Selling Your Practice
Prepared for Speech Pathology Australia by Natalie Sirianni, Attain Business Brokers
Selling your practice
If selling your practice is a good strategic option for you, you will need to plan the process carefully. For many, you only get one shot at it!
If your practice has been a success, you've probably put a lot of effort in to get it to where it is now. Many owners see their practice as an extension of themselves and their patients, staff, and community as a key part of their lives.
Even if the practice may not have been a great financial success, it has provided a satisfying and rewarding professional career.
Regardless, good planning, even in selling the business, will ensure the best outcome and meet your personal objectives. Clear and concise specification of your objectives will also help you and your advisers negotiate a true win-win outcome.
Timing for sale
Eventually, all practice owners will sell. The key questions are when, how, and who chooses the time?
Selling your practice will often be a daunting prospect for many owners. The decision is complicated by other worrying issues such as: If I did sell, which business broker would I choose? How can I work out the price? What is the best method of selling?
Others are concerned about the timing. Should I wait until prices improve? Should I wait until I have my new financial reports?
The decision to sell should be based on personal circumstances – when you decide the time is right for you. It may be that your needs have changed and you decide to buy a bigger practice, or perhaps it’s time to slow down and you want to downsize or retire; or you may just want a change of scenery.
Whatever the reason, the decisions you make as a vendor are the key to achieving the best possible price when you decide to sell.
Here are some key points to consider when deciding when to sell your practice:
- Selling any business has a lot of steps involved and can take time
- Average time for a health practice sale is 6 to 12 months – therefore, it’s better to get started before you ‘need’ to sell
- Selling a business can be an emotional process and have lots of ups and downs
- It’s important to be patient – there can be a lot of delays in the current market
- Regardless, the reward can be great!
Here are some factors that practice owners may consider when choosing whether or not to sell:
- Increasing competition
- Reduced growth
- Declining margins
- Profit pressures
- Increasing debt
- Negative business outlook
- Need more work/life balance
- Health issues increasing to crop up
- Staff performance & retention becoming more difficult
- Regulation and compliance takes more and more time
- Deregulation is a threat.
However, selling your practice will be a personal decision that must be right for you!
Steps in the selling process
Generally, the sale process follows the following path:
- Market Assessment – is completed for the business to determine the sale price
- Authority to Sell – this document is prepared by the Business Broker and allows them to act on your behalf in the sale. It includes all of the broker’s terms and conditions including fees etc.
- Preparation of Disclosure Document – which is used to market the business for sale
- Marketing – go to Market
- Confidentiality Agreements – signed by each interested party prior to getting any information on your business
- Disclosure Document – is then sent to each interested party
- Further questions – interested parties will likely have further questions once they have reviewed the information in the Disclosure Document
- Offers – submitted by interested parties via the Business Broker
- Heads of Agreement – outlines the key details of the accepted offer and signed by Vendor and Purchaser
- Finance – generally, the offer will be subject to the purchaser obtaining finance for the purchase. The finance is usually obtained from banks or other health specific lenders
- Due Diligence – generally, the offer will be subject to the purchaser and their accountant and solicitor completing Due Diligence on the business. Due Diligence is the process of verifying the information that was provided in the sale process to confirm the financial results of the business plus legal due diligence to check leases and any contracts in place etc.
- Contract of Sale – usually prepared by the vendor’s solicitor, and signed by the Vendor and Purchaser
- Transfer of Lease & Approvals – need to be completed prior to settlement
- Settlement – the business changes hands.
Key issues to consider in planning to sell
- When (timing)?
- Who should you go to for advice? Who can you trust and/or rely on?
- How to sell?
- How long will it take? How much time do you have?
- What other options or alternatives do you have?
2. What are your priorities?
It is important you know why you are selling and the reason the practice is on the market.
- What is most important to you?
- How much effort are you willing to put in?
- If you are planning to retire, do you have a minimum amount you need to retire? Have you sought financial planning advice on this?
- What are the critical elements of the sale? (the items you are not prepared to negotiate on)
- Have you obtained independent professional advice to work out your key objectives?
While some sales are quick, allow reasonable time for marketing and to negotiate the right deal. The average time for a health practice sale is 6 to 12 months, but some practice sales may take 18 months or more. Timing is a function of:
- Market sentiment and conditions
- Your priorities and personal time constraints
- The quality and historical performance of your practice
- The security of tenure for the practice (lease) and local market conditions
- A fair amount of luck – the right (and qualified) buyer, the right price, and the right climate (economic and practice).
While the sale process is taking its course, you will need to maintain the value of the practice by continuing to manage the business.
