What is the Most Important Question to Ask to Determine When is the Right Time to Sell Your Practice
Practice owners routinely ask me, “What is my practice worth” and “When is the right time to sell”?
While the first question requires a fair amount of analysis, I am able to determine a probable selling price with a rather high level of certainty. So the answer to that question is usually straightforward. However, determining when to sell your practice is far more complicated due to a wide variety of factors. In particular, it can be a highly emotional decision that involves more than basic logic to determine when to move forward and exit the practice.
From a logical standpoint, the ideal time to sell a practice is when:
1. Revenues and Profit have experienced a steady increase over the past 2 to 3 years
2. There is every reason to believe Revenues and Profits will continue to increase in the foreseeable future
3. Market conditions are favorable (low interest rates, strong economy, numerous buyers, etc.)
When these conditions exist, practices often attract a wide pool of buyers and sell at the higher end of the price range. So, what prevents a practice owner from selling when these conditions are in place? Typically, it’s the concern that they may be selling too early and that if the growth continues, the practice will be worth more a few years from now than it is today. Frankly, that’s a reasonable concern (no one wants to leave money on the table). But that doesn’t take into account risks that are outside all of our control; the largest being the health of the economy. In this century alone, we experienced the “dot com bubble burst” in 2000 and the Great Recession of 2007-2009, and COVID-19 in 2020. Clearly, when events like that happen, selling a practice becomes difficult to sell at any price. If it does sell, it will almost certainly sell for a fraction of what it was worth prior an economic downturn.
With that said, the best advice I can give a practice owner contemplating the sale of their practice soon is to ask yourself the following question: “Can you and your family afford to wait another 5 to 10 years to sell your practice if the market conditions adversely change?” Keep in mind it can take 1 year or more to sell a practice (two years or more if the practice is located outside a major metropolitan area). So, even if you decided to go market today, you have to hope the market conditions won’t change for another year or two. Also, this shouldn’t simply be a financial decision on your part. Take into account what your lifestyle plans are (for you AND your family) after the sale and how that would be impacted if you need run your practice for another 10 years.
If your answer to the “5 to 10 years” questions is “Yes”, then you have plenty of options and you should consider staying the course and look at ways to grow your practice to increase its value. However, if the answer is “No”, I suggest you have your practice evaluated to determine its current market value and then meet with your trusted advisors to determine if the sale of the practice allows you to achieve your personal and financial goals.