Buying into a practice

[philafootdoc]

Hi,

I am looking for any advice I can get on this topic. I will try to be short and to the point.

I have been working at a private practice for 3.5 years now with an old pod that wasn't doing much surgery. He was basically chip and clip. Over the last 3.5 years, I have helped build up the practice since I was doing more surgeries than the old pod was ever doing and doing cases that he would never do (rear foot/ankle). My salary structure for the first 2 years was 85k with bonus of 25% over 192k, and the last 2 years it has been 110k with bonus 35% over 300k. In the last 12 months I have collected more than 500k, so 65% of my bonus that goes directly to the old pod was around 120-130k just in the last 12 months. For the last 3.5 years, I have been seeing a majority of the patients. In the last year, he also hired another associate so the older pod no longer sees patients, maybe 10-15 a week. He wants to retire over the next 6 years and is now offering both of us 25% partnership over the next 2-4 years. I hope what I wrote makes sense, I am not sure if I it does.

So my question:
He hired the podiatry valuation guy. In his valuation, he has included nursing homes that I do not do and the other associate isn't interested in doing either. he does not own any of the nursing homes and has no official contract with them.
the practice has been valued at around $750k.

His plan for my compensation is 40% of collections and 25% of excess cash flow at end of year.
He wants both of us to pay around 4k a month for the next 24 months with additional lump sum of 98k in year 3 to get 25% of the practice, and he wants to be paid 100K a year as well for the next 3 years.
If my calculations are correct, I'd be making like 200k gross before tax and like 100k after subtracting tax and paying him 50k a year. This seems like a horrible deal.

Does this sound reasonable?

My other concerns are that
1: he is including nursing homes in the valuation, is that reasonable?
and 2: I have been working for him for 4 years and making him at least 50-100k a year and building up and running his practice. Shouldn't that count for something and maybe lower the amount I have to pay to buy my share? Or am I wrong and the offer is reasonable despite it being the same for the new associate?

Again, any advice would be appreciated.

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[de Ribas]

I have no input from podiatry stand point, but from business/investment stand point such a horrible investment. 250k for podiatry degree, 11 years of education, 750k to buy a business just to make 150k a year. Just sad. There are so many ways to make 150k a year without lengty education and 1M investment. With 750k I could buy 15 trucks and work from home making more than 50k per month.

I can't believe people are working so hard and investing so much to make 150k per year. Nobody has to settle for 85k a year after 11 years of education and 250k debt. Crazy.

 

[philafootdoc]

I have no input from podiatry stand point, but from business/investment stand point such a horrible investment. 250k for podiatry degree, 11 years of education, 750k to buy a business just to make 150k a year. Just sad. There are so many ways to make 150k a year without lengty education and 1M investment. With 750k I could buy 15 trucks and work from home making more than 50k per month.

I can't believe people are working so hard and investing so much to make 150k per year. Nobody has to settle for 85k a year after 11 years of education and 250k debt. Crazy.

yeah.. it's pretty stupid.

 

[ExperiencedDPM]

Don’t do it.

 

[philafootdoc]

Don’t do it.

What do you suggest? Should I counter with something, do you have an idea of what my counter should be? Or should I just go somewhere else, or start my own practice? I’m so confused … I’ve made this guy so much money and with this plan made by mike Crosby I’ll be paying him for the next decade. I don’t really know what my peers are doing and if they’re getting stupid buy in offers like this too.

 

[Pronation]

You broke the golden rule. Never work for some old crusty scumbag podiatrist.

 

[podwho]

Highway robbery. If he own 50% of a practice where he brings no revenue and still collects 50% of excess cash flow + 100k salary your paying for his retirement from your pocket until he dies lol stupidest thing I’ve herd in a while.

Quit now

 

[dtrack22]

he is including nursing homes in the valuation, is that reasonable?

No. Whatever $ that nursing home care added to the valuation, it needs to be removed. He can’t sell you something he doesn’t own.

I have been working for him for 4 years and making him at least 50-100k a year and building up and running his practice. Shouldn't that count for something and maybe lower the amount I have to pay to buy my share?

Yes, it should count for something. You should not be paying for value that you added to the practice. Value/collections that wouldn’t exist without you.

He wants to retire over the next 6 years and is now offering both of us 25% partnership over the next 2-4 years.

So you guys buy 25% now, increase the value of the practice even more, then you have to buy the last 50% when he actually retires. It’s an awful deal.

