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

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 PRIVATE PRACTICE – 10:15 AM -11:45 AM L ECTURE 2 : G UIDE TO T RANSITIONING STRATEGIES – 1:15 PM – 2:45 PM M EET THE E XPERTS B REAKFAST & L EARN : 7:45 AM B OOMER R OOM  Q & A S ETTING 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! P RACTICE O WNERSHIP T IMELINE 1

8/6/2019  Transition to a current associate  Gradual Buy In/ Buy Out  100% Exit Strategy with Transition  Corporate/Private Equity Sale W HERE 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? W HAT DOES TODAY ’ S MARKET LOOK LIKE ? Mid 50’s to early 70’s (increased last decade) Practice went thru some turbulent financial times (1970’s - 80’s & 2008 -Present) 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 2

8/6/2019 W HY PURCHASE AN EXISTING CLINIC ? Positives Negatives • CASH FLOW! • You are buying someone else’s philosophy, flow, treatment planning, staff training, • Have a patient based already established systems, etc. • Possible loss of patients in transition • Staff understands their roles and are trained • Existing staff salary is already established • The practice has been marketed and • Staff may resent new owner and leave the maintains a consistent flow of new patients practice • Established insurance relationships • The equipment and office may be old and worn which will require additional economic investment W HAT DOES THE PROCESS LOOK LIKE ? A CQUISITIONS W HAT DETERMINES THE PRICE ?  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 3

8/6/2019 I S 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 H AVING A PRACTICE A BUYER WANTS • Growing/steady production • Practice appraisal • Clean tax returns • Cash flow is king • Pre-Qualify the buyer • Current profit & loss statement G ET YOUR PRACTICE READY Tax Returns Prior to having a buyer This information will help interested in a practice, determine what kind of Practice we encourage you to buyer will be needed for Profile provide a financial the practice and address package or do a deep dive Year to Date any questions regarding Profit and review with a medical practice performance, as Loss specific lender well as pre-qualify a buyer 4

8/6/2019 D O YOU HAVE YOUR ACQUISITION TEAM ? Banker Insurance Lawyer Marketing Practice Website Broker Design Doctor Space Investment Finder Medical Specific Equipment Accountant Specialist 13 CPA, A TTORNEY & B ROKER I MPACT • 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. K NOWING THE BUYER METRICS • Credit worthiness • Capital (liquidity) • Character (financial position) • Capacity (cash flow) • Collateral (business) 15 5

8/6/2019 C AN A BUYER AFFORD A CLINIC WITH STUDENT LOANS ? STUDENT LOANS CREDIT CARDS HOME REVOLVING LINES AUTOMOBILE OF CREDIT K NOW T HE L ENDING O PTIONS Specialty Lenders Local Banks SBA Seller Financing Term Rates Pre-Payment Fees Down Approval Personal Residential Approval Time Payments Flexibility Guarantees Guarantees Life Disability Malpractice Insurance Insurance Insurance M OST C OMMON P ITFALLS • 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 6

8/6/2019 S UCCESS T IPS • 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! 19 M EET THE E XPERTS B REAKFAST & L EARN : F RIDAY , 7:45 AM B OOMER R OOM Q & A S ETTING 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 35428 The Path of Private Practice Session 2 7

8/6/2019 The Importance of Real Estate to Your Practice Second-Highest Expense • Your office is typically the second- highest expense after payroll • After years of lease escalations, most offices 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 of 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, or just right? 8

8/6/2019 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 9

8/6/2019 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 10

8/6/2019 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 11

8/6/2019 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 options • Use the right ”team” • Be willing to walk away 12

8/6/2019 Jeremy Burroughs 405-410-8923 Jeremy.burroughs@carr .us 13