...-We tend to be absolutists on this forum ie. "this practice is only worth depreciated equipment". I think there's value in that as a counter-voice to the historic ridiculousness that is "high percentage of collections"...
...-There is some middle-point somewhere that is beneficial to both sides. If it costs $100K to start a practice and someone has a decent practice for sale and asks $110K - there's some uncommon rare world where this could make sense. Theoretically an already functioning entity should be more valuable than an entity that hasn't come into existence yet.
...-There is no world ever where collections should have anything to do with buying. My arguments on this are normally focused on partnership buy-ins and I said this recently elsewhere, but no collections based discussion ever seems to focus on cash flow. Before I joined my practice the overhead was 65%. If you bought that for some high percentage of collections and "perfectly" maintained the machine you'd still be having to earn $3 to keep $1 and then you'd ultimately pay back at that 3:1 ratio. Think about how terrible that math is...
...-You will fire all of the staff. A variety of reasons. ...
...-The owner may tell you that they'll be able to get you onto all manner of panels and insurances that are closed. That may or may not be relevant in your area, but insurance companies often add new providers at far lower fee schedules than established providers...
...-The practice may simply have a bad reputation in town...
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lot of good things to think about here. ^^^
I agree that price/value is up to the buyer. I have made at least a few offers that people here would say are too much based on pt volume and gross income. I liked the area, location, and/or the doc rep and pt mix... and when you think of it, every practice/office is a 1 of 1, esp in areas where there are not very many DPMs. Some are great places to live, some are rock star offices the community likes, some make money hand over fits, some are all of those. They are not simple commodities. While I may sometimes tweak the offers I've made for my weakness of not having a cash/finance offer or for area of 'growth' and 'potential,' the proven core value and profitability must already be there also. It's often one of those
"When negotiating with other, don’t try to get the biggest slice of the cake, but rather find a division that is acceptable to all parties."
Likewise, I've seen a lot of other practices that I wouldn't dream of buying for $1, and I ended the visit early without even talking money. It is just too much of an overhaul if it's not fair location, setup, reputation, etc. Again, you can't make a good deal with a bad person/office. I agree that you will typically fire all of the staff soon after a takeover - or give them a raise if you luck out and there are any of quality and mindset.
It is harder to start up,
but you get to pick location, equipment, etc. So, costs equal, I think that almost everyone would choose start solo over taking over another DPM. The reason so many DPMs do a takeover is usually because owner will finance or the bank will finance a 'proven' business... and they couldn't finance going solo. The reason large groups like the one I work now like with do the takeovers (if available... as opposed to starting a new office in that city) is because they want to gobble up good rep offices and have the pt volume quicker. They are willing to pay for that, but they generally won't buy crap practices (even busy ones), though.
I disagree a bit about collections not mattering. The gross/net absolutely does matter more than anything else (once it has been deemed a good/great quality office and rep). Those objective tax returns and the revenue math is your quantitative start point to getting a deal done. You have to see what is possible in the area in $$$ terms. No, the buyer won't do all of the same procedures/services/DME the seller did, but it is a solid starting ground. Without those figures, it is totally just subjective as to how many charts are active or inactive, how good/bad location is, if equipment will last, community reputation, potential, network of referrals, blah blah. Sellers lie about that subjective stuff until they're blue in the face to inflate price. You can use gross if you want (I usually do... and just say overhead 60% if well staffed/busy type of office... or 50% if more of a bare bones minimal staff/schedule office... with maybe +/- 5% factor for area rent/costs/wages).
...At the end of the day, sellers will get what a buyer will pay (and can pay). If both are happy, as you said, that's a win. The seller might have a few bids, or they might just get laughed at again and again. If it's a busy and high quality office/doc, then they will probably have DPM buyers, group buyers, and even hospital buyers. I have seen a few of those, and while I made offer, I'm sure they probably had a better (all cash) offer by the end of the month.
The most common stumbling block I have repeatedly run into is honestly the owner financing - yet also relinquishing control. That is a tough thing for a lot of solo or small group docs to do if they aren't getting a check for 100% the purchase price (in which case I'd obviously just start solo). A lot of them want to hold on to the place and keep a watchful eye or some kind of "partnership" until you've paid the whole price, but you obviously can't leave the door cracked open for them to change the price or terms once they see you growing the volume and revenues. It is a tough situation that needs a brief 3-12mo transition period to transfer goodwill and then the seller is OUT of the picture via attorney-created transfer plan. That is a deal breaker in a lot of cases when you don't have the cash/financing and need owner financing.
