I’ve written in previous posts about creating value in a practice prior to a planned sale. What about the other side of the equation, important items from the perspective of the buyer? Careful consideration of the pertinent details can avoid a painful situation, both financially and emotionally. Here are several factors to consider:
When you are purchasing a practice, you are essentially buying the income stream from the practice, along with the physical items, the infrastructure and the intangibles. The equipment is not going to go anywhere, but the seller cannot guarantee that the patient wil remain yours after the sale. Some attrition is normal, the question is how can me make that as small as possible?
- How well do the patients know you and vice versa? If you purchase the practice without being there for an extended period of time with the selling doctor, the likelihood is that your attrition rate will be quite high, no matter how talented you are. How to minimize? Work as an associate in the practice for as long as mutually agreeable with a purchase and sale agreement in place so both sides are committed to the sale. 3-6 months would give good exposure to the majority of active and returning patients.
- How closely are your practice styles and methods overlapped? Patients in general are not excited about dumping techniques that have worked for them and are familiar, no matter what other methods you may have to offer. Instrument based adjusting methods re the easiest to replicate, but manual methods are amenable to this as well. The minimum you, as a buyer, should possess is a good working knowledge of the practice style your are purchasing, and be able to closely replicate the selling doctor’s practice styles.
- What is the age distribution of the patient population? If the selling doctor is treating primarily older patients that have been with the practice for years or decades, they may not accept a younger doctor as easily, and they may not be available for care, for reasons you can easily imagine!
- When you are purchasing a practice, you are making a time, energy and money commitment to the location. What is holding you in that location? Family? Recreation? Schools? Economics or opportunity? Practices are not portable, and successful ones become embedded in the local community. Can you commit to the community?
- If this will be your first time with full operational responsibilities, how committed are you to becoming a great manager? The size, profitability and general friction/stress level of your practice will be closely correlated to your managerial abilities, sometimes more than your clinical abilities, sadly.
- What is your level of competing commitments? What else are you committed to, for better or worse, that is going to take your time and energy away from practice development, streamlining and growth?
- Practice valuation is not a precise science, but there are generally recognized guidelines and industry norms. As a buyer, you should be able to understand how a practice valuation was arrived at without having a doctoral degree in mathematics.
- Practice price is not the same, necessarily as value. There are generally three price levels for a practice: when the seller has to sell, when he will sell, and when he does not want to sell. These steps escalate the price, regardless of the value. Ideally, the value and the price will be close, but this is not always the case.
- Terms of a sale can sometimes be more important then the price. Who is carrying the debt? Is it the selling doctor or a financial institution? Is it shared? How long does the agreement last? What is the interest rate?
- Borrowing capacity is a crucial step, no matter who is carrying the note. Your borrowing capacity is determined in part by your historical income, your other debts and your credit score, which should reflect how reliable you are. A conference with a commercial lender, particularly a SBA lender will give you some guidelines about the piece of information.
Buying a practice is a very large, life-pathway caliber decision. It’s a reversible decision only with additional expense and, probably, pain. How to minimize risks? Do your homework, verify, and get counsel from other professionals who have a greater sample size than you do. Try to gauge the risk aversion characteristics of your advisers, because it will ultimately be your decision, for better or worse, not theirs.