medstudentmed

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It seems that one of the best ways to start out after residency is to try to buy an existing practice with an older MD looking to retire, who will stay on for a while to show you the ropes as you purchase the various aspects of the practice (equipment/real estate/good will/etc)

Is this something that is reasonably feasible for someone to do coming out of residency (say, with zero debt but not a significant amt of savings)?

How much are we talking here for buying out a practice? Can anyone who has done something like this in the past provide some details as to the transaction / how everything went?

Thanks for your help
 

Andrew_Doan

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It seems that one of the best ways to start out after residency is to try to buy an existing practice with an older MD looking to retire, who will stay on for a while to show you the ropes as you purchase the various aspects of the practice (equipment/real estate/good will/etc)

Is this something that is reasonably feasible for someone to do coming out of residency (say, with zero debt but not a significant amt of savings)?

How much are we talking here for buying out a practice? Can anyone who has done something like this in the past provide some details as to the transaction / how everything went?

Thanks for your help
This is a nice option, even for new residents (but must have a business and marketing desire). However, you may have trouble getting a bank to loan you money because you are not an experienced physician. Search the AAOE website for free articles that will help launch your new practice: http://www.aao.org/aaoesite/index.cfm

Search for banks that offer doctors 100% financing for acquiring new practices. Typically, practices will charge you 50% of their previous annual gross. For instance, if a practice was able to collect $1.5 million, then they will aim to charge you $750K for the practice. Personally, for an established practice, I recommend about $100K working capital, so your loan amount will be $850K.

If you have 20-30% down, you can qualify for the SBA 7(a):
http://www.sba.gov/financialassistance/borrowers/guaranteed/

Banks are giving the SBA away as 90% is backed by the Federal Government. The advantage is that the SBA is 6% interest over 10-15 years terms. The problem is that you have low savings and will not qualify.

There are private banks who will allow 100% financing (zero down) for physicians acquiring or starting their own practices. A $850K loan can be acquired at about 8% interest for a 10-15 year term. You will have a monthly payment of $8,123 for a 15 year term loan.

This may sound high, but a practice that collected $1.5 million the year previous can afford to pay for this loan. You'll have to form a business budget and make sure that this is manageable. One way to view it: let's say the retiring doctor employs 1 optometrist and 5 office staff, collected $1.5 million, and paid himself/herself $350,000.

You may see a 10% or higher reduction in patients when the physician retires (so it's more ideal to have a physician who is willing to stay on as an employee part-time to assist in the transition). Let's assume the doc leaves and your patient flow is decreased by 10% and you collect $1.35. You'll have to budget your practice to now absorb $100K/year loan payment. Thus, you may only be able to pay yourself ~$100K for the first year until you increase the traffic or reduce costs in your new practice.
 

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Is it really feasible to expect a new physician to collect 1.5 million per year? That seems high to me.
Yes if the new doc is buying into an established practice and the old doc stays on to help the transition.
 

KHE

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This may sound high, but a practice that collected $1.5 million the year previous can afford to pay for this loan. You'll have to form a business budget and make sure that this is manageable. One way to view it: let's say the retiring doctor employs 1 optometrist and 5 office staff, collected $1.5 million, and paid himself/herself $350,000.

You may see a 10% or higher reduction in patients when the physician retires (so it's more ideal to have a physician who is willing to stay on as an employee part-time to assist in the transition). Let's assume the doc leaves and your patient flow is decreased by 10% and you collect $1.35. You'll have to budget your practice to now absorb $100K/year loan payment. Thus, you may only be able to pay yourself ~$100K for the first year until you increase the traffic or reduce costs in your new practice.
I would respectfully disagree with that for a couple of reasons:

First of all, I'm not a fan of a doctor staying on for more than at most, a couple of weeks. As long as the old doctor is around, patients will tend to gravitate towards them.

I've seen every kind of scenario played out....a lengthy transition, a short transition, and the one in which the old doc vanishes like a fart in the wind.

