Purchase and Sale: Second Posting

INTRODUCTION:

A.F. Where to begin? There are a multitude of issues which arise in the acquisition or disposition of a professional practice. Beyond those issues dealing with a price, what assets are included, and when is the sale to take place, there are more difficult issues to deal with all of which may well come down to those five customary questions, namely, Awho, what, where, when and why@ -- and don=t forget Ahow@! Each of these questions can have an impact on the purchaser or seller in terms of whether a practice is saleable and under what terms and conditions.

When dealing with the different questions concerning the purchase and sale of a practice, the doctors will undoubtedly be concerned about price and what is included in the Adeal@. However, from experience garnered from years of involvement in the transition of chiropractic practices, it is the opinion of the writer that the most important question of all is Awhy@. The answer to this question leads logically to dealing with all of the other issues involved in the disposition of a practice.

WHY is the practice being sold? Is the vendor retiring from practice? Is the retirement voluntary or is the practitioner being forced to retire because of ill health, financial or professional difficulties? This might be the appropriate time to provide a definition of a bona fide commercial transaction, which might be described as a transaction between a willing purchaser and a willing seller for good and valuable consideration and acting at arm=s length from each other. In the Aordinary@ course of events the willing purchaser and willing seller would negotiate a price for the practice which is based upon objective factors resulting from the experience of prior sales and professional evaluations of the practice. Almost all practices have a worth -- some more than others. In some cases the worth of a practice has to be established for purposes other than a sale, ie. a matrimonial valuation, estate valuation, insurance claim. In the later instances the objective tools used for valuations are applied to assume that a sale of the practice would be between a willing purchaser and a willing seller without unusual factors. It is these factors that might come into question in dealing with Awhy@ the practice is being sold.

If the vendor is ill; if he or she has died and an estate is disposing of the practice; if there
are severe financial difficulties being experienced by the vendor the value of the practice and the method of dealing with a disposition of the practice will have to be tailored to deal with the difficulties. Both the purchaser and the vendor must be cognizant of any factors which may affect an orderly transition of the practice from the vendor to the purchaser. At the end of the road, that is to say, when the practice has been sold and delivered to the purchaser, the only thing that should have changed in the office is the doctor. The location remains the same, the equipment remains the same and hopefully the staff and patients remain the same. To put the matter in a proper perspective, there are three relevant bodies in the practice, namely, the doctor, the staff and the patients. The only body that should change is that of the doctor.

If the vendor is selling for retirement purposes or to relocate his or her office, these reasons must be considered in terms of where the practitioner is relocating. Is the vendor leaving practice permanently? Is the relocation permanent? While the intentions of the seller may be sealed in a contract with the use of a non-competition and non-solicitation provision, it is important to avoid any hard feelings which may be transmitted to patients of the practice by a seller who didn=t appreciate the seriousness of an agreement by which he or she agreed not to treat patients of the practice or establish an office within a certain geographical area of the practice which had been sold. Again, why is the seller selling and where is he or she going?

E.W. From a financial standpoint, the vendor must be clear on their motivation and committed to complete the transaction. Often, practitioners decide to sell without preparation, only to find that their net return is insufficient to satisfy their objectives. The main reason this occurs is because they haven=t clarified their objectives in the first place. If one decides to retire, for example, while the practice is on a downward trend, the net proceeds would not be the same as the practice being sold at its peak. If you were depending on a maximum selling price for your retirement, you should plan to put your practice in shape before putting it up for sale.

There is also the issue of selling for the wrong reasons. A practice may be offered for sale in order to get out of a costly lease or other fixed overhead, for example. Don=t be surprised when a prospective purchaser cannot be found! Clearly, a seller seeking to escape problems will realize a minimum return, if any.

Motivation and commitment go hand in hand. Once a decision is made to sell, the seller must be prepared to follow through. Waffling on the decision to sell can have devastating results; from lost revenue due to confusion in the practice, to potential litigation if a sale transaction is not completed. Having a clear objective and a strong commitment can help ensure a smooth transition.