8/6/2019 G UIDE TO T RANSITIONING S TRATEGIES M EET YOUR MEDICAL - - PDF document

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8 6 2019
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8/6/2019 G UIDE TO T RANSITIONING S TRATEGIES M EET YOUR MEDICAL - - PDF document

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8/6/2019 G UIDE TO T RANSITIONING S TRATEGIES M EET YOUR MEDICAL PRACTICE PARTNERS A LEXANDRA K OHRS J EREMY B URROUGHS CARR H EALTHCARE B ANK OF A MERICA P RACTICE S OLUTIONS R EALTY P RACTICE M ANAGEMENT T RACK L ECTURE 1 : E XPLORING THE PATH OF

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GUIDE TO TRANSITIONING STRATEGIES MEET YOUR MEDICAL PRACTICE PARTNERS

ALEXANDRA KOHRS BANK OF AMERICA PRACTICE SOLUTIONS JEREMY BURROUGHS CARR HEALTHCARE REALTY

PRACTICE MANAGEMENT TRACK

LECTURE 1 : EXPLORING THE PATH OF PRIVATE PRACTICE – 10:15AM-11:45AM LECTURE 2 : GUIDE TO TRANSITIONING STRATEGIES – 1:15PM – 2:45PM MEET THE EXPERTS BREAKFAST & LEARN: 7:45AM BOOMER ROOM

 Q & A SETTING Don’t miss out on your opportunity to ask the real estate and banking experts any

  • question. We will start with most common questions and provide an open platform

for a panel discussion. Come have breakfast with us on try to stump the experts!

PRACTICE OWNERSHIP TIMELINE

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 Transition to a current associate  Gradual Buy In/ Buy Out  100% Exit Strategy with Transition  Corporate/Private Equity Sale

WHERE DO I START?

WHAT does today’s market look like? WHEN is the right time to start a transition plan? WHO is today’s buyer? HOW do I prepare my clinic and financials? WHO is involved in a sale?

Mid 50’s to early 70’s (increased last decade) Practice went thru some turbulent financial times (1970’s-80’s & 2008-Present)

WHAT DOES TODAY’S MARKET LOOK LIKE?

Majority owned single practice for over 20 years Planning on leaving the medical space in short-term post sale ¾ Leave immediately ¼ Work 1-2 days (work back or somewhere else w/ non compete) Physicians want independence, not continue working at hospital More buyers entertaining start ups due to limited established transitions for sale

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Positives

  • CASH FLOW!
  • Have a patient based already established
  • Staff understands their roles and are

trained

  • The practice has been marketed and

maintains a consistent flow of new patients

  • Established insurance relationships

Negatives

  • You are buying someone else’s philosophy,

flow, treatment planning, staff training, systems, etc.

  • Possible loss of patients in transition
  • Existing staff salary is already established
  • Staff may resent new owner and leave the

practice

  • The equipment and office may be old and

worn which will require additional economic investment

WHY PURCHASE AN EXISTING CLINIC? WHAT DOES THE PROCESS LOOK LIKE? ACQUISITIONS

Practice Specialty Cash Flow Revenue Trend Expenses

  • Hiring/firing employees
  • Staff wage costs
  • Adjusted overhead costs

Last Cosmetic Update Technology

  • Digital X-Ray
  • Computer systems

WHAT DETERMINES THE PRICE?

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8/6/2019 4 IS THE PRICE RIGHT?

Supply vs. Demand  Lack of quality practices in desired locations

 Inflated prices based on competitive buyers  Inflated prices on lack of supply  Private equity purchases / Don’t close doors

Banking  Historic low interest rates

  • Rates <6% fixed the past 4 years

 Financial institutions specializing in the market

  • New boundaries for practice values
  • Flexible financing packages to stretch cash flow

 Commercial Real Estate – more attractive

  • Practice appraisal
  • Cash flow is king
  • Pre-Qualify the buyer
  • Growing/steady production
  • Clean tax returns
  • Current profit & loss statement

HAVING A PRACTICE A BUYER WANTS GET YOUR PRACTICE READY

Prior to having a buyer interested in a practice, we encourage you to provide a financial package or do a deep dive review with a medical specific lender

Tax Returns Practice Profile Year to Date Profit and Loss

This information will help determine what kind of buyer will be needed for the practice and address any questions regarding practice performance, as well as pre-qualify a buyer

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13

Doctor

Banker Lawyer Marketing Website Design Investment Equipment Specialist Medical Specific Accountant Space Finder Practice Broker Insurance

DO YOU HAVE YOUR ACQUISITION TEAM? CPA, ATTORNEY & BROKER IMPACT

  • Banks should only determine cash flow,

while Medical CPA’s can analyze valuation

  • CPA’s give guidance on most tax⁺

advantageous entity structure

  • Ongoing monitoring of common medical

practice expenses because of familiarity with the industry

  • Brokers value clinic, sell clinic, part of the

transaction

  • Attorneys who understand transition

contracts

+Please consult your tax advisor, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

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  • Credit worthiness
  • Capital (liquidity)
  • Character (financial position)
  • Capacity (cash flow)
  • Collateral (business)

KNOWING THE BUYER METRICS

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8/6/2019 6 STUDENT LOANS HOME AUTOMOBILE CREDIT CARDS REVOLVING LINES OF CREDIT CAN A BUYER AFFORD A CLINIC WITH STUDENT LOANS?

