Business Owners Who Happen to be in the Business of Medicine

Business of Medicine

Get on any major search engine and type “physician practice for sale” and you will get hundreds of results spanning over dozens of pages with information sources ranging from business brokers, valuation companies, and perhaps to this blog entry if the search engines find it. Now ask your favorite physician if they would consider selling their business one day, you may get only one answer.

Recently, I had a conversation with a physician in private practice in a specialty field, and I asked what he thought the value of the practice would be if he went to market today. His initial answer was “the practice is not worth anything without me.” Now this isn’t the first time I’ve heard this – in fact, this is the most common answer I receive the first time I ask a physician what their exit strategy is for the practice. How can there be so many search results on search engines, but most physicians think that a sale of the practice is a pipe dream?

One of the key variables that negatively impact the valuation of a business that we see quite often is when there is too much reliance on the business owner to generate revenue. This is often a problem that exists with knowledge-for-profit businesses. Afterall, if the client is buying into the person, then the client will leave when the person leaves. To put it another way, if their doctor is the product, then the product no longer exists when the doctor leaves. This is especially the case when the service being provided by the doctor is a common service, even when it is a specialty. For example, if you want to find a psychiatrist (one of the top 10 specialties with the most medical residency positions) in a major city, you can easily find more than just a few. However, if you want to find an interventional radiologist that treats prostate cancer, then you may only have a few options.

Back to my conversation with the physician. He said, “I can’t bring in a new doctor to buy-in to my practice. Why would they put up their own money when they can simply get a job working for another doctor until they build up their own book of patients. When a doctor retires, the insurance companies will simply refer those patients to the new doctor. Maybe my only exit is to sell to the big hospital groups that want to come into the communities.”

What he said made a lot of sense – if you accept the premise that the only value to the practice is the existing patient relationships. I then asked how he was able to build up his practice in such a short period of time. “I have a really good online presence. I get phone calls every day,” he said. How long would it take a new doctor to get such a presence? How much would it cost? Isn’t that worth something? When a buyer is doing due diligence, one of the questions they ask is “how do you generate new sales?” If the seller has a system that is generating new business, it makes the business more attractive and more valuable. The system can produce regardless of who is delivering the actual service. Could the new doctor simply follow the process that has been established and continue to bring in new patients?

So how can a physician expand the number of exit options? The simple answer is to make the practice more attractive to a buyer. Easier said than done of course – but those physicians who actually run their practice like a business tend to get more value than those that simply provide medical care.

Articles you may like

Sev Meneshian, CFP®

Director of Financial Planning

Sev is a Certified Financial Planner® Practitioner and an adjunct professor of retirement planning at Northwestern University. His primary responsibilities are optimizing financial plans that align with the goals of our clients as their lives unfold and their needs evolve. He holds series 65 and is registered in CA, IL, IN, WI.

Ara Bayindiryan, CIS™, CEPA®

Chief Investment Officer

Ara is the Chief Investment Officer responsible for the overall management of our client investment portfolios. In addition, Ara’s expertise in the area of exit-planning helps our business-owner clients create an exit plan that helps maximize the benefits they receive from their enterprise. He holds series 65 and is registered in TX, CA, IL, IN, WI. CA insurance producer # 0L96506

Avo Mavilian, EA, WMCP®, ChSNC®

President, Founder, & Chief Strategist

Avo Mavilian focuses his practice in the areas of wealth preservation & tax planning.

He works with successful professionals, families and executives of privately owned companies to design and implement wealth preservation & tax planning strategies.  He frequently collaborates with business and estate planning attorneys, utilizing their knowledge and experience to best serve the needs of his clients.

Avo’s advisory work extends to helping clients identify and mitigate issues that arise concerning the transfer of wealth to the next generation including the related tax and estate planning considerations. Additionally, Avo has considerable experience advising entrepreneurs and executives on the formation and operation of multi-owner and family-owned companies.

Avo is a federally licensed tax practitioner admitted to practice before the Internal Revenue service. He holds series 65 and is registered in TX, CA, IL. CA insurance producer # OC10650

Join Now

Start your financial journey by signing up for our newsletter.