Selling or transferring a practice
Very few solo private psychiatric practices are sold. This resource has been prepared to provide general guidance to psychiatrists about issues to consider should they wish to sell their private practice.
Initial sales, legal and financial considerations
When a psychiatrist has a proprietary interest in their practice, to ensure the requirements of a valid sale are complied with, it is recommended they engage the services of a professional with experience in medical practice valuation and sales. Seeking legal and financial advice is also recommended.
If the practice is a partnership or part of a corporation there may be a standing legal agreement for the buyout of a partner. If such an agreement is not in place, the vendor will need to negotiate the price of their practice.
If the intention to sell a practice is known well in advance, and circumstances permit, a psychiatrist may wish to consider taking on an associate for a year or two prior to closing up, with the intent that the associate will buy the practice.
Valuation of a practice
Key issues that should be taken into consideration in the valuation of a practice include:
- Tangible assets – land, building, equipment, chattels.
- Intangible assets/goodwill.
Vendors and buyers may have differing points of view on the value of goodwill but, ultimately, the value is based on its transferability to the new owner. Typical goodwill includes:
- type of practice
- patient lists
- reputation of practice
- right to use an existing phone number
- how well office systems suit the purchaser
- current fee structure
- viability of practice
- business potential
- right to use a recognisable practice name
Buyer and vendor agreements
The takeover of business’ liabilities by a new owner is not usual practice. Consideration of an agreement between the buyer and seller may be appropriate to ensure both parties agree on:
- how outstanding debts will be collected
- who will benefit from paid debts
- who will be responsible for payment to outstanding creditors.
Some national industry specific trade magazines offer advertising space for practices for sale.
A vendor can reasonably expect to receive, and should be prepared to respond to, queries from prospective purchasers about the practice. Typical queries from potential buyers will relate to the following aspects of a practice:
- description of business
- net return of business
- photographs/floor plans of building/interiors
- price of business
- amount of debtors and creditors carried by business
- financial statements
- approximate stock value
- reason for selling
- list of equipment
- business turnover
- whether premises are leased or owned
- number of staff
- turnover for last few months
- length of ownership/current lease
- hours and days of operation.
Contract of sale
This is a legally binding document between the buyer and seller that sets out the terms and conditions of the sale and will typically include:
- purchase price and deposit
- settlement date
- fixtures and fittings and chattels included in sale
- general conditions
- special conditions.
Goods and Services Tax
Goods and Services Tax (GST) is payable on the sale of a business. When selling or closing a practice, the following will need to be addressed:
- Lodgment and payment of outstanding activity statements and instalment notices.
- GST adjustments on final activity statements.
Refer to the ATO for more information on tax issues relating to the sale of a business.
Items under lease or hire purchase need to be identified to the buyer of the practice as such unless the intention is to pay the buyer out at the settlement of the business.
If the premises are leased, the lease will need to be reviewed to ensure it is transferable to a new owner. If it isn’t, the vendor should consider negotiating with the landlord:
- an arrangement that allows the new owner an extension on the lease
- conditions on which the transfer will be accepted.
If the practice ownership is being transferred, and the intent of the new owner will be to maintain the current employees, it is wise to keep all parties informed throughout the transfer phase to help facilitate a smooth transition. Keeping staff informed about the sale process aids in offsetting unsubstantiated rumours, and maintaining staff morale and customer service.
Staff offered employment with the new practice owner will require a new employment contract. The responsibilities for employee entitlements will pass onto the new owner unless the transfer is between non-associated entities and the new owner decides not to recognise the employee’s service with the medical practitioner selling. Annual leave and long-service leave entitlements should be assessed, calculated and deducted from the purchase price.
For employees not offered contracts with the new owner, responsibility for payment of annual leave and long-service leave entitlements remain that of the psychiatrist selling the practice. Sick leave entitlements of employees may be lost in the sale of the business. Some staff may be eligible for redundancy payouts.
Irrespective of the reason for the closure of a practice, seeking expert industrial relations advice about employees’ entitlements is recommended. Refer to:
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This information is intended to provide general guide to practitioners, and should not be relied on as a substitute for proper assessment with respect to the merits of each case and the needs of the patient. The RANZCP endeavours to ensure that information is accurate and current at the time of preparation, but takes no responsibility for matters arising from changed circumstances or information or material that may have become subsequently available.