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8/6/2019
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GUIDE TO TRANSITIONING STRATEGIES
MEET YOUR MEDICAL PRACTICE PARTNERS
ALEXANDRA KOHRS
BANK OF AMERICA
PRACTICE SOLUTIONS
JEREMY BURROUGHS
CARR HEALTHCARE
REALTY
PRACTICE MANAGEMENT TRACK
LECTURE 1 : EXPLORING THE PATH OF PRIVATE PRACTICE – 10:15AM-11:45AM
LECTURE 2 : GUIDE TO TRANSITIONING STRATEGIES – 1:15PM – 2:45PM
MEET THE EXPERTS BREAKFAST & LEARN: 7:45AM BOOMER ROOM
Q & A SETTING
Don’t miss out on your opportunity to ask the real estate and banking experts any question. We will start with most common questions and provide an open platform for a panel discussion. Come have breakfast with us on try to stump the experts!
PRACTICE OWNERSHIP TIMELINE
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Transition to a current associate
Gradual Buy In/ Buy Out
100% Exit Strategy with Transition
Corporate/Private Equity Sale
WHERE DO I START?
WHAT does today’s market look like?
WHEN is the right time to start a transition plan?
WHO is today’s buyer?
HOW do I prepare my clinic and financials?
WHO is involved in a sale?
Mid 50’s to early 70’s(increased last decade)
Practice went thru some turbulent financial times(1970’s-80’s & 2008-Present)
WHAT DOES TODAY’S MARKET LOOK LIKE?
Majority owned single practice for over 20 years
Planning on leaving the medical space in short-term post sale
¾ Leave immediately
¼ Work 1-2 days (work back or somewhere else w/ non compete)
Physicians want independence, not continue working at hospital
More buyers entertaining start ups due to limited established transitions for sale
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Positives
• CASH FLOW!
• Have a patient based already established
• Staff understands their roles and are trained
• The practice has been marketed and maintains a consistent flow of new patients
• Established insurance relationships
Negatives
• You are buying someone else’s philosophy, flow, treatment planning, staff training, systems, etc.
• Possible loss of patients in transition
• Existing staff salary is already established
• Staff may resent new owner and leave the practice
• The equipment and office may be old and worn which will require additional economic investment
WHY PURCHASE AN EXISTING CLINIC?
WHAT DOES THE PROCESS LOOK LIKE? ACQUISITIONS
Practice Specialty
Cash Flow
Revenue Trend
Expenses• Hiring/firing employees• Staff wage costs• Adjusted overhead costs
Last Cosmetic Update
Technology• Digital X-Ray• Computer systems
WHAT DETERMINES THE PRICE?
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IS THE PRICE RIGHT?
Supply vs. Demand Lack of quality practices in desired locations
Inflated prices based on competitive buyers
Inflated prices on lack of supply
Private equity purchases / Don’t close doors
Banking Historic low interest rates
• Rates <6% fixed the past 4 years
Financial institutions specializing in the market• New boundaries for practice values • Flexible financing packages to stretch cash flow
Commercial Real Estate – more attractive
• Practice appraisal• Cash flow is king• Pre-Qualify the buyer
• Growing/steady production
• Clean tax returns
• Current profit & loss statement
HAVING A PRACTICE A BUYER WANTS
GET YOUR PRACTICE READY
Prior to having a buyer interested in a practice, we encourage you to provide a financial package or do a deep dive review with a medical specific lender
Tax Returns
Practice Profile
Year to Date Profit and
Loss
This information will help determine what kind of buyer will be needed for the practice and address any questions regarding practice performance, as well as pre-qualify a buyer
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Doctor
Banker
Lawyer
Marketing Website Design
Investment
Equipment Specialist
Medical Specific
Accountant
Space Finder
Practice Broker
Insurance
DO YOU HAVE YOUR ACQUISITION TEAM?
CPA, ATTORNEY & BROKER IMPACT• Banks should only determine cash flow,
while Medical CPA’s can analyze valuation
• CPA’s give guidance on most tax⁺ advantageous entity structure
• Ongoing monitoring of common medical practice expenses because of familiarity with the industry
• Brokers value clinic, sell clinic, part of the transaction
• Attorneys who understand transition contracts
+Please consult your tax advisor, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.