4. Value and Price
Focus on today’s market. Have your business independently valued and assessed. You should also exercise caution when dealing with business brokers. The price you set is critical to achieving a sale. While rumours may abound, the price in today’s market is often less than those rumours would suggest. Price your practice too high and it may give your business a “lemon tag” by spending too much time on the market.
- What is the value and fair asking price for your practice?
- What can you do to maximise or improve the asking price for your practice?
- How much do you need to achieve to be able to get to the next stage of your life?
- What will you do if you don’t achieve your desired price?
5. Prepare the business for sale
Like selling any major asset, you need to prepare the business for sale. First impressions are lasting. Before putting your business on the market, be sure to have everything in order. If you were selling your car, you’d have it detailed. If you are selling your house, you’d have the garden tidied up and spruce up the house. Selling a Practice is no different. Prepare your business for sale by:
- Having your accountant bring all financial information up-to-date.
- Making sure your practice is well presented.
- Address any loose ends and agreements.
6. Where are the buyers?
It is important you seek professional advice to help you value your business. Professionals such as an accountant, business adviser or a business broker can help you.
A qualified broker can help you match your business with suitable buyers. Choose someone you can trust and work with (it is going to be a team effort). Never choose a broker on their fees alone. Sometimes a cheap broker or free service can cost you more. If you use a broker, do your research:
- Ask them how they screen their buyers.
- What are their negotiation skills like? Test them.
- Ask them about their past successes.
- How do they attract buyers?
- What do you need to know about working with a business broker? Should you work with a broker? What are the alternatives?
- Are there any potential buyers you could approach? What about staff or local competitors?
- How do they market the practice?
7. How to structure the deal?
Most health practice owners sell their practice outright. But consider your options, and get professional advice, as to terms, timing, and tax impact. Is partnership an option? Partnership, perhaps with an exit strategy, may provide you with the solution you require. There are also earn-out options and vendor finance etc.
8. Should you offer vendor finance or terms? What is the impact of bank finance?
Vendor finance might be a major factor or tipping point in clinching the deal. It can and has worked in the past, but ensure you protect yourself. Bank finance is increasingly more difficult to obtain. As such, you might have the buyer who ticks all the right boxes but can’t get finance. Considering that most sale of business contracts are “subject to finance”, you may need to ensure the buyer is not wasting your time with unrealistic expectations of finance. Vendor finance may help you get the deal across the line.
9. Disclosure and Due Diligence
- What level of disclosure is required?
- What information should you have available?
- A buyer will more than likely seek verifiable evidence supporting financial information. So have it available so as not to delay the process.
10. What happens then?
- What happens after you accept the offer and sign the contract?
- What will be your required input?
- What will you do now?
Achieving a successful sale
Success requires definition. For some, success means the transition of the business which ensures staff and the community continue to get the services of their practice. For others it is price – the higher the price the more successful the sale. Yet for others, terms are also critical.
Tips to maximise sale price or value
- Develop a business rather than a practice – the business should be capable of surviving without you
- Build the practice with the buyer in mind – what will the buyer get?
- Know what your business is worth
- Plan, Plan, & Do – understand your business and plan for growth or exit.
Improve Net Earnings
- Check your charge out rates
- Manage costs and expenses
- Get more customers – service customers/patients well (also consider your marketing and referral systems)
- Train staff and improve productivity
- Review your offer to your patients – maintain quality.
Focus on business performance and your objectives:
- Measure what counts – Develop regular reporting
- Do what you do best and delegate or outsource the rest
- Consider your personal objectives and timetable.
As a practice owner, it is likely you will need to seriously consider selling your practice. Whether this is for personal reasons or forced on you by market conditions, you will need to approach the process with caution and take control.
Some key take-aways:
- Know why and when to sell. Set the timing to suit your personal objectives rather than be driven by the market.
- Have the business independently appraised. Get a second opinion of what will be an achievable price in today’s market.
- Work to a plan. Be prepared and have the business prepared for sale.
- Consider all options including partnership and a staged succession plan.
- If you decide to sell, then act decisively. Set an agreed ‘selling strategy’ with your broker or adviser.
- Know what success is for you.
Speech Pathology Australia: Professional Practice Collaborative: The perfect close - realising the full value of your business
Speech Pathology Australia: FAQ: Closing or selling a speech pathology practice
Sell your business (business.gov.au)
Business Victoria Financial and legal preparation for selling a business
Original: March 2022
The information contained in this publication is of a general nature and is not intended to be nor should it be considered as professional advice. The information is provided as an information service only and therefore does not constitute financial advice and should not be relied upon as financial advice. None of the information provided takes into account the particular financial situation or circumstances of your practice or your clients. You should not act on the basis of anything contained in this publication without first obtaining specific professional advice. Please consult your solicitor and/or accountant for advice before undertaking purchase/sale/partnership negotiations.
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