Reasonable buy in?

[eyedoc27]

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Hey all, wondering if $325K is a reasonable buy in for a private practice? 5 physicians, annual revenue of practice ~$8 million, revenue I’m bringing in currently ~$1 million in revenue. Buy in includes 20% ownership of optical. Thanks all.

 

[dantt]

Hey all, wondering if $325K is a reasonable buy in for a private practice? 5 physicians, annual revenue of practice ~$8 million, revenue I’m bringing in currently ~$1 million. Buy in includes 20% ownership of optical. Thanks all.

What's the overhead.

 

[voxveritatisetlucis]

Have a financial advisor look at the books and run a discounted cash flow model

 

[eyedoc27]

What's the overhead.

About 50%.

 

[dantt]

About 50%.

Sounds about reasonable.

 

[eyeeye_captain]

Agree with getting an outside, formal valuation of the practice, but sounds reasonable. I take it this is hard assets and no goodwill required.

Depending on student debt and how debt-averse you are, that can get paid off in less than 2 years and you’re cruising.

 

[hello lady!]

There's a lot of info missing here. What exactly are you buying into? The buy in includes stock in the medical practice/optical. What about real estate and ASC? How much long term debt is on the practice? Any recently retired docs and buyouts on the books?

Are all docs equal partner? Is one retiring? I'd imagine you'd be 1/6 if not.

Running the numbers through an outside evaluator is like getting a home inspection. They make you feel good and you spend a ton of money on them but there's so much potential to miss huge things. It's easy for practices to hide debt off the books and manipulate their numbers. If you trust your future partners and your bank is agreeable to give you the loan based on their review you're probably good.

 

[mjohnsonets]

There's a lot of info missing here. What exactly are you buying into? The buy in includes stock in the medical practice/optical. What about real estate and ASC? How much long term debt is on the practice? Any recently retired docs and buyouts on the books?

Are all docs equal partner? Is one retiring? I'd imagine you'd be 1/6 if not.

Running the numbers through an outside evaluator is like getting a home inspection. They make you feel good and you spend a ton of money on them but there's so much potential to miss huge things. It's easy for practices to hide debt off the books and manipulate their numbers. If you trust your future partners and your bank is agreeable to give you the loan based on their review you're probably good.

Like all investments, determine how much you're going to spend and what your rate of return will be WORST-CASE scenario. Generally compare against the stock market returns which on average are ~10% year over year. This is way oversimplified but if that $325K is going to generate at least an extra $32.5K in income for you each year, you're better putting that money in the practice than in the standard investment vehicle that is the stock market. These would just be general first steps in determining is this investment worth considering further and doing your due diligence on.

As noted here, there are risks that are not on the books like the age of the partners, those are items that a professional will have a better handle on quantifying.

As others have noted though, you've not really provided enough info to determine if this is a "good deal".

 

[i-doctor]

Something else to consider—
In the current environment you need to be an owner if there’s any chance at all that your partners would consider selling the practice to P.E. You want to be on the inside (and get an upfront $$ multiple) and NOT an employee on the outside looking in…

 

[TheLesPaul]

It doesn't make much sense usually to work at a practice and not be a partner unless your hours are limited. Someone is going to profit off of your work -- might as well be you. As long as the practice is healthy.

 

[dantt]

Something else to consider—
In the current environment you need to be an owner if there’s any chance at all that your partners would consider selling the practice to P.E. You want to be on the inside (and get an upfront $$ multiple) and NOT an employee on the outside looking in…

Oh so true. Unfortunately, there's never a guarantee that the owners won't sell. So many horror stories. Try to ask that you get a piece of the action if they sell. Yeah...I didn't think so. Ironically, you'd be the one most invested in staying and should be most valuable to PE.