Major Pitfalls to avoid When Selling a Medical Practice
When considering the prospect of selling their medical practice, physicians want to achieve two main objectives: maximizing their profits and minimizing any liabilities after the sale is completed. Engaging the assistance of an experienced Sacramento business advisor can ensure that the sale of a medical practice is structured correctly and executed without issues.
Unfortunately, too many business sales run into problems because business owners make avoidable mistakes. Here are a few that can be easily eliminated and the corresponding actions that should be taken for a successful outcome.
Agreeing on Price Before You Talk with a Valuation Expert.
An accurate appraisal of the medical practice by a qualified and experienced valuation expert is one of the most important elements in the sales process. This will produce a fair price for the practice and eliminate any unrealistic ideas of what the asking price should be. Don’t make the common mistake of trying to sell your professional practice with a do-it-yourself approach and valuing the practice by applying criteria that may have no relevance to the specific circumstances. The DIY approach many times will mean either selling the medical practice for much less than it’s worth or driving potential qualified buyers away. Prior to offering the practice for sale, physicians should work with a valuation expert who’s qualified to appraise medical practices in their specialty and in the Sacramento area.
Making Representations and Warranties That Can’t Be Substantiated.
There are instances when a buyer may have a draft purchase agreement in hand at some point in the sale negotiations. This document typically includes a boilerplate list of seller’s representations and warranties, such as the reasonable— “no pending litigation proceedings”—to the impossible— “no unknown liabilities.” A physician eager to sell may gloss over this type of legal language and concentrate on the dollar figures. However, an unsupportable representation may come back to bite him or her as a claim of fraud or misrepresentation. Physicians must carefully review every requested representation and warranty and consent to just those that they know they can reasonably make. Having an expert at hand to help with this review is essential.
Not Getting Certain Representations and Warranties from the Buyer.
The buyer will usually ask for fewer representations and warranties than sellers, but some are significant if the selling physician is going to rest easy after the practice sells. For example, some key warranties are that the buyer is licensed to practice medicine in the state; is in good standing with the state medical board; and is not subject to any disciplinary actions. While this may not protect the selling physician from being named in a malpractice suit or an administrative action arising from the buyer’s conduct, they will add some remedies if the representations were false when made. Physician sellers should include in these types of terms of sale specific buyer’s representations and warranties, including a duty of indemnification from third-party suits or other proceedings.
Agreeing to Buyer-Controlled “Holdbacks” From Purchase Price.
A seller may not satisfy a condition to closing prior to the projected closing date. When this happens, the buyer may attempt to “hold back” part of the purchase price until the condition is met. This done typically with an escrow arrangement. When a holdback can’t be avoided, it would be a huge error to allow the buyer to have total control over disposition of the escrowed funds. Physicians must make certain that any holdback arrangement has joint consent of both parties as to the disposition of funds. There should also be a dispute resolution procedure stipulated in case of a disagreement.
Andrew Rogerson can help you with the sale of your Sacramento medical practice. Take the time to speak with Andrew about the details of your sale. You can also visit our website Services.
Contact Andrew via email or call him at (916) 570-2674.