What info is needed for buying a practice?

[yngdoc]

I was approached by a a doctor who wants to sell his Solo practice. He wishes to work for a few more years full time (4.5 days) and then work just s couple days a week in future years. He owns the building but isn't selling and will rent it to me.

He had an appraisal and that person give him this formula:

He will take the last 3 years of income, average them, and I'd pay 40% of that number. This will instantly make me a 40% owner in the practice and I'd get 40% of the income (of both he and I) as well as pay 40% of expenses.

This 40% ownership lasts 3 years. Then we take the average of those 3 years we've worked together (so a 2 dr practice income) and average it and I'd pay 70% of that number. From there I fully own 100% of the office and he anticipates wanting to stay-on as sort of an employee of mine, working a couple days a week for future years.




Does this sound like a good idea? Has anyone done anything like this? I like the idea of working with the existing dr for a few years to help make a smooth transition. In the 3 years we work together he will feed me the new patients and also call some old patients that haven't been around in a few years to get them back, hopefully.

I've done some research and most articles say a practice should be valued at 75%-100% of the average year's income. This is 40+70=110%. I guess that's because he is sticking with the practice for 3 years to better transition the patients. It still sounds high to me.

Finally, the last portion of the deal has my attention. While he will be building me up as we work together for 3 years, is it strange that im paying 70% of the practice income, including any patients i bring in and including the work I do over those years, or is that normal?

Any help is appreciated.

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[deleted87716]

Sounds like an opportunity to get screwed, to me.

A medical practice has no value aside from its accounts receivable and hard assets (e.g., equipment and real estate). I wouldn't do it.

 

[yngdoc]

Sounds like an opportunity to get screwed, to me.

A medical practice has no value aside from its accounts receivable and hard assets (e.g., equipment and real estate). I wouldn't do it.

Are the files and patients not worth something?

Thank you

 

[deleted87716]

Are the files and patients not worth something?

Nope. Because there's no guarantee that they'll stick around.

 

[deleted87716]

Might be helpful: http://medicaleconomics.modernmedic...l-practice-valuation-how-determine-financial-

 

[yngdoc]

Might be helpful: http://medicaleconomics.modernmedic...l-practice-valuation-how-determine-financial-

 

[futuredrdo]

So what is the best option for coming out of residency straight into private practice if you want to be an owner? (it seems like purchasing an existing practice has little to no value)

 

[yngdoc]

So what is the best option for coming out of residency straight into private practice if you want to be an owner? (it seems like purchasing an existing practice has little to no value)

Then where is the value? Hanging a shingle?
Ty

 

[deleted87716]

So what is the best option for coming out of residency straight into private practice if you want to be an owner? (it seems like purchasing an existing practice has little to no value)

It isn't that it has no value, but you're dealing with another person who's likely trying to get the most money they can out of the deal. Lots of potential smoke and mirrors. Not the best situation if you're not business savvy (which, let's face it, most doctors aren't).

 

[yngdoc]

It isn't that it has no value, but you're dealing with another person who's likely trying to get the most money they can out of the deal. Lots of potential smoke and mirrors. Not the best situation if you're not business savvy (which, let's face it, most doctors aren't).

If it has a value, is there a way to problem solve and gain an understanding as to the correct ballpark value? As this doctor isn't planning to work all that many more years there is a chance we can make this a win win right? Does anyone know the correct steps to move me in that direction?

 

[cabinbuilder]

I was approached by a a doctor who wants to sell his Solo practice. He wishes to work for a few more years full time (4.5 days) and then work just s couple days a week in future years. He owns the building but isn't selling and will rent it to me.

He had an appraisal and that person give him this formula:

He will take the last 3 years of income, average them, and I'd pay 40% of that number. This will instantly make me a 40% owner in the practice and I'd get 40% of the income (of both he and I) as well as pay 40% of expenses.

This 40% ownership lasts 3 years. Then we take the average of those 3 years we've worked together (so a 2 dr practice income) and average it and I'd pay 70% of that number. From there I fully own 100% of the office and he anticipates wanting to stay-on as sort of an employee of mine, working a couple days a week for future years.




Does this sound like a good idea? Has anyone done anything like this? I like the idea of working with the existing dr for a few years to help make a smooth transition. In the 3 years we work together he will feed me the new patients and also call some old patients that haven't been around in a few years to get them back, hopefully.

I've done some research and most articles say a practice should be valued at 75%-100% of the average year's income. This is 40+70=110%. I guess that's because he is sticking with the practice for 3 years to better transition the patients. It still sounds high to me.

