Closing a medical practice is a difficult decision. Physician retirement is a natural part of every career, but medical practice retirement is a bit more open-ended. How does one determine whether it’s time to get things in shape or cut their losses?
Here’s an email I received from a doctor talking about this very decision.
Good morning, Gene –
My wife and I need some advice going forward and I know you have always been good for it. Here is the bottom line – my practice is really hurting. We are much slower due to multiple circumstances (my health, hurricanes, COVID, insurance). We are way understaffed. We are not seeing that many patients a day anymore. Often, patients are no shows. Administrative burdens are increasing. Our practice is very small and we are making and seeing less and less every year. My lease expires in 3 years and I am praying I don’t go bankrupt before then due to increased overhead and decreased revenue. My neighbor, Dr. Not Right Now, is not interested in pursuing practice sale for now for similar reasons that I have heard – loss of autonomy and increasing focus on the “bottom line” that forces providers to do less than ethical things to make a living. This makes my office less attractive for any potential sale.
I am not sure any venture capital company would be interested in “buying me out” as we are, thus I feel as if I am in a rock and a hard place right now. I don’t want to spend money I don’t have for something that might not be realistic or does not exist. I would like to sell my practice if I could but I am not sure it’s really worth anything. I am unsure as to whether to try to sell it myself and get what I can or just stay the course and close my doors in three years. I don’t know if my situation is unique but I really need your honest opinion on what you would do if you were me. I know you do not have my taxes or numbers, but I would not say that they are impressive and my guess is that is what these companies are looking for. Naturally, you can bill me for any advice you give. I’m at a loss for what to do right now. I am so burnt out, I could scream! Whatever direction from your experience you can give I would be grateful for. Thank you for reading this – I know there is no perfect answer.
The Honest Doctor
Dr. Honest, I can’t adequately put into words what it means to me to have your trust. I am treating this advice as if I was advising my brother. I have attempted to put myself in your shoes, and I am giving you my best.
Step One: Understand the Environment
If you have poor collections, I agree with you that there will be significant headwinds to selling your practice without that changing. Therefore, I don’t think we do the financial analysis and take the practice to market — at least at this time.
You have roughly 42 months between now and the end of 2027. In our experience, it takes around nine to 12 months to see a significant turnaround in the operations/collections. I wouldn’t take it to market until we saw increased collections.
Step Two: Recognize Your Accomplishment
At this point, you are essentially finishing your professional marathon. Now, it’s a choice to sprint to the finish or just finish. Both have tremendous value. Few have done what you’ve done. You own a business, you serve your community, you develop staff, and you have been the captain of your ship — simply finishing is tremendous.
Step Three: Understand the Cost and Potential Reward
If you want to sprint to the finish to get the “best time” possible, it requires commitment. You’ll need to change your mindset and commit to any investment necessary to average $70,000 in bank deposits/income per month. At that point, we would take your practice to market, which, depending on the buyer, puts the value around $200,000 to $250,000 without changing your desired retirement in 42 months. I believe that investment is around $40,000. Thankfully, in business, it’s not an upfront investment like real estate. Still, it would be $4,000 or so a month before it starts paying for itself. Is risking $40,000 worth it if it increases the amount going into retirement by $200,000 or more?
Finishing your race is essentially continuing down the path you are currently on while operating as lean as possible. Here, you are trying to get as much monthly income out of the practice, realizing there only would be a nominal value at best when you retire. Note, I believe there would be some value in assets and medical records of your practice for someone like a Dr. Not Right Now — maybe $30,000 to 50,000 or so — but that will be very much dependent on Dr. Not Right Now having another local practice looking to grow or buy some equipment.
Step Four: Assess Your Health and Willingness to Invest in Your Practice
I believe the most significant item is your health. Do you believe you can commit to 35 to 40 clinical/surgery hours a week for the foreseeable future? The second most important item is your willingness to invest in the practice. For you to grow to $70,000 per month in collections, there will need to be an investment in resources now.
Step Five: There Is a Risk and Reward
Lastly, these numbers I have shared are real-life examples. There is always a business risk. Will there be a buyer? Will they be able to meet your needs? We may never know for certain unless you try. Before you make your move, consider what you have to lose — and what you stand to gain. Regardless of the outcome, do you think the risk is worth the reward?
Closing a Medical Practice Checklist
As you consider these steps, there may come a time when you realize that selling is precisely what you need to do. If you conclude that it’s time to move on, this checklist will help you close down with minimal disruption:
- Notifications: As soon as you confirm your medical practice’s retirement, start notifying people as soon as possible. Create a letter for your patients — it helps to send patients a copy of their medical records with this notification. You’ll also need to inform staff, investors, agencies you’re registered with, referring physicians, and other organizations you have partnered with throughout the duration of your practice.
- Record retention: There are state and federal regulations associated with storing medical records and other privacy law-protected information. Look to your area’s guidelines for advice — in general, you’ll need to find a way to retain records for about a decade after closing a medical practice.
- Financial organization: As soon as you can, connect with your accounts receivables to negotiate final repayments. You’ll also need to reach out to accounts payable and settle debts you still owe. Furthermore, be sure to contact insurance carriers, leasing agents, rental partners, and anyone else you have financial dealings with. Even after your practice closes, you may still be liable for certain financial concerns, so it’s best to figure them out now.
- Office disbandment: As your final days in business approach, you can begin packing up the office itself. Sell or donate furniture, office supplies, technology, and anything else in good condition. Everything else can be disposed of or recycled.
It’s likely that even after your practice shuts down, you’ll still need to deal with some of these back-and-forth administrative tasks. Plan to deal with this for at least a few months following your official shutdown date.
Is Medical Practice Retirement Right for You?
Still unsure whether physician retirement is right for you right now? Let me help you weigh your options. I can use my experience to help guide you through the possibilities of every path so you can come to a good conclusion for your situation. I will be happy to connect with you through our contact form or over the phone at 865-800-3606.
