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Question re: Investment Opportunity in my own practice

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  • Question re: Investment Opportunity in my own practice

    The group for which I work is now offering an "investment opportunity" to its physicians to invest in the "practice platform"

    What do you guys think about this? What does this even mean?

    1) Should I be viewing this as a sign of weakness? Our group is owned by a single physician with private backing. Is it worrisome the original source of funds is no longer interested in sinking their own money in and asking other investors to shoulder the burden?

    2) I'm an employee. If I do decide to go through with this opportunity, what does it make me? A partner?

    3) How much should I invest? This was presented to us in an open-ended manner where we could decide what sum of money we were comfortable investing. There are rumors that the initial private backing was an 8 digit sum of money. Even if I were to miraculously scrounge up $200,000, what good would that do me with so much other money at play?

    4) What is the benefit here? If this isn't a publicly traded company, what kind of return on investment can I expect? Is it paid in the form of a dividend check? A larger bonus per paycheck? Has anyone had a similar experience and what was the outcome? (I do realize many of these questions should be answered by the people offering this investment opportunity but I haven't entered into any serious talks with them yet). I'm assuming this is similar to a situation where physicians have the option to become shareholders in their own hospital system?

    5) Should I be avoiding investments like this if I have to ask these sorts of questions? I remember WCI saying that the more complex the investment vehicle, the more it favors the other side.

    6) Is it worthwhile if I do have extra money to play with? 20% of my gross is still being locked away into low cost index funds. I am fortunate to be in a high paying specialty and my wife and I are super savers to boot. We are currently putting away 40% of our gross. 20% as mentioned above, another 20% in a taxable account that we allow ourselves to dip into should the need arise. On sheer numbers alone, would it be wise to take some of this excess and consider a higher gain, higher risk investment opportunity like the one presented before me?

    (I apologize if some questions are vague. As you can imagine, this is a fairly specific opportunity that was presented to me a couple of weeks ago and I would like to preserve as much anonymity as possible)

  • #2
    Sounds very opaque. First off you really should have reams of documents to pore over and know exactly what youre buying into and getting out of at what terms etc...That the practice is unaware of lots and usual size of investment and for what return would bother me.

    Sometimes these things can turn out great, others not so much. I'd have a healthcare attorney versed in practice scenarios go over the details so you know exactly what youre geting into and how you can get the most return from it.


    • #3
      You're really going to have to be more specific.  You're an employee of a group?  Which is owned by one physician?  That sounds rather unusual unless a very small group.


      • #4
        I would buy at least a little, just to get a closer look at the financials behind the practice. Ownership is usually a good thing. Before investing a lot, read the entire prospectus (yea, I know it's 300 pages) and if you don't understand it, go over it with a healthcare attorney.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011


        • #5
          Highly recommend that you work with a CPA and an attorney before you consider buying in. You need someone who can put a second (or third) set of eyes on the documentation and the offer and ask you the "what if's" such as: What if you decide you want out? What if your partner dies? divorces? Will his ex be your new partner? What if you die - how will your share be bought out? What rights do you have for profit sharing? How much time will you be expected to devote to the practice? So many things to consider for the first partner coming on - remember, the owner has been used to ruling and will now have to share in the decision-making.
          My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
          Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


          • #6
            Is there a lock-up introduced with your purchase where you are not allowed to leave for an extended period or you lose your investment? My understanding is that this sort of participation in equity is largely intended to secure employee commitment. Having said that, can you find out more about the plans of the private backers? When do they plan to sell their stake?