Finally, the last portion of the deal has my attention. While he will be building me up as we work together for 3 years, is it strange that im paying 70% of the practice income, including any patients i bring in and including the work I do over those years, or is that normal?

Any help is appreciated.

Sounds like a lot of mumbo jumbo just like a timeshare scam. I'm with BD - there is NO WAY I would do this. I took a job where I was taking over a practice of a doctor who was suppose to retire. He never did while I was there and I eventually was forced out by the staff who didn't want him to leave.

 

[deleted87716]

If it has a value, is there a way to problem solve and gain an understanding as to the correct ballpark value? As this doctor isn't planning to work all that many more years there is a chance we can make this a win win right? Does anyone know the correct steps to move me in that direction?

The article I linked to previously is a good place to start.

 

[yngdoc]

Sounds like a lot of mumbo jumbo just like a timeshare scam. I'm with BD - there is NO WAY I would do this. I took a job where I was taking over a practice of a doctor who was suppose to retire. He never did while I was there and I eventually was forced out by the staff who didn't want him to leave.

That sounds horrible.

So is there never a way someone can buy another's practice?

 

[FamilymedMD]

Are the files and patients not worth something?

Thank you

Actually, the records for an insurance based practice usually have negative value, at least here in Maine. You are required to maintain them for a number of years and have to reply to records requests periodically, even if the practice closes. For the last ten years, retiring and failing practices around here have begged the hospital to take them over to avoid this. I don't think any of them got paid more than a dollar for their practices.

On the other hand, several of us have built successful direct primary care practices. If that model proves sustainable over the long haul, then we will be able to sell practices to other physicians when we retire or move.

 

[FamilymedMD]

That sounds horrible.

So is there never a way someone can buy another's practice?

You can but you'd be a fool to do it.

It's not rocket science to start a new one too. Lots of us primary care docs have been doing that in the last few years.

 

[VA Hopeful Dr]

You can but you'd be a fool to do it.

It's not rocket science to start a new one too. Lots of us primary care docs have been doing that in the last few years.

I wouldn't go quite THAT far. If done correctly, it can work out fairly well.

The biggest issue is a) be sure not to overpay b) if the current owner is going to stay on, make sure the contract specifies in what capacity and for how long c) if the current owner is leaving, its wise to set up a few open house type functions, helps keep current patients from jumping ship when you officially take over.

 

[Ericslv]

I was approached by a a doctor who wants to sell his Solo practice. He wishes to work for a few more years full time (4.5 days) and then work just s couple days a week in future years. He owns the building but isn't selling and will rent it to me.

He had an appraisal and that person give him this formula:

He will take the last 3 years of income, average them, and I'd pay 40% of that number. This will instantly make me a 40% owner in the practice and I'd get 40% of the income (of both he and I) as well as pay 40% of expenses.

This 40% ownership lasts 3 years. Then we take the average of those 3 years we've worked together (so a 2 dr practice income) and average it and I'd pay 70% of that number. From there I fully own 100% of the office and he anticipates wanting to stay-on as sort of an employee of mine, working a couple days a week for future years.




Does this sound like a good idea? Has anyone done anything like this? I like the idea of working with the existing dr for a few years to help make a smooth transition. In the 3 years we work together he will feed me the new patients and also call some old patients that haven't been around in a few years to get them back, hopefully.

I've done some research and most articles say a practice should be valued at 75%-100% of the average year's income. This is 40+70=110%. I guess that's because he is sticking with the practice for 3 years to better transition the patients. It still sounds high to me.

Finally, the last portion of the deal has my attention. While he will be building me up as we work together for 3 years, is it strange that im paying 70% of the practice income, including any patients i bring in and including the work I do over those years, or is that normal?

Any help is appreciated.

NO. Don't do it.

Offer him 0.6 to 1x his EBITDA. Done. If he wants to stay he can and he can get paid based on what he earns. Eat what you kill.
In general purchasing a PCP office is not a good idea because they're getting harder and more expensive to run.

You can open your own micro practice www.idealmedicalcare.com will help. It will cost you less, you will have much less debt and you will make the same money.

You can do a DPC. atlasmd can help.

Don't get stuck with someones problem. A good rule of thumb in business is to keep it simple. That deal is no where near simple. The more cogs there are the more room for interpretation. So if something goes wrong, either YOU have to suck it up or find an expensive attorney to argue the detail of a complicated and vague deal.