Thinking of Selling Your Practice to Your Associate?

In today's competitive market, many associate healthcare practitioners working in successful practices often feel tempted by opportunities elsewhere. While they remain in their current position, they frequently explore practices for sale through brokers or private listings. Additionally, commercial lenders and sales representatives may encourage them to establish their own practice, presenting lucrative financing and setup options.

The Owner's Perspective

Many practice owners receive interest from associates wanting to buy their clinic. The owner, seeing an opportunity for a seamless transition, commissions an appraisal with the expectation that the associate will proceed with the purchase. While this approach sometimes results in a smooth transaction, there are many instances where it falls apart.

From an owner's standpoint, a direct sale to an associate means avoiding brokerage commissions. Legal and accounting fees may be slightly higher, but the overall savings seem attractive. However, this apparent advantage comes with its own challenges.

The Associate's Perspective

For the associate, exploring the purchase of their current practice carries no financial risk. Since the owner typically covers the cost of the appraisal, the associate gains full insight into the practice's financials without any investment. They also enjoy a strategic advantage-without competition, they may feel empowered to negotiate a lower purchase price.

Challenges in Negotiations

Once an associate receives the valuation, they may propose a reduced offer, arguing that the absence of market competition and the owner's savings on brokerage fees justify a discount. Additionally, some associates may believe that their contributions to the practice entitle them to an additional price reduction.

This creates an unintended consequence: the owner, who has invested years into building the practice, feels undervalued. While associates play an essential role in success, they have not shouldered the financial and operational risks of ownership. Ownership responsibility is what ultimately justifies the value of the practice.

The Risk of Damaged Relationships

At this stage, negotiations often become tense. The owner may feel that years of dedication are being undervalued, while the associate sees their offer as a fair reflection of market conditions. This dynamic can lead to an unintended breakdown in trust, which may result in the associate resigning or being terminated. If they continue working together, the owner may feel uncomfortable knowing the associate now has full insight into the practice's financials.

These tensions are a primary reason why many associate buy-in negotiations fail. More often than not, the issue isn't between the owner and associate but rather the external advisors shaping the associate's approach.

Preparing for a Sale to an Associate

If an associate approaches you to purchase your practice, preparation is key. Expect a negotiation that may challenge your perception of the practice's value. While associates may not intend to diminish what you have built, the negotiation process can feel like an evaluation of your life's work.

Selling a practice is a revealing and emotional experience. Whether you choose to sell to an associate or list on the open market, be prepared for the potential challenges and understand that maintaining professionalism throughout the process is crucial. In some cases, an open-market sale may yield a fairer value while preserving professional relationships in the long run.

Why Work with Meridian Sales & Appraisals?

At Meridian Sales & Appraisals, we specialize in practice sales and valuations, providing expert guidance to healthcare professionals looking to transition their ownership. Our team is dedicated to ensuring that sellers achieve the best possible outcome while navigating the complexities of negotiations. With a deep understanding of market conditions and a commitment to confidentiality, we help practice owners position their business effectively, whether selling to an associate or entering the open market. Partnering with us ensures a smooth and successful transition while securing the true value of your practice.

Ensuring a Smooth and Profitable Transition

Selling a practice to an associate may seem like a logical and convenient option, but it carries risks. Without competitive market pressure, the associate is likely to negotiate aggressively, leading to unintended conflicts. Owners should weigh their options carefully and ensure that their decision is based on long-term financial and professional considerations.

Selling a practice is one of the most significant financial decisions a practitioner will make. Whether you choose to sell to an associate or explore the open market, approaching the sale with clarity, realistic expectations, and open communication is key to ensuring a smooth and successful transition. If you're considering selling your practice, our team at Meridian Sales & Appraisals is here to help. Get expert guidance today.

Alan Rustom