In my opinion, the better scenario is to have the old doctor just vanish. No ads in the newspaper, no letters sent, nothing. When patients phone for appointments, the staff informs them that Dr. Old retired and that the new doctor is Doctor New who was handpicked by Dr. Old to replace him.

Fact is, the records are there, it's the same staff, and the verbal endorsement is more than enough for 99% of patients. If Dr. Old is retired, then patients need a new doctor anyways, so it might as well be Dr. New.

A small handful of patients will be annoyed that they weren't "personally notified." :rolleyes: You calmly explain to them that Dr. Old didn't want to make a big fuss and he specifically requested that no formal announcements be made. Patients almost universally accept that.


This is how I did it with my practice purchase and it worked WONDERFULLY. I purchased a practice from a doctor who was in the practice for 40 years and was/is a local legend in the local service clubs, etc. etc. The number of patients who defected I can count on one hand. Those were limited to people who used to come to the office, moved away, and used to come back "once a year" to see the old guy. Now that I was there, there was no reason for them to come all the distance.

Another couple of patients got bitter and left because they somehow felt that by leaving, they were punishing the old doctor for retiring. But the fact is, these people would have left anyways even if the old guy hung around.

I also disagree with the numbers put forth regarding salary. The scenario described is a 10% reduction in gross but a 60% reduction in salary. Unless the practice is operating the absolute thinnest of margins, that is a virtual impossibility. A 10% reduction in gross almost surely results in at least some reduction of overhead. You can reduce staff hours if need be. There's all kinds of ways of handling a drop in gross, but if you play your cards right, there shouldn't be ANY drop in gross. In fact, you should have a GAIN. I did. I know plenty of other ODs and ophthalmologists who did too.
 

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I also disagree with the numbers put forth regarding salary. The scenario described is a 10% reduction in gross but a 60% reduction in salary. Unless the practice is operating the absolute thinnest of margins, that is a virtual impossibility. A 10% reduction in gross almost surely results in at least some reduction of overhead. You can reduce staff hours if need be. There's all kinds of ways of handling a drop in gross, but if you play your cards right, there shouldn't be ANY drop in gross. In fact, you should have a GAIN. I did. I know plenty of other ODs and ophthalmologists who did too.
I was assuming keeping the other surgeon on for the transition, which results in higher overhead and costs. Many young eye surgeons prefer the experienced surgeon to help with the transition. It's safer and helps get the new surgeon up and running, particularly for the original poster who is building a practice right out of residency.

Also, I don't recommend reducing pay of your staff. The AAO has published several white papers on practice efficiency. One of the best way to be profitable in the long run is to pay your staff well and to retain the good people! Turn over will kill your profits. So it's not a smart idea for a young surgeon to start reducing pay when he/she first arrives in a new practice. Doing so could cost them more in the long run by losing experienced staff.
 

KHE

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I was assuming keeping the other surgeon on for the transition, which results in higher overhead and costs. Many young eye surgeons prefer the experienced surgeon to help with the transition. It's safer and helps get the new surgeon up and running, particularly for the original poster who is building a practice right out of residency.
I did not realize in your example that you were making that scenario in the context of keeping the surgeon on. I thought you were referring to a drop in gross because the surgeon LEFT.

I disagree however that keeping the old doc on should result in significantly higher overhead. Part of the "good will" that you pay for in a practice purchase should INCLUDE (if you so desire) the surgeon sticking around talking you up and helping with the transition. You shouldn't have to buy all the goodwill and then pay the guy a handsome salary on top of that to stick around. That's part of the good will.

Also, I don't recommend reducing pay of your staff. The AAO has published several white papers on practice efficiency. One of the best way to be profitable in the long run is to pay your staff well and to retain the good people! Turn over will kill your profits. So it's not a smart idea for a young surgeon to start reducing pay when he/she first arrives in a new practice. Doing so could cost them more in the long run by losing experienced staff.
I didn't mean reduce pay, I meant reduce a staff member and I made the suggestion under the impression that there was a 10% reduction in practice gross. A 10% reduction in gross should be responded to with a reduction in overhead. It would stand to reason that if there is less work that needs to be done, less staff is needed. I too would not suggest reducing hourly pay, but if the workload isn't there, there's no reason to keep staff around.
 