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• Credit worthiness
• Capital (liquidity)
• Character (financial position)
• Capacity (cash flow)
• Collateral (business)
KNOWING THE BUYER METRICS
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STUDENT LOANS HOME
AUTOMOBILE
CREDIT CARDS REVOLVING LINES
OF CREDIT
CAN A BUYER AFFORD A CLINIC WITH STUDENT LOANS?
Specialty Lenders Local Banks Seller Financing
Term Rates Fees Pre-Payment
Down Payments
ApprovalFlexibility
Personal Guarantees
Residential Guarantees
Approval Time
Life Insurance
DisabilityInsurance
MalpracticeInsurance
KNOW THE LENDING OPTIONS
SBA
• Closing the doors too soon
• Financial/Budgeting mismanagement
• Practice Prep Limited
• Unrealistic expectations
• No Transition plan in place
• NOT HAVING THE RIGHT TEAM IN PLACE
MOST COMMON PITFALLS
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• Develop your “Why”…
Why am I doing what I’m about to do? - The “Why” becomes your driving force behind your decision
• Create an experienced TEAM
- Practice & Real Estate broker, CPA, Attorney, Banker
• Have a plan
- Know exactly what you want to do
- Commit to the plan
- Execute the plan with your TEAM
• It’s never too early to start looking at your options
-Prepare your clinic for sale
-Explore different options including a gradual sale
• Don’t take shortcuts
• This is your legacy.. Transition to someone that you like!
SUCCESS TIPS
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MEET THE EXPERTS BREAKFAST & LEARN: FRIDAY, 7:45AM BOOMER ROOM
Q & A SETTING
Don’t miss out on your opportunity to ask the real estate and banking experts any question. We will start with most common questions and provide an open platform for a panel discussion. Come have breakfast with us on try to stump the experts!
Bank of America, N.A. provides information from speaker topics for your discussion and review purposes only. Please consult your tax advisor, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice. AR: AR9SRJ9D
The Path of Private PracticeSession 2
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The Importance of Real Estate to Your PracticeSecond-Highest Expense
• Your office is typically the second-highest expense after payroll
• After years of lease escalations, most offices are significantly overpaying for their lease
• You typically get only one chance every 5-10 years to reduce this expense. Don’t Miss the critical opportunity!
The Importance of Real Estate to Your Transition
Value and Flexibility• A properly or poorly negotiated
lease can benefit or cost a practice tens to hundreds of thousands of dollars over a ten year period
• Do you want the landlord to have a say in your transition?
The Importance of Real Estate to Your Transition(cont.)
Terminology and Term
• Having proper terminology in your lease impacts your future ability to sell your practice (Assignability Clause)
• Length of term – Too short, too long, or just right?
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Real Estate During an Acquisition
• Lenders will typically require specific terms and maximum rental amounts in a practice acquisition
• Do not assume the practice seller has a fair or good lease
Business Points in Leases
• RateNNN vs Full Service Base Year / Expense Stop Annual Increases
• Term• Free Rent• Tenant Improvement (TI) Allowance• Options to Renew• Option to Purchase
Value of your Practice
Your Value to the Landlord
• Higher lease rates lead to higher property valuations
• They are willing to give significant concessions to desirable tenants
• Healthcare tenants are extremely attractive
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Real Estate During an Acquisition
• Hire your own representation to determine market values
• 3 Separate values: Practice, Equipment, and Real Estate
• The practice broker selling the practice is rarely a real estate professional.
Commercial Property Types
• Office (Condo/ Stand Alone)
• Retail
• MOB
• Hospital Campus
Purchase vs. Lease• Is it always better to own?
• How does it affect your cash flow?
• Short term vs. long term
• Principal pay-down and equity
• Tax implications
• Exit strategy
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Negotiation Strategy
Who is the Landlord?
• Third Party or Practice Owner
• What is the Condition of the Space?
• Future of the Practice
Negotiation Strategy (Cont.)
Posture is mandatory
• Understand what is really at stake
• Renewal Scenario
• Purchase Scenario
Common Mistakes
• Believing the landlord or seller will simply offer their best terms
• Determining market value by asking what your neighbors are paying
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Common Mistakes (cont.)
• Not knowing market availability and comps
• Using only an appraisal to set purchase price
• Assuming you can save money without representation
• Talking to the landlord or seller directly
Key Players in a Transition and Their Roles
• Real Estate Broker
• Lender
• Attorney
• CPA
• Transition Broker
Closing• Transitions are complicated
• Give yourself enough time
• Understand the market and your top options
• Use the right ”team”
• Be willing to walk away
