Article

Transition Out of Practice

How we went about selling our practice

After 36 years of operation, ownership of our practice has been passed on successfully. We evaluated all the options, including private equity (however, when we undertook the practice buy-in initially in the early 2000s, private equity was not a significant player), and we decided the best choice for us was to gradually relinquish our practice to a trusted associate.

This transfer of ownership was accomplished with trust, mutual respect, open communication and lots of planning. Here are the steps we took to do it.

WE IDENTIFIED A PROSPECTIVE OWNER

Each associate hired was viewed as a potential owner. In retrospect, it may have been better not to have partnership on the table from the start. Our advice: Take time to get acquainted first. We’ve found three years of employment provides a good foundation on which to consider whether partnership is an advisable option.

After 25 years of practice, we’d “dated” about a half dozen associates, who, for a variety of reasons, didn’t work out to bring on as an owner. In 2008, however, we found our future owner. Dr. Shane Foster was hired just out of school as an associate doctor to work three days per week. Initially, we encouraged Dr. Foster to seek part-time work elsewhere until patient demand allowed us to increase his workload full-time. This approach allowed us to test the waters with him for compatibility, while providing him the ability to access other sources of income.

Our compensation package offered a guaranteed base pay, with the opportunity to earn more, based on a percentage of what he brought in from services and materials. Dr. Foster was paid whichever was the higher of the two amounts. The base pay offered assurance that he would bring home a given amount regardless of how heavily he was booked.

Dr. Foster set himself apart by providing exemplary eye care, connecting with the staff and showing initiative with office functions, such as developing new office forms and offering ideas on new systems. Thankfully, Dr. Foster also took over responsibility for the office’s electronic health records (EHR) system. Dr. Foster shared his knowledge in a helpful and patient manner with doctors and staff alike. This helped to build the staff’s comfort, respect and confidence in him early in his tenure.

In approaching a transition, it’s important all parties have mutual respect and sensitivity to each person’s position. The new doctor has to appreciate that the senior doctors have been the sole arbiters for all decisions up to this point. Introducing new ideas must be done with tact and diplomacy.

After three years of associateship we had witnessed Dr. Foster’s contribution to patient care, his sizable responsibilities managing EHR issues and his willingness to take on responsibilities and projects related to practice development. As such, we began to include him in discussions related to practice performance and growth. Then, in 2012, we invited him to become our partner, at which point he became one-third owner. (Read more about Dr. Foster’s story in “Buyer’s Perspective.”)

The relationship continued to progress through the next three years. By 2015, Dr. Foster was a 50% owner of the practice. The final transition took place Jan. 1, 2019. The time of the full buyout step was really driven by when the senior owners were ready to step away from the practice, identified with frequent communication and agreement from all parties.

WE DETERMINED THE PRACTICE’S VALUE

To complete the transaction, we needed to determine the value of the practice. To do so, we worked with a reputable professional practice appraiser, who used four calculations to determine practice value and took the average to arrive at our final practice value. Other professionals who may be needed in the transaction include: accountant, arbitrator, broker, etc.

The four methods included:

  1. Net value of assets and goodwill
  2. Capitalization of earnings
  3. Discounted future cash flow method
  4. Debt service model

Regardless of the method used, we learned that having the confidence in the asking price provided the groundwork for a smooth start in negotiations. And we included Dr. Foster in this conversation from the beginning.

WE TOLD STAFF AND PATIENTS

We informed our staff of our intentions about nine months in advance because we felt this amount of time enabled our office family to be a part of the transition from the beginning: We didn’t want anyone to feel like they were caught off guard.

Our entire patient base was notified of the ownership change by U.S. Mail about two months prior to the transition. Even though there was a significant expense for printing and postage, we felt it was necessary to ensure that everyone actually received the news.

We continued to provide patient care for six months following the buyout because we felt this amount of time provided the short window of continuity that allowed all parties to breathe a little easier, get accustomed to our new roles and to hire new associate doctors. For us, this meant relinquishing the reins and being there to support Dr. Foster as he took on sole ownership.

A NEW BEGINNING

Nearly a year has passed since the transition. It has been very smooth, largely thanks to the amazing staff. While we had anticipated some patient attrition when we left, most have stayed with the practice. With that, Dr. Foster has enjoyed the opportunity to get acquainted with a whole new set of patients.

In checking in with Dr. Foster, it seems increasing demand for patient care and a busy schedule filling up weeks in advance, has dictated that the work to grow the practice and develop the next stage of practice succession is already underway. OM