Shutting Down: Selling Your Practice
The challenges with turning your practice over to a new owner.
Many psychologists dream of selling their practices to fund their retirements. They probably shouldn’t, warns Jeffrey Zimmerman, PhD, co-founder of The Practice Institute, which often fields calls from would-be sellers and buyers.
“It’s often quite difficult to sell a practice, at least for what the owner thinks it’s worth,” says Zimmerman, explaining that practitioners may have a deep emotional investment in what may be their life’s work. It’s not just difficult to assign a value to a practice, which typically has few tangible assets. It’s also impossible to ensure that what you’re selling — the practice’s reputation and patients’ and referral sources’ goodwill — actually transfers to the new owner.
Of course, there are exceptions. When health problems forced Cindy Sandler, PhD, to stop working three years ago, she thought about selling her testing practice. “With testing, you have equipment, so there’s something tangible people would want to buy,” she says. Similarly, practices with long-term, transferable contracts to provide services — agreements to provide employee assistance program services, for example — can be easier to value and thus sell.
If you decide to go ahead and try to sell your practice, use these tips:
- Plan ahead. If you’re in a group practice, says Zimmerman, start the practice by thinking about how you’ll end it. An operating agreement can lay out procedures for when a partner leaves as well as procedures for valuing the practice. In some group practices, for instance, partners come together annually at a shareholders’ meeting to vote on the company’s value. If you’re in solo practice, you can eliminate the need to sell your practice by saving aggressively.
- Consider a gradual approach. The problem with selling a practice outright is that the practice’s brand is connected with you. To overcome that challenge, you could take on a partner who gradually buys you out over three to five years. You’re still there but gradually scaling back as your partner gradually buys in. “This allows the new partner a chance to build a presence in the community,” says Zimmerman. “When the sale is complete, the new owner is no longer new.”
- Seek professional help. Depending on your locale, there may be statutes related to public notices, record-keeping and other matters related to selling your practice. To sort out all the legal and other issues, you’ll need a lawyer to craft a sales contract, an accountant to advise you on the tax consequences of different buy-out scenarios and your risk management company to make sure you stay on the up and up, says Zimmerman, who adds that a practice management consulting firm like The Practice Institute can also help guide those selling or buying practices through the process. There are also accountants who specialize in conducting valuations of professional practices, according to Dan Abrahamson, PhD, who sold parts of his organizational practice prior to coming to work at APA in 2006.
In Sandler’s case, she ultimately decided against selling her practice. “Really what you’re selling is your name and your reputation — what you’ve built up,” she says, explaining that a buyer might have a different way of doing things than her patients and referral sources were used to. “That’s not necessarily bad — just different…. I wasn’t comfortable with that.”
This article is the second in a series of columns focusing on closing a practice. Subsequent articles will focus on financial, legal, ethical and other issues. Recently published articles can be found on the APAServices website.