In most cases, crucial decisions should be made in order for the practice to move forward, including potential buyouts as part of a growth strategy or exit strategy.  This is one case where mergers come in.

Mergers and acquisitions (M&A) is an umbrella term that covers quite a lot.  For this article though, I am narrowing it down to just mergers; that is, two or more practices “joining together” as compared to a practice being “bought out entirely”. If you are a physician practice owner who is considering a merger at some point, it is vital to learn more about this process early in the game. As I have written about in previous articles, while a merger can prove vital for your practice, the business will definitely go through some changes in order to stay relevant and profitable. Mergers are a principle way for some practices to expand.  If you do so, however, there are certain traps you must avoid.

Finding a good fit
Trap: Failing to reach a meeting of the minds. Each owner may have an initial idea of what he or she wants to accomplish with the merger, but together they may fail to flesh out the details to achieve their goals. For instance, one may be older and views the merger as an eventual exit strategy. That’s fine, but this can mean the older owner may have a conservative approach to the business and may not want to spend money on expansion. The younger owner may be more willing to take risks and may disagree on the direction of the practice in this situation. If both owners have failed to discuss their expectations candidly, they will probably become frustrated and unhappy after the deal has closed, which can undermine the success of the merged practices. Many physicians use consultants here early on to help facilitate these discussions and ensure the two practices are truly open about their desires and intentions.

Trap: The inability to mix company cultures. One practice may have very talented personnel; the other has more name recognition, which can translate into greater marketing success. Or one practice may bring capital to the table that the other needs for expansion. Even though on paper a merger may seem like a good idea, owners and employees of the two practices may not mix well. One team may be used to autonomy; the other may thrive under micromanaging. Make sure that your proposed marriage with another practice won’t suffer from incompatibility.

Control
Trap: Failing to clearly establish who gets what. Rarely is a merger a 50-50 proposition. Carefully allocate each owner’s percentage before committing to the merger. Give consideration to pre-merger accounts receivables as well as any promised/expected bonuses that have not yet been paid before a merger is completed.

Trap: The inability of one owner to cede the last word. One of the key issues for physician practice owners when two practices merge is who will call the shots. Until the merger, each owner has been supreme within his or her practice. Decide who will be in charge when the merger is completed. Make sure each owner knows which one has the final say. There are ways to have these decisions rotate for fairness and also ways to deal with tiebreakers. These are critical components of your governance documents.

Other issues to settle before the merger include:

  • Practice name. Will one name survive? Will you create a new name?
  • Positions on the governance board.  Decide in advance how many representatives each former practice will have on the new board.
  • Staff retention. When practices merge, there is duplication of functions and you need to avoid redundancies. Negotiate before closing the merger who will stay and who will have to leave.

The unknown
Trap: Failing to bring in professionals at the outset. Physician practice owners may shake hands on a deal before even talking with a consultant or their accountants and attorneys about the merger. This mistake can be critical.  A seasoned consultant can help owners think through the structure of the deal as well as (and perhaps more importantly) the shape of the practice after the merger.

Trap: Incurring unanticipated liabilities. What you don’t know can hurt you in a merger. When deciding whether to merge with another practice, be sure to do your due diligence and check for any debts, judgments (or potential judgments), payroll and other taxes, contracts with suppliers, employment contracts with staff and other obligations you may incur. Again, here is where an experienced consultant is well worth the cost.  Due diligence can be very time consuming.

If your practice has one type of retirement plan and the other has a different type of retirement plan, decide which plan will be used by the new company. This and other benefits will be uncovered and evaluated during due diligence by your consultant, and as previously mentioned there will need to be a plan put in place before the merger is consummated as to what these benefits will look like post-merger.

Final word
You don’t necessarily have to merge in order to grow your practice. You can gain many of the advantages that a merger offers while retaining your autonomy simply by deciding to work closely with another entity. You may be able to accomplish your goals via a joint venture with a hospital, for example. Of course, any arrangement outside of a merger can have some legal healthcare implications, so you should certainly talk with a healthcare attorney before proceeding down one of these avenues.

M&A is a powerful strategy that practices have been using for decades. As long as it is done correctly and with enough preparation, you’ll be able enjoy its benefits, in the long run, should you choose to do it. Use your outside professionals early on and the road to future success will be laid out much more clearly.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Does Your Practice Have a Succession Strategy?

