Ins and Outs of Aesthetic Practice Planning
Perspectives on getting started and getting out of aesthetic practice.
Getting Started: Weigh the Options
As a FACS member, board-certified facial plastic surgeon with a focus on oculoplastics, rhinoplasty, and reconstructive flap surgery, I provide you with insight of my experiences as I have navigated through professional career opportunities. I did so always with a focus on how I can best serve my patients, while factoring in other points of value, which vary from surgeon to surgeon. Such values for me personally include the opportunity for continued professional growth, a balance of family and profession, financial growth with calculated risk management, and my passion for leadership development.
Initially, upon completing a facial plastic surgery fellowship, there appeared to be a fork in the road: hospital employment or private practice. The majority of my esteemed colleagues and mentors have been in the world of private practice, so for me, there was not an significant number of facial plastic surgeons that I knew personally that were hospital employed to help weed out the details of this opportunity. Nonetheless, when looking at both options, I discovered that hospital employment did offer some unique benefits in comparison to the private practice opportunities for a new facial plastic surgeon.
Among the benefits I found with hospital employment as a facial plastic surgeon is that it affords the opportunity to focus solely on one’s surgical craft, while allowing the hospital to handle such things as the business expertise, support team, and the insurance component. Additionally, a secured base salary with benefits can be a plus when it comes to being a newer surgeon; this can help alleviate the potential stress of unavoidable variables, such as patient case volume or initially longer surgical times. Essentially, for me, hospital employment provided a safe bubble where I could master several nuances of a variety of procedures, avoid the stresses of running a business, save money that I had earned with my salary and bonuses, and have minimal financial risk.
Of course, the downsides of hospital employment include not establishing your private practice early on, potentially less understanding of business, sometimes no say on team members, and potentially less chance to fully showcase your vision and talents in a way that you imagined.
As I’ve been in the profession for several years now, several strong points of private practice strikingly stand out: unlimited vision, untamed entrepreneurial spirit, and inherent leadership growth.
I strongly believe that the opportunity to build a practice with your vision is one of the pillars that stands tall in many of our reasons to become self employed as facial plastic surgeons. A clear vision helps answer the question of what drives us to be the best plastic surgeons we can be. This in turn motivates our team to embody this vision in our practice, which translates into the best patent care and experiences.
Eyeing a Sale? Recognize Potential Pitfalls
“A lot of doctors, because they’re doctors, they’re not business people, don’t really understand the kind of entity that they have,” observes Ericka Adler, JD, LLM, Shareholder and Practice Group Manager, Health Care at Roetzel & Andress in Chicago. “They don’t know if it’s an LLC or an S corporation or C corporation, etcetera.” Doctors must be familiar with the type of entity they have and non-competes they may have in place for shareholders, because these factors can significantly affect the tax impact of a transaction, she says.
It is possible to reorganize the corporate structure to one that is more favorable, but this should be done well in advance of any attempt to sell. The IRS does not look favorably on last-minute changes made to avoid tax liability, Ms. Adler notes, which could result in significant consequences.
Non-competes for employed physicians also need to be considered. Some doctors will ask a hiring practice to stipulate that their non-compete will be lifted in the event that the practice is sold. The logic is that the employed physician wants to ensure they have flexibility to leave the practice in the event they do not want to work for the new owner.
“The problem is that when private equity is coming in and valuing your practice, they’re valuing the number of doctors you have and the workforce you have in place,” Ms. Adler says. “If you have said that one or more of the doctors is free to leave if you do a deal, then you may have put yourself in a situation that’s not ideal for the sale.”
Sometimes practice owners will, in order to entice new doctors to join them, promise to sell them shares with a specific timeframe discussed. “You can see how that can impact a deal, because that doctor might have a claim on some of the purchase price or could interfere in the ability to do a deal in the first place,” Ms. Adler states.
“On a similar note, sometimes we see things like giving an employed doctor a right of first refusal to buy the practice before you’ll sell to anybody else,” she adds. If a private equity offer comes in, then the owner will need to first offer the opportunity to that employed physician to purchase the practice. Although it’s rare that the employed physician will have the funds to make the purchase, “You could see how the timeline might drag on and interfere with the ability to do a deal with the private equity company or other buyer,” Ms. Adler observes.
