Physician-Owned Practices: Don’t wait to plan your exit

A successful sale of a business requires a combination of timing, skill, and patience. Owners of physician practices who are ready to move on have to make hard decisions on whether it is the right time to sell or whether they need to hold on until circumstances change. Recent studies have shown that managing a practice has become more difficult. According to the American Hospital Association, an overwhelming majority (94%) of physicians think it has become more financially and administratively difficult to operate a practice.

Kelly Tinsley: ©UBS

As it stands today, the environment is not favorable for physicians who may be looking to sell. This is directly caused by the current state of the economy and Fed rate hikes, which continue to exert pressure on middle-market M&As. This may be creating anxiety for physicians who are newly in the position to exit or those who did not take advantage of more previous, favorable conditions.

To understand the current state of affairs for business owners looking to sell, we conducted a survey in April of over 500 U.S. business owners. The business owners selected for the survey either were looking to sell their business in the next five years or recently sold a business.

Here were the biggest takeaways from this survey:

• Survey respondents expressed remorse that they didn’t sell earlier and held serious concerns that they will ultimately receive a lower business valuation when they do sell
• Owners were not making the requisite preparations on an appropriate time scale to prepare for the best possible deal for their business
• Not enough owners were engaging financial advisors to help them not only with the sale, but with the considerations that come after the fact

Current market conditions have business owners concerned

The study found 40% of business owners regret that they did not sell their business during recent periods of higher valuations and61% were concerned they will not get a proper valuation for their business when they sell. While we know that owners of physician practices cannot control market conditions, they can prepare themselves for an eventual opportunity that will come along at some date.

Those looking to sell can learn from the mistakes of those who recently exited. The survey found 73% of business owners who sold their companies in recent years spent less than two years preparing for an exit (32% spent less than a year) and 80% wished they had started preparations earlier. It is recommended that owners engage with financial planners years in advance to ensure they and their families are ready for a sale.

The survey found that only two-thirds of business owners who were looking to exit their businesses turned to financial advisors for advice. Preparing to sell one’s business is not just about the actual exit; there are just as important decisions that come after the fact, such as having a concrete plan for the proceeds, which includes smart tax strategy and estate planning. Forty percent or less of respondents have engaged in or contemplated incredibly important decisions such as discussing family wealth with their heirs, creating an estate plan, or establishing a concrete plan for what to do with the proceeds. Financial advisors play a vital role in helping business owners prepare for exits, including these key issues beyond the close of the sale.

There are positive signs amid the uncertainty: a fifth consecutive month of $200 billion in M&A volume and 70% of M&A buyers were corporate, which creates more volume than private equity buyers.

Physician-owned practices: Remember that it’s never too early to prepare

Selling one’s business in times like these is somewhat like the stock market during a bear run. Those who can bear to keep running their business until times improve should strongly consider it. But the planning for that eventuality should start today.

Fortunately, the solution to all these challenges is simple: working with the right financial advisor that can help with the litany of needs a business owner must take into account. This includes post-sale spending and investing needs, financial planning, garnering the needed support of family and friends, and making sure the owner’s legacy is maintained to their satisfaction.

Anyone looking to sell their business needs to know that a trusted financial advisor is well worth the cost, especially for first-time sellers. They’ve seen it all and can help you prepare for both the financial and emotional outcomes of selling your business. It’s a big step that can leave even the most level-headed executive unsure of what to do next. Ensuring that a financial expert is part of your team of advisors at the right time will set up your family well for the years ahead.

The M&A market isn’t a monolith.While the overall market may be challenging, the right buyer for any one business may be right around the corner. Every owner looking to exit needs to be ready because good businesses will find the right buyers when the time is right. Regardless of the circumstances of today’s markets, business owners should begin carefully planning their exit to ensure they are ready when conditions are ripe.

Kelly Tinsley is a financial advisor with UBS Financial Services Inc. a subsidiary of UBS Group AG. Member FINRA/SIPC in 1985 Eastwood Road, Landfall Park North, Suite 110, Wilmington, NC 28403. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. If you would like to learn more about selling your business, Kelly can be reached at kelly.tinsley@ubs.com.