KHE

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This is how I did it with my practice purchase and it worked WONDERFULLY. I purchased a practice from a doctor who was in the practice for 40 years and was/is a local legend in the local service clubs, etc. etc. The number of patients who defected I can count on one hand. Those were limited to people who used to come to the office, moved away, and used to come back "once a year" to see the old guy. Now that I was there, there was no reason for them to come all the distance.

Another couple of patients got bitter and left because they somehow felt that by leaving, they were punishing the old doctor for retiring. But the fact is, these people would have left anyways even if the old guy hung around.
Sorry to quote my own posting but I wanted to add something to this:

I was having a discussion with my attorney, who is a partner in a 4 partner, 4 associate law firm. The firm was founded about 50 years ago and he was the first partner added about 35 years ago. Since then, it has grown into what it has become.

He informed me that when the founding partner retired a few years back, there was great debate over the value of the firm and whether or not he should continue to work part time. The retiring attorney repeatedly claimed that many, if not most of his clients would be very upset and would not likely see other partners in the firm.

In the end, the retiring doctor was simply bought out and ceased practicing.

My attorney reported that 99% of his clients gladly and easily moved their legal matters to other partners. Not only that, the discussions with clients almost universally went like this:

"He retired? Really? Good for him. Did he move to Florida or something? No? He's still around in Connecticut? Is he crazy? HAHA! Say Hi to him if you see him for me, ok? Yea! Great! Now, about this contract......."

So seriously....whether it's law, medicine, accounting or any other scenario, sellers often feel that they have the "Midas Touch" and that they, and ONLY they can satisfy people's needs and the harsh reality of it for the sellers is that that is entirely untrue in 99% of the cases. Of course, sellers always think that they are that 1% so just a little food for thought as you all try to negotiate those buy ins and those purchases.
 

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I have a related question: Does anyone have any suggestions for whom to consult to look over a contract that might be a little more complicated than a standard buy-in? I.e. a practice that has only one senior partner looking to hire 2-3 new docs over the next 3 years while retaining the senior partner who would be in a role becoming more managerial than patient-care centered?
 

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I have a related question: Does anyone have any suggestions for whom to consult to look over a contract that might be a little more complicated than a standard buy-in? I.e. a practice that has only one senior partner looking to hire 2-3 new docs over the next 3 years while retaining the senior partner who would be in a role becoming more managerial than patient-care centered?
I would definitely avoid such a scenario. If this senior partner is going to be backing away from patient care, while staying on in some administrative role, you're getting screwed. There's absolutely no need for such an arrangement. The staff that's already in place should be able to handle things just fine with a new doc at the helm. The senior partner likely wants to retire, but isn't ready to give up the income (perhaps because of the horrid state of the economy). Since he/she will not be producing any revenue without seeing patients, you and the other new docs will essentially be paying his/her salary. Run away! :scared:
 

KHE

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I would definitely avoid such a scenario. If this senior partner is going to be backing away from patient care, while staying on in some administrative role, you're getting screwed. There's absolutely no need for such an arrangement. The staff that's already in place should be able to handle things just fine with a new doc at the helm. The senior partner likely wants to retire, but isn't ready to give up the income (perhaps because of the horrid state of the economy). Since he/she will not be producing any revenue without seeing patients, you and the other new docs will essentially be paying his/her salary. Run away! :scared:
I was thinking the exact same thing. Talk about a potential mine field.

The only conceivable way that that scenario works out is if you specify very clearly in the contract what the senior partners salary will be AND a very specific date at which he will be OUT OF THERE.

If you don't do that, they'll just hang around for years, seeing a few patients here and there and making big money off of your labor while essentially just farting around. That's not what you want.