As you consider selling your practice, one of the first questions to ask yourself is why you want to sell. Are you selling because you have been running on a treadmill for the past 20-30 years and are simply tired, drained and want out? Or are you at that stage in your life at which you want to plan for retirement? Or has a family/health emergency prompted you to consider selling?

Answers to these questions will determine how the sale will be structured. If you do not want to stay involved with practice, you should structure the contract to allow you to exit quickly. If, on the other hand, you want to be involved for a few days or hours a week because you enjoy the work, then that should be considered as part of the deal. And, in this case, you can take more time to find a buyer or to prepare someone to buy—perhaps someone on your staff or someone you can add in the near future.

29 Preparation Points

Maintaining the following information ensures greater success of a practice, as well as making it more attractive to a potential buyer. This list is adapted from K. Ray Katz’s “Business Evaluation Checklist”1 which appeared in the August 1999 Hearing Review.

1. P & L and balance sheets for past 3 years.
2. Type of sales:
  • Cash (check, credit card, etc.)
  • Third party
  • Combination and other
  • Number of patients with outstanding balances and total outstanding
  • Percentage of patients entitled to a discount (HMO, etc.)
3. Distribution of instrument sales over past 3 years by:
  • Type (linear, programmable, digital) & style
  • Price > $700, > 1200, > 2000
  • Region (zip codes and distance from office)
4. The number of patient files and the condition of files.
5. The number of new patients for each of the last 3 years.
6. The number of patients referred by the top 10 referral sources in past three years
7. A list of third party pay contracts the office currently holds.
8. A list of retirement facilities with which the office has special service arrangements.
9. Product lines sold on a regular basis.
10. The number of prospects in files.
11. The accuracy of the files: How are they kept current?
12. A list of HMO groups serving the area, and percentage of Medicare participants in HMOs.
13. Demographics (population, distribution, income levels, age levels, etc.) of the area, city, county for the last 10-20 years if available.
14. An analysis of the general area surrounding the business.
15. An analysis of population growth patterns in the area and the distribution by zip code of current patients.
16. An analysis of the general economic health of the area.
17. A list of the major employers in the area.
18. A list of the major cultural facilities in the area.
19. The number, type, location and distance of retirement or senior-oriented communities.
20. A list of competitors in the area (location, distance, perceived reputation, style).
21. Copies of all advertising pieces used in the past two years, including newspaper, radio, TV, bulletins and direct mail pieces.
22. A breakdown of how the advertising funds were spent.
23. A list of outreach activities conducted by the office in the past year.
24. A list of the current employees, including length of employment, pay scale, abilities, responsibilities, and benefits.
25. A list of the continuing education courses employees have taken in the last several years.
Office/Equipment Management
26. A mission statement and/or general description of the image the overall business projects (medical, clinical, and retail).
27. A list of any equipment on lease including terms and cost.
28. A list of all major office and clinical equipment including age, condition, and cost.
29. The basic details of the building lease agreement, including cost, duration, options and sub-leasing.

To Whom Do You Sell?
Typically, you are not going to be overwhelmed with solicitations from potential buyers. If the practice is a large one, particularly one that covers several states, you might attract the notice of a consolidator. However, hearing care businesses/practices are generally not high on the list of dynamic business acquisition opportunities. The most likely buyer will be a partner, an employee or another health care professional who is in your area and is seeking to expand.

Setting A Price
First, when setting a price for a hearing care business, there are several ways that you should not gauge its value. Among these is the “x-times gross sales” approach. This is especially unsuitable if the business is making little or no money. Similarly, the “dollar amount per patient” appoach is also an unsuitable method.

What should be considered is a multiple of cash flow. Cash flow is the profit or earnings of the business before taxes, interest, depreciation and amortization. For professional practice sales, buyers usually will pay up to five to eight times cash flow.

The value of the business location, particularly if you own the building, may be a large part of the sale price and negotiations. Additionally, the value of your equipment plus goodwill are also considerations. However, equipment value is minimal because manufacturers will replace and upgrade what you have at little cost. Computers are quickly rendered obsolete, and furniture is virtually worthless the day after it is bought. Goodwill has some value, but it is not good enough by itself.

Be Prepared
So how can one get the maximum for years of work in building a private practice? First, make sure that you continually prepare your practice for sale—even if you are still young and it will probably be years until you decide to sell.