There is no shot that you are going to get a “good deal,” in this situation. I would be firm now and tell the owner you are way too far apart for some of the reasons you already highlighted (nursing home, value you added, etc.). He’ll likely come back with something a little better but the chance it’s worth what it will cost you is slim. I would start seeking alternative employment now, or start working on setting up shop across the street. This either ends with you making a poor financial decision or with you working elsewhere.

 

[josebiwasabi]

I can't wait until all these old geezers retire or die out.

 

[philafootdoc]

No. Whatever $ that nursing home care added to the valuation, it needs to be removed. He can’t sell you something he doesn’t own.



Yes, it should count for something. You should not be paying for value that you added to the practice. Value/collections that wouldn’t exist without you.



So you guys buy 25% now, increase the value of the practice even more, then you have to buy the last 50% when he actually. It’s an awful deal.

There is no shot that you are going to get a “good deal,” in this situation. I would be firm now and tell the owner you are way too far apart for some of the reasons you already highlighted (nursing home, value you added, etc.). He’ll likely come back with something a little better but the chance it’s worth what it will cost you is slim. I would start seeking alternative employment now, or start working on setting up shop across the street. This either ends with you making a poor financial decision or with you working elsewhere.

Thanks for the thorough response I really appreciate it. I heard mike Crosby was good at this but he’s clearly just trying to maximize profit for the guy that hired him. Making me pay valuation of 750k when I’m bringing in 550k.

 

[HardRoadPaved]

This either ends with you making a poor financial decision or with you working elsewhere.

but he’s clearly just trying to maximize profit for the guy that hired him

The day you realize the only person who can take care of you is you. Only free lunches are found on mousetraps.

Can't wait to hear a year from now after you open shop how you're killing it. If you truly built this practice up then I have no doubt you'll succeed. Especially if you invested 750k! Hell you could open a beautiful practice with half that cash and be very well off.

 

[JewOnThis]

Before you tell him no, secure another job first.

 

[Feli]

Don’t do it.

Yeah, this is one of the worst deals I've ever seen.

There is absolutely nothing to buy here except your own productivity (and the other associate's... and maybe some used equipment), and even that is very overpriced. The nursing homes count for nothing. Assume you bring in 500k and the other associate 500k (with what he might add absorbing the outgoing doc patients)... still not worth nearly 750k, esp when you subtract your productivity. This is exactly why any buy-in valuation should have at least loose framework set before you ever see a patient (bases the off gross/net of years prior to you joining).

You should have enough to start your own office by now for less than $100-$200k depending on area (depending on the area and some of which can be line of credit), already be on all of the local plans and hospitals, already be fairly busy, etc. If it is a place where he could try to shut you down with non-compete, that's a problem. Start trying to find another job or figure out how to set up on the edge of the radius. I don't think you'll reach an agreeable solution with a guy who is trying to make you buy what you have built, though. This practice, to you, should only really be worth the net (roughly half) what the other two docs collect... if you even planned on keeping the associate. Good luck

 

[philafootdoc]

Yeah, this is one of the worst deals I've ever seen.

There is absolutely nothing to buy here except your own productivity (and the other associate's... and maybe some used equipment), and even that is very overpriced. The nursing homes count for nothing. Assume you bring in 500k and the other associate 500k (with what he might add absorbing the outgoing doc patients)... still not worth nearly 750k, esp when you subtract your productivity. This is exactly why any buy-in valuation should have at least loose framework set before you ever see a patient (bases the off gross/net of years prior to you joining).

You should have enough to start your own office by now for less than $100-$200k depending on area (depending on the area and some of which can be line of credit), already be on all of the local plans and hospitals, already be fairly busy, etc. If it is a place where he could try to shut you down with non-compete, that's a problem. Start trying to find another job or figure out how to set up on the edge of the radius. I don't think you'll reach an agreeable solution with a guy who is trying to make you buy what you have built, though. This practice, to you, should only really be worth the net (roughly half) what the other two docs collect... if you even planned on keeping the associate. Good luck

Thank you for the in depth response. I do have a 3 mile noncompete. It’s an inner city practice and the office is a total dump. I still have a year on my contract so I can use that time to find another job or start working on opening my own while still making money. We had discussed partnership for a while and mike Crosby had been working on the valuation for the last 3 months so when I got the offer yesterday I was in shock by how terrible it was.

