How to Choose the Right Buyer When Selling Your Therapy Practice
In 2017, I sold Urban Balance, the counseling private practice I founded in 2004. I hired a business broker, worked closely with my CPA, and the process from start to finish took about a year and a half. I was fortunate to receive eight offers and I am very glad that I chose Refresh Mental Health.
After researching how to sell a counseling center or private practice, the following are the five points I encourage you to consider to help determine the right buyer for your practice:
What is the price being offered and how will the deal be structured?
Will you receive cash for the full purchase price at the time of close? Or will some of the proceeds be in the form of a seller note that is contingent on performance?
Will some of the money for the sale be put in an escrow account for a period of time?
Who will be responsible for which payments (payroll, overhead, taxes) at the time of close?
What will the balance sheet look like at the end of close?
What will you “net” after taxes on the proceeds from the sale?
It’s very common for a portion of the purchase price to come in the form of a seller note that is payable over time or contingent on performance. The primary purpose is to protect the buyer in case for some unforeseen reason, the business seriously declines after the sale. Seller notes are typically interest-bearing, so the seller benefits from the interest on the note’s principal. During low interest rate environments, the interest is typically more than the interest that could be earned if that money were parked at the bank. As long as the profitability targets, time frame, and amount feel reasonable to you and your advisors, this is something you may choose to agree to in order to demonstrate good faith so the deal can come together.
Before selling to Refresh Mental Health, I had declined offers that provided more cash at close because some of the other aspects of the offers (discussed below) were less of a fit for me. Today I remain happy that I factored in those considerations when selecting a buyer.
When I sold Urban Balance to Refresh, I agreed to both an earn-out seller note and an escrow account to cover any unexpected expenses related to events that may have occurred during my ownership, such as a potential lawsuit (there were none). I received payment in-full for both the escrow and the seller note from Refresh Mental Health at the agreed upon date.
What is the vision for the practice after the sale?
What will happen to my leadership team and staff?
What will change?
Buyers may have different intentions for buying your practice and different plans for operations and growth after the sale.
As a person who is very mission-driven, it was extremely important to me to find a buyer whose heart was aligned with being part of the greater good and promoting access to insurance-friendly, quality mental health care to more people. When one prospective buyer asked if the opioid epidemic and the politically charged culture of today are “good for business”, I knew we were not a fit. Others were good business people, but not familiar with the specific field of mental health care (psychology and psychiatry services). I chose Refresh Mental Health because they are experienced in behavioral healthcare and have their hearts in the right place.
Furthermore, Refresh expressed intentions to retain the leadership team and staff and to keep much of the business model of Urban Balance the same (which they did.) They also made improvements in systems and processes, which has helped the organization grow dramatically, with multiple new offices being opened in several new states. As the founder, it makes me proud that Urban Balance is helping more and more people and that the mission has remained the same.
What do you want your role to be after the sale?
Consider whether you would like to be completely relieved of all responsibilities with the organization or if you would like to stay on in a leadership or clinical role with your practice or the parent company.
Personally, I declined offers where the prospective buyers wanted me to either (i) continue on as CEO (the reason I was selling was to be alleviated of these responsibilities so I could pursue my passions of speaking and writing) or (ii) to be completely uninvolved (which felt extreme and a little sad and scary.) I appreciated that Refresh allowed me to continue a limited clinical practice at Urban Balance and to support the parent company through my speaking and writing as Brand Ambassador, a role that fit with my professional goals.
Is it important to you for the brand you created to still exist?
Consider how you might feel about the company name you created being replaced by the name of the parent company.
I love that Refresh Mental Health allowed Urban Balance and the other centers it has acquired to maintain their own unique branding, mission and vision. I didn’t want to sell to a franchise model or a hospital system who would eliminate the brand I worked so hard to create.
What types of restrictions will be included in the non-compete clause?
It’s standard to have a non-compete clause to protect the buyer from you starting another company that would be in direct competition to the one you are selling to them. It’s important to review and consider the restrictions listed in the clause and to remember that the terms are negotiable.
I was pleased that Refresh Mental Health offered a reasonable non-compete clause that allows me to continue doing the work that I most enjoy like direct clinical care at Urban Balance and my speaking, writing and other non competitive professional engagements and pursuits.
Do you have a good feeling about the prospective buyer?
Use your clinical instincts and trust your gut if something feels off or too good to be true. Research the buyer online and know that you can ask for references. The culture of the organization is important and shouldn’t be overlooked.
As a female business owner with a predominantly female staff, it was very important to me to select a buyer that respected women in business. While we would hope this wouldn’t exclude anybody, I did experience some sexism during conversations with some prospective buyers (of the eight offers I had, all were men and so were all of the accountants and attorneys involved in the transaction). I chose Refresh Mental Health because I had the best feeling about their leadership team, felt reassured to see that industry leaders in mental health and eating disorder treatment had sold their businesses to Refresh, and they were happy or at least satisfied about that decision.
I hope the above points will help you make the best decision for you regarding selecting a buyer for your practice. If you are interested in coaching services around selling your practice, please contact me at email@example.com. If you would like to explore selling your practice to Refresh Mental Health, please contact Will Hartje at firstname.lastname@example.org.