Are you seriously thinking about buying a medical practice? Big players get a lot of the attention when it comes to practice acquisitions—hospitals and large physicians groups are acquiring small practices at a rapid rate. However, there are good reasons for not-so-huge entities to consider this option as well. For many physicians, downsizing to a smaller operation or one that allows a better balance of work and non-work has a certain appeal.
Before you sign on the line, get answers to these important questions:
What are your priorities? What’s important in a practice opportunity will vary from physician to physician. What are your priorities? Are you targeting a specific area? A particular patient demographic? Are you looking for sole ownership or a partnership with other physicians or possibly a hospital?
Found a possible practice? Do your homework. When evaluating a practice, it’s essential to do the research and take the time to get clear answers to your most important questions before buying in. How old is the practice? What’s the organizational structure? Is it lucrative for the physicians? Are the compensation and benefit packages realistic? Is the work/life balance actually balanced?
What are its prospects? No one can predict the future, but what are the likely general prospects for this practice? Is it in a growing area? Is it the only one of its kind in the region? Is it in the throes of a malpractice lawsuit? Is this business in “move-in” condition?
Can you afford the buy-in? Purchasing a practice outright can involve both start-up capital and real estate financing. In some cases however, the right choice is to buy an existing practice or buy out a retiring partner or practice owner.
Medical practice prices vary widely, although most practices will sell for one to four times their annual net earnings, and 20% to 80% of their annual gross collections, according to Medical Practice Brokers. On average, internal medicine practices sell for about 35% of their annual collections. And as with other businesses, many owners who have built a practice from scratch have a tendency to over-value their practices.
Finally, get help. A professional advisor team with specialized expertise in buying and selling practices can help you stay objective. Tools such as the Medical Group Management Association’s checklist for merging practices can also help.
