What is the first thing you should ask yourself when you want to buy a private practice? What is the general process for selling a private practice? If you would consider selling your practice in the future, why should you itemize your sales?
In this podcast episode, Joe Sanok answers your questions about how to sell a private practice.
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In This Podcast
- Is it worth the value?
- Itemize your sales
- Factors to look at
Is it worth the value?
Why do you want to purchase a private practice? Often purchasing a private practice simply means purchasing a website, a logo, and an email list. Can you make that yourself in six months?
When you are wanting to purchase a private practice, be sure to ask:
- What kind of network does it have?
- What types of clients does it work with?
- What kind of contracts is it involved with?
All these things are factors that if you want to sell your practice, you need to build that value outside of yourself. Because, as soon as someone buys the practice, you typically will leave. (Joe Sanok)
Put value into your private practice that is not dependent on you still being a part of it. If you can increase its value and it is not dependent on your presence within it, you can sell it for more.
Itemize your sales
If you sell e-courses or other resources besides your normal therapy services, be sure to itemize these different sales in your accounting books:
Because you’re going to have to go back three to five years to look at how much of this [practice value] is outside of your own work, because you doing counseling does not really count as money into the business because you’re going to leave, so that’s not going to come in. (Joe Sanok)
Value every part of the practice, such as:
- The website,
- The furniture,
- The email lists.
Factors to look at
A few other factors you should consider are:
- How much you will receive for your practice if it has 1099 or W2 employees. Typically, people pay more for a practice with W2 employees than contractors.
- Recognize the emotional side: selling a private practice is a full letting go of the practice and your hard work.
- Consider adding in some transition planning with a consultant.
- Be open to negotiating.
Books mentioned in this episode:
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Meet Joe Sanok
Joe Sanok helps counselors to create thriving practices that are the envy of other counselors. He has helped counselors to grow their businesses by 50-500% and is proud of all the private practice owners that are growing their income, influence, and impact on the world. Click here to explore consulting with Joe.
Thanks For Listening!
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Well, welcome to the Practice of the Practice podcast. I am Joe Sanok, your host. This is part of the Ask Joe series, and I’m so excited to be doing these every single Wednesday for you, where we are talking all about your questions. If you have questions, head on over to practiceofthepractice.com/askjoe. You can submit your questions there. We’re getting some amazing questions coming in and noticing some themes around money and mindset and just all sorts of things that are just so awesome. Well, today, the question comes from Jennifer Ossege. Jennifer is with a practice that’s called Viewpoint Psychological Services, and has been in practice 15 years in Northern Kentucky and greater Cincinnati area.
Jennifer’s question is I would love to hear about your experience with selling your practice, your group practice, as well as other ideas you consider along the way, for example, retaining ownership while someone else runs the daily operations or selling a cut of it in the future. How did you think through selling your practice? Oh, I love this question. I get this all the time. It’s interesting to have heard of other people that sold their practices and what they consider selling. I think it’s very important to find out if someone says they sold their practice, what does that actually mean? Because for some people that means they sold the name and the couch for a thousand bucks. For other people it’s a five or six figure deal. For other people, it’s way more than that.
So in selling a practice, realize first and foremost, that this should not be your retirement plan, because if someone comes to me and says, “Hey, there’s this practice that’s making this much money and I can buy it for $200,000.” My first question would be, could you build that practice in six months for less than $200,000? Because a lot of times what you’re buying is a website and maybe a logo and a rental office. You’re not actually getting a private practice. So just think about from the other side of it, of, if you were buying a practice, why would you want to buy a practice? What kind of network, what kind of clients, what kind of ongoing work, what kind of contracts do you have? What sort of agreements with insurance companies? So all these things are factors that if you want to sell your practice, you need to build that value outside of yourself because as soon as someone buys the practice, you typically will leave if they buy it from you.
