Your practice's real estate choices affect more than just day-to-day operations - they can significantly impact your future sale value. Here's what healthcare practice owners need to know about maximizing value through real estate decisions.
Understanding the Cost Impact
Real estate typically represents your second or third-largest expense after payroll and supplies. As a major fixed cost, it fundamentally shapes your practice's profitability. Every dollar saved in real estate costs can multiply 4-6 times or more in your eventual sale value.
Location Visibility Matters
A highly visible location that puts your practice in front of thousands of potential patients daily is a valuable asset that transfers cleanly to new owners. Unlike other practice assets, good visibility's value isn't diminished during ownership transitions. Strong visibility often reduces marketing costs, directly improving profitability and sale value.
The Ownership Question
When You Own
Owning your building offers flexibility in setting rent rates, potentially boosting practice profitability. However, consider how this might affect a future sale:
- If selling both practice and building, buyer financing terms may differ from yours
- If selling to separate buyers, expect market-rate rent adjustments
- If keeping the building, lease length becomes critical to practice value
When You Lease
Strategic lease negotiations can significantly impact practice value. Key considerations include:
- Securing market-competitive rates through informed negotiation
- Obtaining service exclusivity in your location when possible
- Ensuring lease assignability for future transitions
- Including favorable renewal options
Critical Lease Terms
The ability to assign your lease during a sale is crucial. Without strong assignment rights, your practice value could be severely impacted. Key provisions should address:
- Clear assignment rights in case of practice sale
- Transfer of renewal options to new owners
- Specific criteria for landlord approval of new tenants
- Protection against unreasonable assignment denials
Making Smart Real Estate Decisions
When evaluating real estate options, focus on these value drivers:
- Negotiating competitive rates and terms
- Securing visibility and exclusivity when possible
- Ensuring strong lease assignment rights
- Maintaining flexibility for future transitions
- Documenting all terms clearly
The Bottom Line
Real estate decisions impact both profitability and risk - the two key drivers of practice value. Making informed choices about location, terms, and structure can significantly enhance your practice's worth in a future sale.
Want to understand how your real estate situation might impact your practice value? Contact Practice Transitions Group for a comprehensive analysis.
