Two techniques for selling your practice for millions when you retire are using a nontraditional retirement plan or a captive insurance company to fund a buyout. The key is to plan early. There are no outside buyers of practices willing to pay you millions for your practice anymore. If you want such a buyout, you must plan for it yourself.
As attorneys and consultants to thousands of physicians across the country, we are constantly astounded by the attitudes of physicians regarding the sale of their medical practice. Most often, today, we hear the complaint that doctors do not feel they can sell their practice for any significant value. They generally do not feel the practice is "worth anything," especially if they do not have younger partners to buy them out.
Even in medical practices that are larger and have a significant number of younger physicians, most doctors maintain the same complaint. While they may typically have a right to a couple of months of payments from accounts receivable (AR) after they retire, this is a pittance compared to the value they have brought to the practice over the years.
We would agree with them in this assessment - a few months of AR certainly does not compensate a physician for 20-plus years of building a practice and its reputation.
In fact, we've seen very few physicians who have built a solid plan for a lucrative buyout based on their existing advisers' help.
In this article, we hope to do a couple of things. The first is to give you hope that there are ways to in essence "sell" your practice for millions of dollars, if you plan and prepare for retirement. Second, is to give you a couple of brief, quick ideas of how such a sale could occur.
Let's look at a couple of key issues that may allow you to sell the practice for millions when you retire. Remember that these techniques and others may work best for group practices and solo practices.
You must plan, and plan early
"Common-sense" advice - neither an outside party like a management company, nor insiders such as younger doctors, will suddenly cut you a seven-figure check as you are about to retire - this is absolutely correct. If your buyout plan is to just simply go about your practice as a physician and see patients - with no forethought businesswise about how you will sell your practice when you retire - you will get virtually nothing for your practice.
On the other hand, if at the outset of your practice, 10, 20 or even 30 years before you retire, you begin funding a buyout vehicle for your practice upon retirement, and you do this properly, you are almost assured of getting a multimillion dollar check upon retirement.
While we will see a couple of alternative techniques below, the key point is simple - buyouts of medical practices need to be planned, they need to be funded over time and they need the commitment of the physician many years prior to the "sale." In this way, the best thing you can do to insure that you will receive millions upon your retirement for your practice is to focus on this issue today, and implement a plan as soon as practicable.
Use a nontraditional retirement plan
Traditional retirement plans are likely the only ones you have heard of - qualified plans such as pensions, profit-sharing plans, 401(k)s, 403(b)s, and, for these purposes, SEP-IRAs and Keoghs. What are nontraditional plans? These are not as well known to physicians and may be called nonqualified deferred compensation plans or split-dollar plans.
As an example here, let's consider nonqualified deferred compensation plans. These plans are relatively unknown to physicians, even though most Fortune 1000 companies make them available to their executives.
While many of these plans in public companies involve company stock or stock options (which, of course, do not work in a medical practice environment), many use structures that a physician could easily employ in a practice.