Internal buyouts: Plan well; sell your medical practice for millions at retirement

Key Points

As attorneys and consultants to thousands of physicians across the country, we are constantly astounded by the attitudes of physicians regarding the sale of their medical practices. Most often, today, we hear the complaint that doctors do not feel they can sell a practice for any significant value. They generally do not feel the practice is "worth anything," especially if they do not have younger partners to buy them out.

Even in medical practices that are larger and have a significant number of younger physicians, most doctors maintain the same complaint. While they may typically have a right to a couple of months of payments from accounts receivable (AR) after they retire, this is a pittance compared to the value they have brought to the practice over the years.

We would agree with them in this assessment. A few months of AR certainly does not compensate a physician for more than 20 years of building a practice and its reputation.

We all know, advisers say, there is no white knight that is going to come in and buy your practice for a seven-figure sum, especially if you may be retiring that year or in the near future. In fact, we've seen very few physicians who have built a solid plan for a lucrative buy-out based on their existing advisers' help.

In this article, we hope to do a couple of things. The first is to give you hope that there are ways to, in essence, "sell" your practice for millions of dollars, if you plan and prepare for retirement. The second is to give you a couple of brief, quick ideas of how such a sale could occur.

Plan early

Let's look at a couple of key issues that may allow you to sell the practice for millions when you retire. Remember that these techniques and others may work best for group practices and solo practices as well.

"Common sense" advice - that neither an outside party, such as a management company, nor insiders, such as younger doctors, will suddenly cut you a seven-figure check as you are about to retire - is absolutely correct.

If your buyout plan is to just simply go about your practice as a physician and see patients - with no forethought, business-wise, about how you will sell your practice when you retire - you will get virtually nothing for your practice.

On the other hand, if at the outset of your practice, 10, 20 or even 30 years before you retire, you begin funding a buyout vehicle for your practice upon retirement, and you do this properly, you are almost assured of getting a multimillion-dollar check upon retirement.

While we will see a couple of alternative techniques below, the key point is simple - buyouts of medical practice need to be planned, they need to be funded over time, and they need the commitment of the physician many years prior to the "sale."

In this way, the best thing you can do to ensure that you will receive millions upon your retirement for your practice is to focus on this issue today, and implement a plan as soon as practicable.

Nontraditional retirement plans

Traditional retirement plans are likely the only ones you have heard of - qualified plans, such as pensions, profit-sharing plans, 401(k)s, 403(b)s and, for these purposes, SEP-IRAs and Keoghs.

What are nontraditional plans? These are less well-known to physicians and may be called nonqualified deferred compensation plans or split-dollar plans. We have addressed these specific plans in past articles.

As an example here, let's consider nonqualified deferred compensation plans. These plans are relatively unknown to physicians, even though most Fortune 1000 companies make them available to their executives.

While many of these plans in public companies involve company stock or stock options (which, of course, do not work in a medical practice environment), many use structures that a physician certainly could easily employ in a practice.