This is part 1 of Catherine Maley’s interview of Lamar Rutherford for the podcast, “Beauty and the Biz”: Exit Planning Strategies: Selling Your Medical Practice for Maximum Business Value.
Catherine Maley:
Lamar is a licensed business broker as well as a mergers and acquisitions advisor to smaller businesses, including cosmetic surgery practices. She has personally brokered the sale of over 50 businesses and worked on 100s of transactions in a variety of industries, and has started, managed, and sold several of her own businesses.
She was involved in the sale and merger of several surgical practices. So, I wanted her to share her words of wisdom for those of you who might be thinking about (or should be thinking about) exiting your practice profitably. Lamar, when do you want to start planning your exit?
Exit Planning to Boost Business Value
Lamar Rutherford:
You want to start planning for your exit at least a year in advance, so you can prepare your practice and make a difference on what happens.
Some of the things that make a difference in getting more value for your business should be started earlier. For example, with a lot of plastic surgeons, it's all about the name of the owner. If you can start to transition away from it being just about that particular surgeon, you'll get a better value.
Sometimes surgeons are very specific about the type of work they do. But if you bring on other surgeons or other nurse practitioners, then the business is not all about you and it's easier to get a better value when you sell.
Thinking about it more as a business versus your own private practice makes a difference. When do you start that? Well, the earlier the better because you want to look at your business through the “lens” of a buyer. If you think about it from the buyer’s point of view, if the business is all about you and you leave, then the patients are more likely to look for another surgeon.
The more you can make those relationships with those patients not solely dependent on you, the better the sale for the buyer -- the less risky it is.
Look at Your Assets from the Buyer’s Point-of-View You want to look at your assets and what would be valuable to a buyer (as well as the implications for you). One example is your lease.
It's helpful to have a long-term lease because that's something the buyer can count on. But if you have a long-term lease, the landlord can keep you on as a backup. In that case, you want to make sure the buyer is qualified and able to continue to pay that lease. Sometimes leases aren't personally guaranteed, they’re guaranteed by the business, so you wouldn’t have that risk.
If you have a lease with options and you sell, once that option or lease is up, you get off the lease. These are things to think about when you evaluate a buyer.
When you’re selling your business, you want to think about who would be a good buyer for your business. Some of that is size related.
Larger businesses are more likely to have a private equity group or another medical group come in and buy. With smaller businesses, it's more difficult for those groups to come in and take over. So, size matters in terms of who the buyer might be. You’re more likely to be bought out by an individual surgeon if you're smaller.
Since we’re talking about plastic surgeons and plastic surgery businesses today, another plastic surgeon might want to buy your practice. And that’s a “strategic buyer” (a buyer whose current business aligns with yours).
You want to make sure there is value, and the buyer will get your patients -- that you'll be able to transition them. Sometimes there's a period after the sale when you’re still working in the business, and you can help transition the patients, so they are more likely to stay.
You want to think about that in advance and try and set up your practice so that it’s easier for any buyer to take it over. And the more buyers you can appeal to, the better.
Catherine Maley: Some surgeons have bought their building. When it’s time to sell the practice, they may decide they don't want to sell the building, they want to keep it for security and for passive income. So, they’re going to become a landlord now. Does that hurt or help when you're trying to sell your practice?
Lamar Rutherford: Most of the time when people are buying a practice, buying the building as well stretches their finances. Often, they want to buy the building, but not until later.
So, not selling the building with the practice can help the sale in some cases. A doctor may want to buy both, but initially, they may be stretched financially on just the business purchase. SBA does makes it very attractive for owner-occupied loans. So, for many buyers, they'll want an option to buy the building in the future.
In this case, the seller can get that lease and that passive income for at least a while, and sometimes on an ongoing basis. So, it doesn't really hurt the sale to not sell the building.
See the entire video podcast at: https://www.catherinemaley.com/podcast/how-to-exit-your-practice-with-lamar-rutherford-mba-ep-176/
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