So how did this play out? Well, in 2019, my five year lease was coming due. Practice of the Practice was going great, and I was only doing one or two counseling sessions a week, and I really just knew my heart wasn’t in private practice anymore. So it was starting from a point of, do I want to sell this thing or do I want to stick around or what do I want to do here? So I realized I didn’t want to have the practice or continue after the rent was done, the rental agreement was done and I knew for sure that I just didn’t want to keep doing practice. So I also understood that I didn’t want to have it be something that I held silently and then had an operations manager. I was just kind of done with it. I wanted that freedom. So it was more emotionally I knew I didn’t want to put my time and my energy into the private practice anymore, nor was that fair to my clinicians because I was more and more grow growing outside of Traverse City. I was growing the podcast. I was wanting book deals, things like that.
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[JOE SANOK] So I really decided, okay, I know that I want to sell it and it was either sell it or shut it down, or do some sort of mixed model. I got lucky. Nicole Ball, one of my clinicians came to me one day and she said, “So what’s going to happen after July?” She wanted to know for her own future. I was like I’m considering a lot of things right now. I would love to sell. She and I started talking about the idea of her buying the practice. We went through a valuation process. So the valuation process typically looks at the previous three years of income outside of me, which was good because I had two separate systems. They were both under the same LLC, both as DBAs, but all of the finances came through Square credit cards whereas all the finances with Practice of the Practice went through PayPal.
So it was very easy to parse out. So one tip I would say is, if you think that you’re going to be selling your practice and you’re running anything like podcasts or e-courses or things like through it, definitely make sure that those finances are separated out through two different systems or in some way that in your QuickBooks, it really itemizes it. Because you’re going to have to go back three to five years to look at how much of this was outside of your own work, because you doing counseling that doesn’t really count as money into the business, because you’re going to leave. So that’s not going to come in.
We also then valued everything like the website, we valued the furniture, things like that and then had an amount that the bank agreed was a fair amount. She was able to get a small business loan, she purchased it, gave me the check and then I think they covered 95% of it and then I think 5% of it I get paid that remaining amount after she pays back the bank. So that’s how my experience went. For other people that I’ve worked with it’s very similar. You have a valuation process of how much you have brought in outside of yourself over the last three to five years. Someone then says, yes, okay, I see that amount and then they purchase it.
So a couple other factors you want to look at is how much you can have automations and contracts in with either 1099s or W2s? Typically a business will sell for more if you have the W2 employees than if you have 1099 contractors, because they’re seen as contractors, they’re businesses within the business. So that can be nice for you if you don’t want to be managing people but if you have W2s where there’s signed contracts, that can go a lot farther when you’re selling the practice.
As well, I think just the emotional side of it, of fully letting go of the practice. Throwing in some extra things like some consulting or transition planning can add a little bit of extra money in there as well. And being open to negotiating. I would definitely, read the book, Never Split the Difference. if you’re going to be doing any negotiating in your life, it’s a great book to just help you understand how to negotiate. It’s written by an FBI negotiator and it’s just really a helpful book. So I would definitely do that as well.
Well, that’s what I think when it comes to selling a practice.
Group Practice Launch has opened. It is opened right now. If you are starting a practice, make sure you sign up through our website, practiceofthepractice.com. You’ll see it all over the place with Group Practice Launch. Also, you can email us if you ever need any links or you’re not sure what to do. But Group Practice Launch is opening. We are so excited about that. Make sure you jump in. We only open this twice a year. Alison and Whitney are helping people go from being solo practitioners to over a six month period of time having one of their 1099s or W2s hires. So it’s really an amazing program. Make sure you sign up for that as soon as possible.
Thanks so much for letting me into your ears and into your brain. Have a great day, and I’ll talk to you soon. Bye.
Special thanks to the band Silence is Sexy for your intro music. We really like it. And this podcast is designed to provide accurate and authoritative information in regard to the subject matter covered. This is given with the understanding that neither the host, the publisher, or the guests are rendering legal, accounting, clinical, or other professional information. If you want a professional, you should find one.