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By Kelly Pedersen, CFP® 



As the owner of a medical practice, you’ve likely spent many years, even decades, “heads down” building your business and treating patients. It’s a meaningful legacy to be sure, but inevitably the time will come for you to prepare your medical practice for sale and hand over the reins to a new owner, ideally one who shares your vision and values.  

It seems many medical business owners are at that inflection point. Healthcare mergers and acquisitions grew more than 50% in 2021. Physician medical groups experienced more than 400 deals, as well as managed care and rehabilitation subsectors, according to a report from PwC. This compares to about 200 to 250 deals per year between 2017 and 2019. 

Cleary, there is a lot of movement among medical practices to new ownership. But as a medical practice owner, where do you start? When thinking about preparing your medical practice for sale, there is a lot to consider. Below are four steps to get started:  


Start YEARS in advance to prepare properly 

Selling a medical practice is not something you decide to do a month or two in advance. It takes at least two to three years to develop and implement a strategy for your balance sheet and cash flow to look the way you want them to. That time is needed to adequately gather and demonstrate the numbers you want to share with any potential buyer.  

Don’t try to go this alone. I can’t stress enough how important it is to hire the right accountant to help whip your financials into shape. Any potential buyer will want to take a hard look at your books, so they need to shine.  

In addition, how your practice is structured is very important. Do you want to remain an S corp, or should you be a C corp, for example. The structure of your business can set you up for significant additional liquidity post-sale if done correctly. Discuss your corporate structure with your accountant and attorney to determine what will be most advantageous to you and a buyer. 

Beyond prepping your financials, bring in the key stakeholders in the business at the right time. Again, don’t wait until the sale is imminent. Connect with key employees, your spouse, children, extended family, key customers and suppliers at the appropriate time. Stagger these conversations on a “need-to-know” basis, but don’t wait too long. No one wants to feel like they’ve been “kept in the dark” or that their thoughts and ideas haven’t been heard related to a sale. 

Also, be sure to take time to map out your future. What’s next for you? You’ve poured your heart and soul into your practice. How will you find that same fulfillment and sense of purpose going forward? It is critically important to go through that exploration for yourself and your family if you are to truly enjoy the fruits of your labor.  


Choose your buyer carefully 

When selling a medical practice, there are numerous potential buyers. Private equity. Existing employees. Other medical practices or hospital groups. Depending on the buyer, there could be significant differences in how your business will be valued and operated going forward. For example, a private equity firm will likely zero in on what “multiple” it can get when it sells your practice again in 3-5 years. Sure, you might receive an attractive payment up front, but there will likely be a “price” for that in terms of the efficiencies a PE firm will demand and changes to how your practice is run that you might not agree with.   

If you’re considering selling to existing employees in your practice, you are likely doing so because you believe the legacy you’ve established will continue. In this situation, you might not  get as much money out of sale, but you could feel better knowing “your baby” will be taken care of. 

It comes down to deciding what’s most important to you. Is it getting every dollar you can? Or are you OK with potentially taking less but feeling more confident about the future of what you’ve built? 


Take a hard look at how your business is structured  

If your business is structured as a C corp and meets the criteria, you can potentially exclude 50 to 100 percent of the capital gains resulting from a sale through a qualified small business stock (QSBS) exclusion. This represents a tremendous opportunity to exclude the capital gains from the sale of your business from your taxable income. Below are some of the criteria required to qualify for a QSBS exclusion. Again, connect with your accountant, attorney, and financial advisor to fully explore your options:  

  •           The stock must be issued after August 9, 1993 
  •           Taxpayer must have acquired the stock at its original issue 
  •           The stock must be held for more than five years 
  •           The corporation must at all times have gross assets of $50 million or less 
  •           Must be an active business 
  •           Must be a qualified trade or business 


Also explore a reinvestment deferral, which allows for capital gains from the sale of qualified small business stock held by a taxpayer other than a corporation for more than six months to only recognize taxable income to the extent such sale exceeds the cost of any qualified small business stock newly purchased by the taxpayer within 60 days. In other words, as long as you’ve reinvested the capital gain from the sale of your practice into another qualified small business within 60 days, you can defer the taxes owed on those gains that were reinvested until the subsequent business is sold, assuming you meet the criteria.  

Finally, if you happen to sell your business at a loss, you can potentially convert that from a capital loss into an ordinary loss, which means you can deduct the loss against other sources of income and not be limited to deducting only against other capital gains.  


Explore an installment sale 

As appealing as it might be to take all of the proceeds from the sale of your practice in one lump sum, it can be advantageous from a tax standpoint to avoid a spike in your income by spreading out the proceeds from the sale over a period of years. If you take those proceeds over five years, for example, that could keep you from bumping into a higher tax bracket. This could also have an effect on the price or term of the sale, since you are inherently financing the acquisition. 


Remember, how you structure the sale of your practice will determine whether you are taxed at ordinary tax rates or capital gains rates. Make sure you have specifically spelled out what you are selling so that it qualifies for capital gains rates, not ordinary tax rates. Lean on your accountant and financial advisor as trusted partners to ensure you, and your practice, are set up for long-term success.  


Discuss how to prepare your medical practice for a sale.