Buying A Medical Practice

How To Buy A Medical Practice

It can be a considerable amount of work to buy an existing medical practice. You might be in a position where you have to either adapt and adjust to the current culture and processes or else overhaul the current systems in place and risk losing patients and staff depending on the practice.

However, buying an existing practice does have some advantages: you can have a built-in patient base with trained staff, and you don’t have to worry about spending money on startup costs.

If you are shopping around for medical practices, then you will want to take a look at the following five steps before buying:

What are you looking for: Before you start to make any decisions, it’s essential to be clear on the type of practice you’re interested in buying. You will want to think about the kinds of patients you want to treat, the services you will want to provide, and the location you wish to practice.

You will also make a list of the core values you hope to reflect on with your practice. Your core values might include empathy, empowerment, transparency, or flexibility. Having clarity on your intentions can help narrow your focus and help eliminate options that don’t support your goals.

Buying A Medical Practice- Practice Advisors 360

Some Questions to consider:

• Are the patients from a sustainable demographic you are comfortable supporting?
• Are the services and procedures most commonly executed at this practice within your skillset and part of the practice you wish to build?
• Are you happy with the location, neighborhood, and physical facility? Will you feel good coming to work here every day?
• Are the changes required in the business model, facility, staff, and other issues noted above so substantial that it makes sense to consider other practices closer to your vision?

Does the culture fit?:

As you go through the buying process for a medical practice, you will need to determine whether the established practice aligns with your particular vision and patient care philosophy.

1. Start with the basics: Does your specialty line up with the practice’s services? Do you like the facility, neighborhood, and location of the medical practice? Can you envision yourself working there?
2. Next, consider the patients. You will need to consider if you plan on serving the same patients or will try to target different patient demographics. Similarly, you will have to consider the current staff. Staffing assessment requires figuring out whether the current team will stay on or if you will need to hire new people once the medical practice sale goes through. One optional assessment is to ask patients and staff about their experiences.
3. Finally, you will want to examine the medical practice’s operational processes. You will want to find out how the staff organizes their medical records and facilitates the billing and payment. Learning about a practice’s management style — including how a medical practice onboards new patients or resolves billing disputes — can give you insight into how smoothly the medical practice runs.

Ultimately, it would help determine how much cultural and operational change would be necessary to ensure the practice supports your goals. Acquiring a business requires effort during the transition period, but it’s essential to be honest with yourself concerning what level of effort you’re comfortable putting in.

Due Diligence:

Before you acquire a business, it’s critical to perform due diligence. Including a practice valuation to determine what the practice is worth and whether or not it has long-term value (in case you ever want to consider the sale of the medical practice in the future).

You will want to review the practice’s cash flow, revenue forecasts, accounts receivable and payable, debts, assets, permits, contracts, and equipment. It would be best if you also looked into any past legal issues or claims. Consider conducting a building inspection to ensure the practice facility is up to code and in good condition.

It’s also helpful to find out why the current owner is selling the medical practice. Depending on what your attorney advises, you may want to request a background check for the seller so you’re not surprised by any litigation claims or financial issues that crop up.

Reviewing all this information won’t just help you determine the potential risk involved with purchasing the practice. It’ll also allow you to negotiate a favorable purchase price and set of terms.

Does the math make sense?

• You must invest in an expert appraisal or a Uniform Standards of Professional Appraisal Practice (USPAP) valuation. Don’t rely on the seller’s estimated
  

  Practice Advisors 360 – Medical Practice Consultant

  “potential value” to tell you how much the practice is worth; there is a complex number for every business.

• Don’t rely on the seller’s broker valuation. Most brokers are paid on commission and have an incentive to increase the price because it increases their commission.
• Confirm value, but don’t shop “just” on price: The $900,000 practice where cash flows today is a better deal than the $600,000 one next door that doesn’t “yet.”
• Hire experts to thoroughly do your due diligence and include building inspections and environmental reports if the purchase involves real estate.

Crunching numbers:

The final decision to buying a medical practice will come down to the numbers. Even though the price is one component, you will also have to consider how much it will cost you to run and improve the practice.

Start by making a list of all operational costs: payroll, utility bills, IT services, building maintenance, and inventory. Then go beyond those base costs and consider where else you might need to spend money. Added expenses could include remodeling the office space, hire new staff, or update the current electronic health record (EHR) system. All of these expenses can become a factor when selling medical practices, as you want to ensure you’re turning a profit when it comes time to transfer ownership.

It would help if you considered how long it would take for you to earn a profit and whether or not you can keep the practice operational until then. Beyond covering the basic expenses, you’ll need enough cash to make necessary changes to the practice. Changes could include buying new furniture, replacing outdated equipment, or possibly hiring a new office administrator. It’s also wise to factor in the potential cost of lost productivity during the transition, as well as the potential loss of patients.

Look into financing:

Buying a medical practice is a massive financial commitment, so you may need to acquire medical practice financing. Review your finances and credit score with your accountant to determine qualified loans. Bank loans, loans backed by the Small Business Administration, and loans from online lenders all have different terms and benefits, so do your research to determine which option is best for you.