Are you considering selling a medical centre or medical practice?
As the owner of a medical centre, if you are considering selling it is important to first consider why you are selling. Thinking through this question properly from the outset informs the selling process and the strategy.
Please find our recommended key steps for the successful sale of a medical centre business and importantly five key things to avoid.
Key steps to follow as the owner when selling a medical centre practice:
1. Gather ALL information
Owners selling a business are commonly required to produce the contract of sale for the buyer to review and consider. The seller’s lawyer will need information and documents concerning the business for the purpose of, for example, understanding the business’ ownership structure, whether the owner is selling the business and assets, or selling shares in a company and units in a trust.
If you are in business with other health practitioners, your lawyer may also do some investigation on whether any ownership agreements (such as a shareholder agreement) have implications for the sale, and whether there are certain existing documents to ensure you are released from all ongoing liability with respect to the business.
2. Understand your legal obligations
Things you should consider include whether:
- you need any third-party consents for the sale to happen, e.g. landlord’s consent to assign a lease (if the business is on leased premises);
- there are any security interests in assets being sold that need to be discharged by settlement;
- any licences that need to be assigned to the buyer;
- any ongoing service or supplier contracts need to be transferred to the buyer; and
- it would be important to include any restraints of trade in the Contract of Sale.
3. Prepare the sale of business contract
In preparing the contract, the owner’s lawyer (seller) should advise on any special conditions the owner may wish to include for example:
- excluding warranties about the condition of equipment;
- excluding warranties about the takings of the business and require the buyer to rely on their own enquiries;
- requiring the buyer to provide a personal guarantor where the purchasing entity is a company;
- requiring the buyer to pay interest on the purchase price if completion is delayed; and
- terms of ongoing arrangements with owner doctors if they are to continue to practice at the medical centre;
- indemnifying the owner (seller) against breach of any continuing agreements (including the lease) by the buyer after completion.
4. Employee Agreements
The seller must advise how employees are to be dealt with on successful transfer. Will the buyer offer employment at its discretion, or will the seller require the buyer to offer employment to all current employees on their current terms and conditions?
5. Practice Valuation
Think about having your practice being valued by an independent third party. The benefits of doing this include that, usually, the seller is assured a fair price in terms of the current market and reduces delay with protracted negotiations on sale price between the parties.
6. After Signing Contracts
Once the parties sign the sale contract, the critical steps are usually:
- the buyer paying a deposit (if any) and then the purchase price to the seller;
- the seller transferring the practice’s intellectual property to the buyer;
- dealing with the business premises – which could be granting a new lease, or transferring the existing lease or it could involve the buyer buying the business premises if these are also owned by the seller. There will also likely be subleases and licences to practitioner businesses operating at the premises to be transferred or new agreements to be entered into;
- the seller providing all plant and equipment to the buyer as has been represented;
- the seller either terminating employment or transferring employees to the buyer to be taken on after settlement;
- if agreed, the seller providing additional information to the buyer about the practice. before settlement;
- the seller arranging the release of security interests (if any);
- the seller providing access to the premises at settlement by way of keys, access codes etc;
- the parties conducting a stocktake; and
- the seller transferring any existing business contracts with third parties (there may also be utility accounts to be transferred or new accounts in the name of the buyer to be established).
Five key things to avoid as the owner when selling a medical centre practice:
1. Not being ready to settle: Failing to be ready for the handover can result in delays and cost implications, therefore it is important to work through these issues in proper time and not unnecessarily rush the sale.
2. Not valuing your business correctly: Ensure that the sale price is an accurate reflection of the assets and the goodwill of the business. Preparing a thorough inventory of assets (including intellectual property, stock, plants, fixtures and equipment) will help greatly in this process.
3. Not maintaining confidentiality: When engaging in negotiations prior to selling a business, you will want to take care to not breach any confidentiality obligations that you are subject to. This includes obligations to keep patient information confidential. At the same time, you will want to give the buyer enough information for them to properly carry out due diligence.
4. Giving inaccurate or false information: Ensure all information provided is accurate and truthful. If you make misleading pre-contractual statements or representations about the business, e.g. about the state of its finances and the size of the patient base the buyer may have contractual and statutory remedies against you.
5. Poor handover process: Ensure that you have prepared a thorough and documented handover process. A proper handover process should include:
- discussing ongoing patient management with the buyer;
- introducing the buyer to practice principals and key staff; and
- potentially being involved in formal training and/or handover period where you (the owner) can continue to be present at the business for a set period of time post-sale.
Selling a medical centre business is a big decision and we hope this information has helped you understand the seller’s considerations and the pitfalls to avoid.
Our Health and Medical Lawyers have over 13 years of experience working with medical practitioners and have expertise in providing advice to owners looking to sell their medical practice.