The Wall Street Journal-20080115-Small Talk
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Small Talk
[Kelly K. Spors answers questions from readers about entrepreneurship]
Q: My wife and I are doctors and would like to sell our practice. Can you tell me strategies for pricing a professional practice and advertising it?
-- F.C., Newport Beach, Calif.
A: First, make sure your practice is teed up to sell. Get all your records neatly organized, and prepare a clear breakdown of the financials and client data so prospective buyers can get a handle on the offer. Ideally, your practice should be thriving when you sell it.
All too often, professional-practice providers scale back their business in anticipation of retirement. But that can greatly ding the sales price, says Gary Ware, a professional-practice broker in Danville, Calif. "Buyers want potential," he says, "but they pay for history." A business that has been declining in client numbers won't fetch top dollar or necessarily appeal to buyers.
Getting the practice accurately appraised also is key. Many sellers engage a professional appraiser who understands valuations in their industry. Most professional practices sell for a multiple of annual earnings or income, but that multiple depends on factors such as your industry, location and other conditions.
Another possible benchmark is comparable sales -- or recent sales of other practices similar to yours. Such data for private businesses aren't always easy to come by, but some sites, such as BVMarketData.com, offer subscriptions to databases with business-sales data.
How you locate prospective buyers and acclimate them to the practice often depends on your time horizon and location. Many professional practices, in anticipation of selling, eventually hire their prospective successor as an associate for a few years to smooth the transition for the doctors and clients. Some sellers also stay on as employees for at least a few months after a sale.
The most likely buyers are often others working locally in your industry, says Ryan Johnson, a Minneapolis attorney for Fredrikson & Byron P.A. who assists health providers with business sales. So you should network with other doctors, friends and health providers in your industry and communicate your intention to sell. You obviously don't want to sound desperate to sell, but "I think it makes sense to sit down and have a candid conversation," Mr. Johnson says.
Another option for finding buyers: Placing ads in professional trade journals and through societies and clubs specializing in your industry. If you're having trouble finding a buyer -- or simply don't want to devote the time and energy to search -- consider hiring a broker that specializes in your industry. Most brokers charge a commission on the sales price that generally ranges from 8% to 12%.
