Practice Planning Guide
Medical Practice
Buy-Sell Agreement Guide
Protect your partnership, your practice, and your family with a properly drafted buy-sell agreement.
Trigger Events
Every buy-sell agreement must define what events trigger a mandatory or optional buyout of a partner's interest.
Death of a Partner
Provides for the orderly purchase of the deceased partner's interest by surviving partners or the entity, funded by life insurance.
Permanent Disability
Defines disability, waiting periods, and the buyout process when a partner can no longer practice medicine.
Voluntary Retirement
Sets retirement notice periods, phased transition options, and the valuation/payment timeline.
Voluntary Withdrawal
Governs when a partner leaves to join another practice or relocate, including non-compete implications.
Involuntary Termination
Addresses removal for cause (loss of license, felony conviction, material breach) and the discounted buyout terms.
Divorce of a Partner
Prevents a non-physician ex-spouse from becoming an owner of the medical practice (critical for PLLCs and PAs).
Loss of Medical License
Triggers mandatory buyout when a partner loses their license to practice medicine in Texas.
Bankruptcy of a Partner
Protects the practice from creditor claims against an individual partner's ownership interest.
Valuation Methods
How you value the practice determines how much the departing partner receives. Choose your method in advance.
| Method | Description | Best For |
|---|---|---|
| Book Value | Based on the balance sheet. Simple but often undervalues goodwill-heavy practices. | Small practices with minimal goodwill |
| Multiple of Revenue | Typically 0.5x to 1.0x annual revenue depending on specialty and payer mix. | Quick, market-based estimate |
| Multiple of Earnings (EBITDA) | 3x to 6x EBITDA depending on specialty. Accounts for profitability, not just revenue. | Profitable, established practices |
| Discounted Cash Flow (DCF) | Projects future cash flows and discounts to present value. Most theoretically sound. | Complex, high-value practices |
| Fair Market Value Appraisal | Independent third-party valuation. Most defensible but most expensive. | High-value buyouts, disputes |
| Formula-Based | Pre-agreed formula in the buy-sell agreement (e.g., 2x trailing 12-month EBITDA). | Avoiding valuation disputes |
Funding Your Buy-Sell Agreement
Life Insurance
Cross-purchase or entity-purchase life insurance policies fund death buyouts immediately. The most common and recommended funding method.
Installment Payments
Departing partner receives payments over time (typically 3-5 years) with interest. Useful for retirement and voluntary withdrawal triggers.
Sinking Fund
Practice sets aside reserves over time into a dedicated account. Provides liquidity for smaller buyouts but may be insufficient for large ones.
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