There are numerous other potential complications that may not even be on an owner’s radar That’s why Ms. Adler recommends that any practice considering a sale seek the guidance of a specialized law firm and financial advisors to review their operations, policies, and financials. It’s never too early.
“It makes it nice and easy and clean when they have a buyer who wants to see their records and evaluate what purchase price to offer. The last thing you want is for you suddenly to discover you’ve done things wrong when you’re in the midst of a transaction and they’re doing due diligence,” Ms. Adler cautions. “That is the worst time to find out that you’ve done things wrong because it can cost you the deal, or it can require you to incur a lot more legal fees to try to very quickly remedy the situation.”
Marketing, particularly in plastic surgery, is a crucial element for success of the practice, as this is the best way for the world to experience your vision. For many reasons, whether it be administration, budget, staffing, etc., in my experience, the effective marketing that is essential in facial plastics is challenging to find in hospital settings.
There is no blueprint in our medical training for how to build a successful facial plastic surgery practice. Nonetheless, the years of dedication to this surgical craft bodes well for building a successful practice. As physicians, we know that taking good care of our team members and patients makes for a great workplace and patient experience.
Business is really all about taking care of people the way you would want to be treated. This includes attracting the best team members, empowering them in their best roles, and sharing with the world our vision and our passion to provide a seamlessly positive patient experience every time.
Leadership growth can certainly occur in a hospital setting, but I believe it is taken to a higher level in private practice. Not only are you required to be the leader, but empowering your team member to be leaders in their areas of talent is where one can really become great in my opinion. The opportunity to leave a mark on the profession, develop product lines, spark research towards advancing our subspecialty, as well as growing a brand that can offer the highest level of care possible is exciting.
A middle ground does exist between hospital employment and private practice and that is joining a platform. This is an emerging opportunity for physicians that offers the opportunity to stay true to one’s vision but also lean on experts to help run the business. This may be another nice option for physicians that do not wish to take on the same high level of risk that is inherent with a solo private practice, but allows more autonomy than hospital systems do traditionally.
My best advice is stay curious; continue to take every opportunity to grow in plastics and find your niche of expertise the best serves your community. Stay true. Don’t compromise your vision, your goals or your care; patients will always benefit from a physician/patient interaction when you, the surgeon, are focused on service.
Regardless of which path you choose, you will find yourself humbled by the gratitude patients within the community have for your positive impact and contribution on their lives.
—Vincent McGinniss, DO, FACS
Exit Strategies: Focus on Diversification
Any physician in their 50s definitely should be thinking about their exit strategy, and it can be helpful to start thinking about it well before then.
The key to a successful plan is likely to be diversification. As I near retirement age, the bulk of my work has been focused on my research center, and a minor proportion of my practice is focused on traditional patient care. If I were to sell, most likely the research center is the portion of the practice that would interest a buyer. For another surgeon, this could be reversed: a bustling practice may be much more attractive than a relatively small research center. They key is to diversify.
There are many ways to diversify a practice. A multi-specialty practice is likely to be attractive to buyers. Diversified staffing—in terms of physician extenders and aestheticians—and features, such as medspas or surgical centers, also increase attractiveness.
Know that a deal is likely to take about 2 years from initial talks to signing papers. As part of their long-term exit plan, physicians should focus on assuring that their financials, contracts, and other paperwork are in order. Work with expert advisors to assure that all records are in order or to help the practice to get them in shape.
Another key decision is whether you will stay with the practice, once it is acquired. The buyer will likely see value in your presence and may want you to stay on for a few years as a bridge. Calculate these years into your planning for your retirement end-game.
Finally, understand all the options. We tend to think today about private equity purchases or investments, but traditional models still exist. Perhaps another physician—likely a younger surgeon—is interested in buying your practice. You could also recruit a young associate with the goal to eventually sell to them in a few years. Keep in mind the potential sale structures and their risks.
One of the reasons PE may be so attractive is that they typically have cash in hand and resources so that future payments are virtually guaranteed. Another physician may need more time to pay off the debt, and your ultimate payout will depend to some extent on their success.
These and many other considerations are essential to planning an exit strategy. All physicians should have a long-term plan in mind, but those with 15 to 20 years left to practice must be especially serious. Talk to peers, do some research, and watch the markets. Know your worth (which is probably less than you think) and start putting the pieces in place to achieve the exit you want.
—John Joseph, MD
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