Evaluate Intangibles to Measure Fair Market Value, James Paterek Advises

James L. Paterek on the Keys to a Successful Sale of Your Medical Practice 

Consultants who help physicians sell or merge their medical practices almost universally find that these transactions are the most significant financial event in the doctor’s life. They also usually find that the final disposition of a practice the physician founded is one of the most significant emotional events in the doctor’s life.

Expert in medical mergers and sales James Paterek articulates a single, succinct principle as the key to the successful sale or merger of a practice:

Get your practice in good order before you attempt to make a sale.

Address personnel issues, vendor relations, and liability concerns before you even think about selling or merging your practice. Sellers must be completely knowledgeable and well organized to avoid delay, surprise, mistake, embarrassment, or even the loss of a sale. Taking the same compassionate view of future owners of the practice that the founders would want for themselves is a good measure of successful and smooth interpersonal relationships that will lead to closing the deal.

For physicians contemplating moving on from their practice, James L. Paterek reminds clients, getting organized is like adhering to standard of care. It’s the best thing to do in its own right. It shows compassion for the buyer or new partners as well as the staff. It is the basis for a successful sale or merger.

What do physicians need to consider before they sell or transfer their practices?

Timing the sale is important

Consider the timing of the sale. Many physicians don’t wait until retirement to sell their practices. They sell their practices at mid-career, when their value is highest, in order to change the way they practice medicine.

Transferring the practice before the end of the physician’s career ensures the new owners better professional resources and administrative support. Doctors in mid-career have great power with payers, better prospects of internal referrals from the new owners, and better chances of achieving a balance between personal life and professional life.

Articulating the goals of the sale is essential

It is important for sellers to know exactly what they want to get from the sale in terms not just of cash but also of ongoing practice opportunities. This helps sellers target appropriate buyers for their practices.

The buyer of a medical practice may be a newly minted doctor seeking to open a first office. The buyers may be a small group of specialists, a mid-sized group seeking new patients, a large specialty group entering a new market, or a hospital or healthcare system. The buyer’s goals influence what the market will bear, but a more important calculation is the fair market value of the practice.

Patient relations are valuable beyond measure

Make a gift of your good reputation, Paterek says. A good reputation is of tremendous value.

When you leave your practice, your reputation goes with you, but patient expectations are left behind. Buyers place tremendous value on the goodwill of patients, staff, vendors, and the broader community. There are no generally accepted accounting practices for assigning a dollar value to this kind of goodwill, but the value of your practice is only greater if you leave rules and operating procedures that encourage the new owners to enjoy the same goodwill.

Fortunately, there are numerous other intangibles that add to the fair market value of your practice. The American Medical Association identifies these factors in goodwill: location, payer mix and collections rate, and growth rates in the patent pool. With the help of a financial expert—and not even every attorney, CPA, or MBA has experience measuring goodwill—sellers and buyers can arrive at prices based on empirical data and reasonable expectations of future profits.

Finding the right consultant is critical to success. James L. Paterek is the Chief Operating Officer of Millbrook Support Services, Inc., a Service-Disabled Veteran-Owned Small Business (SDVOSB), which provides physicians, nurses, advanced practice providers, and allied healthcare staffing services to government agencies, specifically Veterans Affairs. James Paterek is also the CEO of Paterek & Company, a private consultancy focused on the Human Capital sector, which includes staffing, outsourcing, and consulting businesses.

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