Why Your Practice May Not Sell
Mariana Bracic, B.A. (Hons), J.D. – Founding Lawyer, MBC Legal
Jon Walton, B.Sc., C.C.O.V.I. – General Manager and Sales Representative, MBC Brokerage
As a practice owner, you put your blood, sweat and tears into your practice and into providing the lifestyle you desire for your family. So, what happens when you make the decision (or the decision is made for you because of illness, accident or death) to exit from ownership and you (hopefully) sell your practice?
The transition and sale of a practice is a complex, intricate process that is as far removed as possible from a do-it-yourself project. Many doctors who try selling without qualified, professional support are confused, extremely stressed out, and generally unhappy when the process is finally over. Understandably, but regrettably, because of their inexperience with the myriad issues, they typically end up making significant concessions (to which they had not originally agreed) as the transaction unfolds, desperate just to close the sale rather than having to start all over again. Desperation is not an element you want in the sale of your most valuable asset. Difficulties arise in a sale, that is a certainty. It is how they are handled that determines whether your sale is a success or if the deal will close at all. While every practice is different, the following are ubiquitous elements in the sale process.
Emotions
The most prevalent challenge we see is the emotional component. Emotions get in the way, plain and simple. The selling of a practice is a business transaction and needs to be treated as such in order to be maximally successful. Difficult questions will arise, justifications and explanations will have to be provided, and a buyer and their team of advisors will always be on their guard trying to poke holes in your responses, attempting to grind you down to achieve a lower sale price or more buyer-favorable conditions. It is during this time that many sellers will unintentionally sabotage their transaction by responding emotionally to questions that seem “insulting and demeaning” to their practice. Emotions, when not properly managed, are frequently the killer of a successful sale.
Stress
As a doctor and a business owner, you are likely accustomed to having all the answers to any important questions and to being perceived as having them. Many doctors become extremely stressed during the sale of their practice, simply because this is a brand-new experience in which they are not remotely expert. Our General Manager, Jon Walton, recounts his father coming home during the sale of his first practice, breaking down almost in tears at the dinner table. Dr. Walton said that he was so stressed with the seemingly relentless questions and negotiations that he couldn’t sleep, he had no appetite, and at points it became so intense he truly believed he was going to have a heart attack. Many doctors in this situation simply give up, get beaten down, and ultimately agree to unnecessary and unfavourable terms and conditions to which they should never have agreed, just to end the stress and put it all behind them.
Staff
Most of our clients tell us that the number one thing that keeps them awake at night is their staff. This will also likely be true during the sale of your business. Will the buyer of your practice want to keep your staff? Will the buyer make you terminate one or more long-term staff as a condition of the sale? Will you therefore be required to pay a large amount (taking away from what should be your family’s money) for termination pay? Will you leave practice with the uncomfortable feeling of having terminated someone who was a loyal member of your team and likely a friend? Properly and advantageously negotiating terms relating to staff is the third major difficulty most doctors will experience during the sale of their practice. Staff issues very often cause the sale to fall apart, or dramatically lower the sale price, and leave an unpleasant and guilty taste in your mouth after the conclusion of the sale.
How not to have a failed or aborted sale
You can drastically mitigate or even avoid the above difficulties altogether by following a proven, orderly set of steps.
The top three tips we generally give to any doctor to achieve a successful, smooth and low-stress sale are these:
1. Properly plan in advance for your eventual exit. We recommend starting at least 3 to 5 years in advance, but the sooner the better! Ensure you have a current, professional appraisal from a qualified and specialized appraiser.
2. Build a reliable and trustworthy team of advisors who have experience both with the sale process and with your specific practice type.
3. Ensure all your HR affairs are in good order (including that all staff are on high-quality contracts and policies). Contact MBC’s Legal Division to learn what every doctor should know.
Following these three tips will dramatically reduce the likelihood that you will lose sleep during your sale, or leave a lot of your family’s money on the table. You have the power to turn this “nightmare” into a success story. So, what are you waiting for?