 

[underwood]

As a resident I’ve been wondering. I could see it making sense to work as an associate for a year or two to learn how to run a practice etc. then get out on your own.
But only if the base salary is somewhat appropriate. Otherwise what’s the point of making <100k and growing someone else’s practice with no guarantee of becoming partner or on the contrary having a very expensive buy in? Might as well open your own and work hard for yourself from day 1?

 

[deleted1097413]

The day you realize the only person who can take care of you is you. Only free lunches are found on mousetraps.

Can't wait to hear a year from now after you open shop how you're killing it. If you truly built this practice up then I have no doubt you'll succeed. Especially if you invested 750k! Hell you could open a beautiful practice with half that cash and be very well off.

"only free lunches are found on mousetraps"

damn

 

[deleted1097413]

As a resident I’ve been wondering. I could see it making sense to work as an associate for a year or two to learn how to run a practice etc. then get out on your own.
But only if the base salary is somewhat appropriate. Otherwise what’s the point of making <100k and growing someone else’s practice with no guarantee of becoming partner or on the contrary having a very expensive buy in? Might as well open your own and work hard for yourself from day 1?

I've been thinking of this too. seems better to start out on your own. you'll have to put in so much time to make it work straight out of residency but in the longterm I think the sooner you get started on your own the better.

 

[philafootdoc]

As a resident I’ve been wondering. I could see it making sense to work as an associate for a year or two to learn how to run a practice etc. then get out on your own.
But only if the base salary is somewhat appropriate. Otherwise what’s the point of making <100k and growing someone else’s practice with no guarantee of becoming partner or on the contrary having a very expensive buy in? Might as well open your own and work hard for yourself from day 1?

Main issue is getting enough case volume for boards. Only reason I joined this guy. And Covid messed stuff up/delayed things.

 

[Feli]

Main issue is getting enough case volume for boards. Only reason I joined this guy. And Covid messed stuff up/delayed things.

Yes, this is the key. The exp seeing how a fair/good practice runs also can't be understated.

It is not a disaster to start on your own right out of residency (if you can), but there are a few good reasons not to:
1) Volume for surgery boards and competence (nice not to start with zero pts.... plus without all the stress of business end)
2) Financial cushion (good to have enough salary to at least pay bills comfortably, save a bit... focus on pt care development)
3) Start-up costs... most people don't have the money to start any decent office right away with student loans, income-to-debt ratio, credit etc
4) Gain billing, office, marketing, OTC, DME, etc etc ideas from being an associate vs trial-by-fire it on your own
5) Get onto area payers and hospitals (this can take muuuuuch longer than you think and costs money)

The ideal first job would probably be one of the following:
-private practice with successful docs/offices with decent mentorship both biz and clinical/surgical at fair pay... stay if it works or leave later and know a lot about running successful PP
-MSG or hospital that pays fair/good and will get you numbers for boards (bonus if you grind some billing knowledge out but often unlikely)
-private practice with fair/poor pay but in an area with no non-compete or reasonable... and you will get some money, get on local plans/hospitals, get a bit of a rep, and probably jump ship to start up in the area

 

[Pronation]

MSG or hospital that pays fair/good and will get you numbers for boards (bonus if you grind some billing knowledge out but often unlikely)

This is the only ideal first job. The rest is crap. Also the pay will almost exclusively be good.

Being an associate at a private practice is crap. But, if it’s your only option…

 

[ExperiencedDPM]

Thank you for the in depth response. I do have a 3 mile noncompete. It’s an inner city practice and the office is a total dump. I still have a year on my contract so I can use that time to find another job or start working on opening my own while still making money. We had discussed partnership for a while and mike Crosby had been working on the valuation for the last 3 months so when I got the offer yesterday I was in shock by how terrible it was.

Your name philafootdoc would lead me to believe you’re in the city of brotherly love. As you can see my detective skills are really sharp.

I have classmates that practiced in that area and if you are thinking of opening on your own, why in the world would you want to be in that city? There are ridiculous amount of DPMs in Philly and when you say inner city, it makes it even worse.

This doc has made you an ultra crap offer and has made the same offer to the other associate. One factor that I don’t believe anyone else has mentioned involves the other associate.

Is this someone who you would want as your PARTNER? If you can’t immediately say yes, that’s enough to decline this crap deal.

I know several reps in the Philadelphia area. If you want to message me the name or initials of the doc you work for, I can find out information about him.

I would assure you confidentiality.

Regardless, as per my initial post, don’t do it.