Specialty Lenders Local Banks Seller Financing Term Rates Fees Pre-Payment

Down Payments Approval Flexibility Personal Guarantees Residential Guarantees Approval Time Life Insurance Disability Insurance

Malpractice Insurance

KNOW THE LENDING OPTIONS

SBA

  • Closing the doors too soon
  • Financial/Budgeting mismanagement
  • Practice Prep Limited
  • Unrealistic expectations
  • No Transition plan in place
  • NOT HAVING THE RIGHT TEAM IN PLACE

MOST COMMON PITFALLS

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  • Develop your “Why”…

Why am I doing what I’m about to do?

  • The “Why” becomes your driving force behind your decision
  • Create an experienced TEAM
  • Practice & Real Estate broker, CPA, Attorney, Banker
  • Have a plan
  • Know exactly what you want to do
  • Commit to the plan
  • Execute the plan with your TEAM
  • It’s never too early to start looking at your options
  • Prepare your clinic for sale
  • Explore different options including a gradual sale
  • Don’t take shortcuts
  • This is your legacy.. Transition to someone that you like!

SUCCESS TIPS

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MEET THE EXPERTS BREAKFAST & LEARN: FRIDAY, 7:45AM BOOMER ROOM

Q & A SETTING

Don’t miss out on your opportunity to ask the real estate and banking experts any question. We will start with most common questions and provide an open platform for a panel discussion. Come have breakfast with us on try to stump the experts!

Bank of America, N.A. provides information from speaker topics for your discussion and review purposes only. Please consult your tax advisor, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice. AR: AR9SRJ9D

The Path of Private Practice Session 2

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The Importance

  • f Real Estate to

Your Practice

Second-Highest Expense

  • Your office is typically the second-

highest expense after payroll

  • After years of lease escalations, most
  • ffices are significantly overpaying for

their lease

  • You typically get only one chance every

5-10 years to reduce this expense. Don’t Miss the critical opportunity!

The Importance of Real Estate to Your Transition

Value and Flexibility

  • A properly or poorly negotiated

lease can benefit or cost a practice tens to hundreds of thousands of dollars over a ten year period

  • Do you want the landlord to have

a say in your transition?

The Importance

  • f Real Estate to

Your Transition(cont.)

Terminology and Term

  • Having proper terminology in your

lease impacts your future ability to sell your practice (Assignability Clause)

  • Length of term – Too short, too long,
  • r just right?
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Real Estate During an Acquisition

  • Lenders will typically require

specific terms and maximum rental amounts in a practice acquisition

  • Do not assume the practice seller

has a fair or good lease

Business Points in Leases

  • Rate
  • NNN vs Full Service
  • Base Year / Expense Stop
  • Annual Increases
  • Term
  • Free Rent
  • Tenant Improvement (TI) Allowance
  • Options to Renew
  • Option to Purchase

Value of your Practice

Your Value to the Landlord

  • Higher lease rates lead to higher

property valuations

  • They are willing to give significant

concessions to desirable tenants

  • Healthcare tenants are extremely

attractive

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Real Estate During an Acquisition

  • Hire your own representation to

determine market values

  • 3 Separate values: Practice,

Equipment, and Real Estate

  • The practice broker selling the

practice is rarely a real estate professional.

Commercial Property Types

  • Office (Condo/ Stand Alone)
  • Retail
  • MOB
  • Hospital Campus

Purchase vs. Lease

  • Is it always better to own?
  • How does it affect your cash

flow?

  • Short term vs. long term
  • Principal pay-down and equity
  • Tax implications
  • Exit strategy
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Negotiation Strategy

Who is the Landlord?

  • Third Party or Practice Owner
  • What is the Condition of the

Space?

  • Future of the Practice

Negotiation Strategy (Cont.)

Posture is mandatory

  • Understand what is really at stake
  • Renewal Scenario
  • Purchase Scenario

Common Mistakes

  • Believing the landlord or seller

will simply offer their best terms

  • Determining market value by

asking what your neighbors are paying

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Common Mistakes (cont.)

  • Not knowing market

availability and comps

  • Using only an appraisal to set

purchase price

  • Assuming you can save money

without representation

  • Talking to the landlord or seller

directly

Key Players in a Transition and Their Roles

  • Real Estate Broker
  • Lender
  • Attorney
  • CPA
  • Transition Broker

Closing

  • Transitions are complicated
  • Give yourself enough time
  • Understand the market and your top
  • ptions
  • Use the right ”team”
  • Be willing to walk away
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Jeremy Burroughs

405-410-8923 Jeremy.burroughs@carr .us