For many physician owners, their practice is like their child. As such, they invest the majority of their time and resources into ensuring the business stays healthy and has opportunities to grow and maximize its potential. Few focus on preparing for that inevitable moment in the future when they will have to hand their baby over to someone else.

While succession planning is a critical concern for a business of any size, it could literally be a matter of life or death for a physician practice. Physician-owned enterprises are particularly vulnerable because business discussions can be complicated or derailed by the emotions involved in addressing such difficult issues such as aging, death and financial affairs. To ensure that the medical practice you worked so hard to build and nurture continues to thrive after retirement or death, you must develop a succession strategy that enables an orderly transition of both ownership interests and management responsibilities while minimizing complications between the partners.  Additionally, your succession strategy must provide for economic support of all relevant parties involved.

Setting a Succession Strategy

While there is no “one size fits all” succession planning solution, and the details will vary according to the distinct dynamics of your situation, the following are key considerations as you embark on developing a succession strategy: 

1. Start early.  Ideally, it is best to begin this process as far in advance as possible. This will give you the opportunity to explore all of your options and prevent hasty decision making that can undermine the stability and value of the business. 

2. Identify your successors.  This might be the most challenging aspect of this process for physician practices.  As I have written about before, there are many considerations in the selection and grooming of a physician partner. You may have a physician in the practice that does not have the interest or skills to take over the practice. Therefore, to ensure that you place your practice in the best possible hands, I recommend making a rigorous and honest assessment of the relative strengths and weaknesses of all potential heirs.  Consultants with experience in physician succession planning can be well worth your investment here. Engaging such an outside expert to conduct this analysis to help make objective and rational decisions regarding the best future interests of the practice and to de-emphasize emotional attachments (as well as any potential family politics) will ultimately be effective for the succession strategy.

It is also important to remember that management and ownership are not necessarily one and the same. Thus, it may be in the best interests of the practice to appoint an employee to take the business to the next level. Even if physician owners are not holding the business operations reins day-to-day, they will still retain an ownership interest and exercise the requisite level of control via various governance mechanisms (partnership meetings, executive control, voting shares, etc.).

3. Determine the right legal structure for transferring your business. There can be significant financial implications and tax consequences with ownership changes.  Furthermore, there are numerous legal methods for transferring your business.  As a result, the experienced consultant you engage should be pulling in your accountant and attorney at the appropriate times so that together, the team can advise you on the correct direction and appropriate steps. No two medical practices are the same and you should be leery about professionals approaching you with any sort of template or preplanned outcome.

The best option for you and your business will indeed depend on a host of needs and circumstances particular to your practice. In the past, I have written on several transactional methods.  Two common avenues are for physicians to sell their practice outright or transfer ownership to another partner in the practice.

  • Selling your practice outright.  This creates cash for you to use as you ride off into the sunset.  The sale would be based on fair market value (FMV) after a valuation is performed.  Potential buyers include other physicians or practices, hospitals, or private equity-backed MSOs (management services organizations).  Depending on how the sale is structured and what all is included, there could be various tax implications.
  • Transferring your ownership interest.  Essentially a buy-sell agreement prearranges the sale of the practice to another physician partner.  This agreement enables you to maintain control until the occurrence of a triggering event that the agreement specifies.  At that time, the buyer typically becomes obligated to purchase your remaining interests from you.  There are many different ways that buy-sell agreements may be constructed and I cannot say I have ever seen two that are exactly the same, but this is a simplification of generally how they work.

4. Get professional assistance. Though trimming expenses is always a key concern for physician practices, skimping on succession planning today can jeopardize financial security for you and your family and threaten the continued viability of the business you worked so hard to build. As you saw from the brief overview in this article, there are substantive complexities to managing this process. It is strongly recommended that you begin by contacting a seasoned consultant with experience in succession planning.  As I mentioned above, that individual should be bringing in other professionals (i.e. attorney, accountant, financial advisor) throughout the process so that collectively a sound succession plan will be constructed.

What’s Next?

When you first begin working with the consultant, he/she should be devising a strategy based on your timelines.  Some physician owners I work with want a rapid exit and thus we work to create a diligent plan that allows for such a departure from the practice. Other physician owners are looking at an exit some ten years from now.  In those cases of a future planned exit, I recommend that the succession plan be updated every two or three years.  There is so much change in the healthcare industry as well as local competitive factors and also internal physician partner dynamics, (not to mention any personal changes in your life), that a periodic review of the strategy is definitely warranted. Good luck!  Your patients, referring physicians, and employees are counting on you to have a strategy to hand off the baton.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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