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
staffing
location
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.

Advertising

Some national industry specific trade magazines offer advertising space for practices for sale.

Prospective purchasers

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:

Refer to the ATO for more information on tax issues relating to the sale of a business.

Leased equipment

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.

Leased premises

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.

Employees

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:

Australia: Fair Work Ombudsman
Aotearoa New Zealand: Employment New Zealand

Contact

For enquiries about this page, contact policy@ranzcp.org.

Disclaimer

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.