 

[PTPuser]

I have no knowledge of business...I'm just too stunned to speak in regards to how he wants money but isn't working and contributing to the pot. My god...this is predatory. Thank you for sharing your situation. I hope your future endeavor is better than this mess.

 

[Boba Foot]

As others have said, this sounds horrible. Another thing that should be pointed out is that it’s insane that he’s offering a new associate the same offer as you when you have been there longer, gained seniority, and built this guy’s practice. This guy sounds like a greedy SOB with no real loyalty toward someone who has already put so much money in his pocket.

 

[podiatryresident]

It's time to start your own practice

 

[G0dFather]

3.5 years

Insanity !

My salary structure for the first 2 years was 85k with bonus of 25% over 192k, and the last 2 years it has been 110k with bonus 35% over 300k. In the last 12 months I have collected more than 500k, so 65% of my bonus that goes directly to the old pod was around 120-130k just in the last 12 months

What on earth were you thinking even starting off with someone like that ?!

I have been seeing a majority of the patients. In the last year, he also hired another associate so the older pod no longer sees patients, maybe 10-15 a week. He wants to retire over the next 6 years and is now offering both of us 25% partnership over the next 2-4 years

WOW!

He wants to retire over the next 6 years and is now offering both of us 25% partnership

Insanity!

25% partnership

Even more insanity!

2: I have been working for him for 4 years and making him at least 50-100k a year and building up and running his practice. Shouldn't that count for something and maybe lower the amount I have to pay to buy my share? Or am I wrong and the offer is reasonable despite it being the same for the new associate?

I keep reading your OP and your either the biggest troll and we are shot for letting the thread get this far or you were very naive/humble and got taken over the coals HARD! There is no way to even continue a discussion with someone like that ... you got brushed aside with someone that entered the picture after just a year vs your 4 years in ( where you really wasted your time monetary wise) ... it really is devastating to read something like this, if your not trolling i would gladly personally mentor you with whatever you need to start your office (just pm me) , this should LOGICALLY be your next step to make up for all the time you wasted !! I genuinely feel bad and would love to help ....

 

[eck]

Hi,

I am looking for any advice I can get on this topic. I will try to be short and to the point.

I have been working at a private practice for 3.5 years now with an old pod that wasn't doing much surgery. He was basically chip and clip. Over the last 3.5 years, I have helped build up the practice since I was doing more surgeries than the old pod was ever doing and doing cases that he would never do (rear foot/ankle). My salary structure for the first 2 years was 85k with bonus of 25% over 192k, and the last 2 years it has been 110k with bonus 35% over 300k. In the last 12 months I have collected more than 500k, so 65% of my bonus that goes directly to the old pod was around 120-130k just in the last 12 months. For the last 3.5 years, I have been seeing a majority of the patients. In the last year, he also hired another associate so the older pod no longer sees patients, maybe 10-15 a week. He wants to retire over the next 6 years and is now offering both of us 25% partnership over the next 2-4 years. I hope what I wrote makes sense, I am not sure if I it does.

So my question:
He hired the podiatry valuation guy. In his valuation, he has included nursing homes that I do not do and the other associate isn't interested in doing either. he does not own any of the nursing homes and has no official contract with them.
the practice has been valued at around $750k.

His plan for my compensation is 40% of collections and 25% of excess cash flow at end of year.
He wants both of us to pay around 4k a month for the next 24 months with additional lump sum of 98k in year 3 to get 25% of the practice, and he wants to be paid 100K a year as well for the next 3 years.
If my calculations are correct, I'd be making like 200k gross before tax and like 100k after subtracting tax and paying him 50k a year. This seems like a horrible deal.

Does this sound reasonable?

My other concerns are that
1: he is including nursing homes in the valuation, is that reasonable?
and 2: I have been working for him for 4 years and making him at least 50-100k a year and building up and running his practice. Shouldn't that count for something and maybe lower the amount I have to pay to buy my share? Or am I wrong and the offer is reasonable despite it being the same for the new associate?

Again, any advice would be appreciated.

The practice has really no value. You’ve been working for 3.5 years and built your own. Tell him no thank you. The only things worth buying, and only if they have actual retained value, is the equipment. His is likely old and out of date anyway. If private practice is your goal, you’re already doing it. Do not write him a check.

