I've been keeping up with this thread . For those in practice or for those that have bought a practice, what is a reasonable price for a practice assuming you arent buying the building as continued lease payments need to be made? Thanks.
Great question, like dtrack said its hard to answer but i will give my take on it based on my limited experience ....
After buying two offices,I learned that you have to look at a practice through a multifactorial lens when buying ... I have to start by saying that your patients will be coming to see YOU, so you have to be comfortable in this setting and confident with your abilities since you will be SELLING yourself to patients and they have to be convinced to continue coming and refer others ...... it comes down to 1. revenue numbers, 2. population area/pod saturation, 3. payer mix (insurances in the population you want to work with, at the end of the day it will come down to 3-5 that you will make the majority of your money on), 4. fixed expenses ( ext. imp and how much they will grow over time) , and 5.Employees required to run office and any that will transition.
The revenue of the office, the population/area, and the overheard/FIXED expenses ( which are the bare minimum reoccurring expenses to run the office i.e. rent, payroll, utilities/office ins, malpractice ins, supply budget, advertising budget.. there will also be VARIABLE expenses but you will incur because they are producing money for you) are in my opinion what makes the VALUE of the practice. The payer/insurance mix and the transition of longtime/short time employees (can make your life easy or difficult) are in my opinion what makes up the RISK of the practice.
I start with looking at the price that is being asked and the true NET income that can be made, I ask my self how long would it take for me to get back my initial investment? I look for 12-18 months... and that is how i would do a baseline determination if the price is within reason. Next based on the characteristics that were mentioned above I would add or subtract from that price to come up with a final number.
There are other things to take into consideration that can affect price that hold value such as will the current doc stay on to introduce you to patients, helping decrease pt attrition ( there is value in that), are certain key staff members willing to stay on, as that will allow for ease in workflow and transition with
patients (there is GREAT value in that... there is no doubt that longevity/stability in staff will lead to success of a practice), the length of the lease or renewal option/can the real estate be purchased, does the office not provide services that you can such as DME or other procedures that you can offer to patients to increase the revenue and profit, can you take the office to the next level with a solid marketing strategy (marketing is a real must nowadays with how ubiquitous the internet usage is by ALL age/race populations now and it will eventually pay for itself, paper marketing has its place also in select areas), are there other ways to make money from the practice besides office pts, ie nursing/home facilities, rent from other specialists ( always appreciate MULTIPLE streams of income as it reduces RISK), are there retiring pods in the area that will shutdown their office (its very difficult to find someone to buy a practice from you, so keep in mind that you are buying a revenue stream that you will capitalize on and don't count of selling your office down the line).
Hope this gives you a starting ground .... but first and foremost is to localize an area of interest, analyze the main insurances in that area, and get credentialed with them ( or see if you even can as certain payers have a CLOSED panel and that will unfortunately lock you out of an area preventing you from entering that market until you can get on the plan).
