Canada: Preparing A Professional Practice For Sale

Last Updated: June 28 2019
Article by Michael R. Henry

Whether you are a medical doctor, accountant, dentist or lawyer, a professional's career is often a life-long vocation. When you determine it is time to capitalize on the fruits of your hard work, what steps can you take to maximize value and preserve the legacy of your practice? This article highlights some effective measures that professional practice owners can take to achieve those goals when preparing to sell.

Maximizing Value

When purchasing a business, the buyer is buying a stream of income which is comprised of your revenue less expenses. As such, the best starting place when preparing a professional practice for sale is to evaluate your largest sources of revenue and your largest expenses.

For your practice's largest sources of revenue, examine the following aspects:

  • Contracts. Review your contracts and determine if the following things are in place. If the answer to any of the following questions is no, address the matter in advance of a sale.
    • If applicable, do you have signed contracts in place for your largest clients, accounts or patience?
    • Are those contracts current or do they require a valid extension?
    • Are those contracts assignable to a purchaser?
    • Are the terms clear?
    • Are the contracts available in electronic format?
    • For pending contracts under negotiation – keep clear records on the status of negotiations
  • Financials. Review the financial records for your professional practice and determine the following:
    • Does your practice have an up-to-date income statement that clearly demonstrates revenue and expenses?
    • Does your practice have historical annual income statements that accurately reflect revenue and expenses?
    • Is your practice subject to any seasonal, market-related, resource dependent cycles? If so, do you have data on such cycles to demonstrate the correlation.
    • Examine your accounts receivable. Implement proactive measures on chronic late payers and address any significant arrears prior to putting your practice up for sale.
    • Consider having your financials audited by a reputable firm. This measure lends a third-party certification to your practice's financial health.
  • Real Estate. Is your place or places of business leased or owned?
    • If your place of business is owned, organize tax bills, have a lawyer update title, find your appraisal, insurance and any building, zoning or environmental information and review.
    • If your place of business is leased, ensure your lease and any amendments are valid and signed, and whether the lease is assignable to a purchaser of your practice or whether any consents are required to transfer the lease.
  • Employees. Determine whether your employees have signed employment contracts. Produce an up-to-date roster of employees that includes age, salary, length of service and benefits entitlement.
  • Equipment. Determine whether your practice's equipment is leased or owned and gather all documentation evidencing such status. If the equipment is leased, determine whether payments are current and whether the leases are transferrable.

Regulatory Considerations

Most professional regulatory bodies have rules or guidelines governing the sale of a practice. For example, the Royal College of Dentists of Canada and College of Physicians and Surgeons of Ontario require practitioners to notify their respective colleges and their patients about the change. For dentists or any professional, the purchase and sale agreement should also allow the seller to have access to the records if he or she is required for legal reasons. For example, the Law Society of Ontario requires lawyers to keep client records and files for their professional obligations for 15 years after the closing of a matter, an obligation that persists after selling your practice. Many professionals may also require "runoff" insurance, which limits the professional's past, present and future liability after they stop practising. Review the rules related to sale for regulatory body governing your practice to get a sense of the costs and logistics of their requirements for sale.

Preserving the Legacy of Your Practice

Given all the hard work poured into building your practice and the relationships that practitioners have built with their clients or patients, many practitioners seek the "right" purchaser. A purchaser who they can trust to continue to provide great service to their former clients/patients and who will continue to nurture the practice they have built. To promote this aspect of the sale, consider researching ideal purchasers for your practice prior to sale, possibly approaching these parties. From this list, you can derive the set of values you are looking for in a purchaser so that when an offer comes, you can evaluate it in light of these values as well as pricing.

Conclusion

Preparation for the sale of a professional practice matters, but, you do not have to do it alone. Seek guidance early and support in your pre-sale preparations. At Houser Henry & Syron LLP, we can guide you through the complexities selling a practice from inception to closing and help you to realize the fullest value for your practice.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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