 

[eck]

What do you suggest? Should I counter with something, do you have an idea of what my counter should be? Or should I just go somewhere else, or start my own practice? I’m so confused … I’ve made this guy so much money and with this plan made by mike Crosby I’ll be paying him for the next decade. I don’t really know what my peers are doing and if they’re getting stupid buy in offers like this too.

Ditto this reply. Do not do it. You’ve proven what you can do.

 

[NobodyDPM]

LMAO...$750K????

Holy crap. His practice is actually worth $0.

Tell him you'll give him $100K over 10 years, 100% financed by him and that he should pack his bags as you don't need him to stick around for even one more minute. That's being generous.

 

[mdtomdrevenue]

Honestly, I would really consider opening your own practice. Will take a little longer to get revenue but you will do better long term! If you are struggling with how to open your practice, there are many resources out there for new in-practice groups. If you have any business acumen I would just start on your own.

 

[icebreaker32]

All this practice is worth is fair market value for the sticks and bricks and a small amount for goodwill. You will never come to a fair agreement, especially now that he has another associate. The fact that he hired another associate tells me he is either stuck in the 80s for practice valuations and sees his practice as his retirement or wants to make money on under paid associates.….probably both. Unless this a very tough market to break into, you are certain you want to live in this area forever, there is an extremely large amount of private insurance in the practice and ownership potential in an extremely lucrative surgery center, I do not see the appeal. It is the type job you work for a few years and then move on. Yes change is hard. It is easier said than done to leave a bad situation, but 5 years will turns into 15 years before you know it If you do not have a definite exit plan.

It is sad in our profession that you even have to consider this a benefit, but the only benefit you have is that you are getting (or have) your numbers for boards,

One idea is to use his own greed against him. Tell him you need a higher percentage of collections over the next couple of years to save money so you can afford to buy the practice. Kick the can down the road and do not sign any contract to purchase the practice. Become board certified ASAP. Once you are board certified, you will have many more employment opportunities and can find a much better job. Start collecting all your necessary information and documents for your cases needed for boards immediately. If starting your own PP is what you want, then being board certified will also help you get on insurance plans and you will not have to worry if you are slow surgically your first couple of years.

 

[CaptainCool]

I know this is an old thread, but OP if you’re still around did you end up buying the practice? If you did is it working out for you or do you wish you started your own?

I respect that you used real numbers and I worked in the Philly area so I know how tough it can be

 

[Boba Foot]

To some of the PP guys around here—
What do you think the monthly cost/overhead of employing an associate is per month? Not including any salary, but just insurances, license, etc. etc.

 

[Drjc1977]

What do you suggest? Should I counter with something, do you have an idea of what my counter should be? Or should I just go somewhere else, or start my own practice? I’m so confused … I’ve made this guy so much money and with this plan made by mike Crosby I’ll be paying him for the next decade. I don’t really know what my peers are doing and if they’re getting stupid buy in offers like this too.

If you are truly interested in purchasing this practice, you should hire a professional business evaluator agreeable to you both for an objective estimate of the value of the business. This would include the practice brand, instruments and furnishings, real estate (if any), and the list goes on. You need a deal that is fair both to you and the current owner. That being said, you may be in a bit of a drivers seat. The older pod wants to retire, and for him to do so he needs to sell to a person who has an established clientele to earn the money to pay down this debt. That would be you. To sell to an outsider may not produce the lucrative return he is hoping for.

 

[Adam Smasher]

To some of the PP guys around here—
What do you think the monthly cost/overhead of employing an associate is per month? Not including any salary, but just insurances, license, etc. etc.

A lot of the costs are non-recurring. Malpractice, insurance fees, hospital dues, ehr license and other things you're talking about are $5-6k.

The rest depends on what the business has already. Outfitting an exam room is about $10k, most of which goes into the exam chair ($6k).

In terms of monthly costs, it varies with how much additional patient volume travels through the office space and what kind of support staff need to be added. New MA/secretary if not both. The practice may need to add billing personnel if there are additional claims. Again it all depends on what the practice has already, they don't need to hire everyone. This is less of an issue the more time associate spends in surgery/nursing homes because the patient volume is offsite. And of course the biggest leap would be adding a satellite or moving to a larger space to accommodate another doctor with the increased rent/mortgage/tax costs. These are, of course, good problems to have if the practice is growing so well.

 

[air bud]

To some of the PP guys around here—
What do you think the monthly cost/overhead of employing an associate is per month? Not including any salary, but just insurances, license, etc. etc.

If you have to ask you can't afford it bro