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For Group Practitioners: Tips for Selling Your Part of the Medical Practice

When selling any medical practice, including solo practices, there are many important steps to take such as getting an appraisal, advertising, getting your financials in order. For group practitioners, there are some extra considerations. Here are a few tips as you work through the process:

Tell Your Partners Early

If you are considering selling your portion of a group practice, tell your colleagues early in the process. Sometimes, professionals worry about making waves or causing unnecessary worry among the other members of the practice. Some might think, “Why say anything? I have not made a decision. I am just thinking about it.”

However, those concerns are often misplaced. There is nothing worse than a “surprise” decision and the members of your practice group deserve the time to acclimate to the change.

Read Your Practice Agreement

All well-drafted Practice Agreements (sometimes called Partnership Agreements or Buy-Sell Agreements) will have some provisions related to sale of a member’s portion of the practice. Sometimes those provisions are detailed; sometimes they are minimal and vague.

Importantly, you need to know if the Practice Agreement allows you to sell your portion of the practice externally. Even if the Agreement says “no,” however, that does not necessarily end the inquiry. Contracts are simply agreements between people. If the contracting parties agree, the parties can change the terms of the contract. That is, everyone can come to a new agreement. Very likely, if you can find the right external purchaser, you can accomplish an external sale even if such a sale is purportedly prohibited by your Practice Agreement.

Determine Your Options: Remaining Affiliated and/or Working Full or Part-time?

Another prominent issue is whether you want to, are willing to, or have the option to remain affiliated with the practice group, or to work full- or part-time in some capacity. If this is something you want or need, it will play an important role in how the sale proceeds.

Some third-party buyers may actually prefer that you continue as a paid-employee practitioner.

Decide Whether to Seek an Internal or External Sale

Selling internally has advantages and disadvantages. On the plus side, assuming the other members of the practice have the liquid assets and/or sufficient financing, selling internally is often the quickest method of consummating the sale, and is often smoother and less stressful. Plus, if the members of your practice group are reluctant or hostile to having a new member, selling internally may be your only option.

On the other hand, an internal sale might not garner a sales price that is satisfactory to you and sometimes the details and due diligence become immensely stressful since everyone is more emotionally connected.

Selling externally also has advantages and disadvantages. On the plus side, selling externally usually garners a higher sales price and often the buyer has the funds or financing to pay a lump sum sales price. In general, be leery of slow-paying buy-outs.

On the down side, selling externally can be more costly and time-consuming since it is advisable to retain a sale-of-business broker and advertise (like you would if you were selling a house), and third-party buyers will engage in due diligence. Also, finding the buyer that fits with the other members of your practice group can be challenging.

Know What You are Selling

As you consider the sale of your part of the group practice, make sure that you understand the details of how your practice is set up. If, for example, you work through a California medical corporation, then you are likely selling shares in that corporation (either to the other members of your practice group or to external third-party buyers). There are rules about who can own shares in certain types of California medical corporations, so this will impact the pool of potential buyers. If, on the other hand, you work through a partnership, then you are selling your percentage of the partnership. These details matter for how the sale is structured and financed.

Make sure that you understand the details of what is owned by your practice group. What physical assets are owned by your group? Is that original artwork on your office wall your personal property? Or is it owned by the practice group? Does the group own real estate? If the practice facility is owned in the name of the medical corporation or partnership, then sale of your shares likely transfer your rights in the real property.

Consult Your Lawyer

Selling your medical practice is complicated. To succeed and maximize your personal goals, you should consult with an experienced business lawyer at every step in the process. You should have your lawyer read the Practice Agreement, for example. Your lawyer can also provide advice on how you might successfully change or avoid provisions in the Practice Agreement if such provisions impede what you are trying to accomplish.

You will also need legal advice and help with all the other aspects of the sale including:

  • Sale Contracts;
  • Due diligence schedules and document accumulation;
  • Personal guarantees — did you sign any? Can they be terminated?;
  • Review of financing agreements and documents;
  • Insurance issues and notice to your malpractice carrier;
  • Employment agreements; and
  • Non-compete agreements.

Contact San Diego Corporate Law

 If you are considering selling your medical practice as a solo or as a member of a group practice, contact attorney Michael J. Leonard, Esq., of San Diego Corporate Law. To schedule a consultation, email or call at (858) 483-9200.

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Schedule a Consultation: 858.483.9200