A list of “29 Preparation Points,” adapted from Ray Katz’s article1 in the August 1999 HR, presents many of the the primary items that should be continually maintained. These range from the number of new patients that have been added for each of the last three years to an analysis of population growth patterns and an analysis of the general economic health of the area. It also includes distribution of instrument sales over the past three years by type, price and patient location, and a list of retirement facilities with which you have special service arrangements. This type of information will not only help you manage your practice more efficiently and successfully in the present, but it will also enhance its value when it becomes time to sell.

Another way to increase value is to create a pro forma at the time of buyer interest. This is a realistic projection of sales for the current year, as well as the next two years. Ideally, you will be showing increases, especially if you have an aggressive marketing plan that shows good growth. For example, you may have recently added or are planning to add employees—people who will be able to generate additional income. This may convince the buyer to pay a premium because you have prepared your practice for increased sales.

Preparations for the Sale
Start with operations. Ensure that you are using the latest diagnostic equipment and that the facilities are up to date. Your office equipment and computers should be current, as should be the range of hearing instrument technologies dispensed. In the area of human resources, maintain a current employee manual, job descriptions for all employees, office policies and procedures, and compensation packages.

Hire an outside accountant and review your P&L regularly, correcting and strengthening it as necessary, and recategorizing line items for a more accurate reflection of “real-world” business operations. Consider eliminating debt, including debts to vendors and any outstanding loans and taxes. Determine a formal salary for yourself and place that number in your P&L. You can review your withdrawals from the practice over the past three or four years, average them out, and use that number.

Again, drawing on the “29 Preparation Points,” have available a history of the practice: the P&Ls for at least the three previous years and the pro forma. Your objective is to project growth, which will enhance the value of the practice.

Taking on a Partner
The best win-win sale of a hearing care practice is to strike an agreement with a partner, an employee or another hearing health care professional. If you don’t already have one, take on a partner (not an employee). Law firms, accounting firms and medical practices have been successfully doing this for years. The advantages are that you will more likely receive the true monetary value for your practice, your buyer will acquire a known business entity, and it may preclude you from having to stay on indefinitely until you find a buyer.

There are many procedures for taking on a partner, and all of them should (at some point) involve a lawyer for the drafting of the final agreement. Unfortunately, the different types of partnerships, control issues and various stock plans are too numerous to be covered in this article.

One important point is that, prior to the sale to a partner, an agreement in writing must be reached that includes treatment and resolution of such points as practice responsibilities, salaries, allocation of year-end profits (e.g., how much will be given to the partners and how much will be put back into the practice) and owners’ perks. Maybe you will be able to structure a deal that provides only non-voting stock, but a prudent buyer is going to want voting rights to prevent you from “zeroing out” the practice so that there is no profit at the year’s end.

Structuring the Sale
Many ways exist to structure the sale. One is to calculate a multiple or current value of the business and sell all of the stocks/assets. If more than one employee is involved in the purchase, the percentages of ownership will be determined by their financial outlays and responsibilities.

A cash sale is fast, but there are tax implications to consider, such as the 20% capital gains tax incurred. A payout over a number of years may be more advantageous, especially if you’re dealing with people whom you know and trust. Trust can become a handsome annuity and allow for future tax planning.

In taking on a partner, you can also calculate the multiple or current value of the practice, and sell part of the stock or assets. It may be advisable to sell no more than 49%, so you maintain control. Your partner can either purchase the 49% in cash or spread payments over a number of years and provide “sweat equity.”

In sweat equity deals, the buyer can purchase the stock or assets over a number of years and build his/her percentage of ownership and shared profits to 49%—as well as the share of perks and responsibilities over time. Or, the buyer can purchase the stock/assets over a number of years and share the 49% of the profits, perks and responsibilities immediately. In the latter type of deal, you typically obtain a 10-20% premium on the value of the practice. The buyer will pay interest on the outstanding debt until the contract is complete, but there are risks involved. You can, however, buy insurance on the note so that, if the buyer defaults, you will still be paid.

The best time to plan to sell a practice is while you are happily and actively running it. Attention to the “29 Preparation Points” will ensure its ongoing success and growth, as well as make it attractive to a buyer when you do decide to sell.

Vince Russomagno is a licensed hearing aid professional and the founder and CEO of American Hearing Aid Associates (AHAA), West Chester, PA.

Correspondence can be addressed to HR or Vince Russomagno, AHAA, Box 4000, West Chester, PA 19380, 800-984-3272; website:

1. KR Katz: Now that you built it, how do you sell it? Hearing Review 1999; 6 (8): 20-27.