Buying a lucrative practice ?

[mmrizwan1]

Hi All. I currently work as an employed physician and have no issues with my job/ compensation - making mid 300's

Came across an infusion heavy practice ( they claim to generate over million dollars in profit / yr), which is run by 1 doc (build from scratch , renting building, Doctor's spouse is the practice manager. ) and 2 PA's. The doctor was recently diagnosed with a terminal disease and is on chemotherapy. They have approached me to become their employee (agree to pay competitively ) and there was some talk of partnership etc.

The opportunity of owning a profit generating practice attracts me but now sure how to proceed. What could be a good model I can suggest to them

[Kamban]

Sounds harsh to say that but they want to continue the profit machine after the doc passes away so that the spouse can continue to get benefits. And you will be used as the bullock to tug that plow.

I would not do it the way they offer. No doc would unless they are stupid. In reality, what is the office worth or going to do when the doc passes away. It might even be a liability.

The best option would be to become boss from day 1. Evaluate the practice and offer a price to buy it making sure that the 2 PA's stay, with language to make sure that it will be paid over years depending on the growth. Never become a employee with promises of future partner. They can always dump you 2 years later when they find another one to replace you before you become a partner.

[ZZZ]

Yeah, they don't have a great negotiating position. I certainly wouldn't be their employee. What it's worth and how to structure the purchase are questions that will require far more detail than you'll be able to provide here. However, I suspect their understandable emotions related to his illness will make coming to a reasonable price agreement impossible for now.

[Tim]

“ They have approached me to become their employee (agree to pay competitively ) and there was some talk of partnership etc.
The opportunity of owning a profit generating practice attracts me but now sure how to proceed. What could be a good model I can suggest to them.”

With a one physician practice and the health status of the owner, you as an employee have not been offered partnership or ownership. You are “hoping” .

The likelihood is you will be doing the heavy lifting. You would need a good partnership with clear ownership terms if he can no longer perform. The decision making authority would need to be clearly defined. The risk is you will be an employee of the practice manager who can replace you as well.

You clearly want ownership with a clear path to the future. Needs to be in writing so you eventually end up with the practice you desire. As an employee, you have no option but to leave. That isn’t your desire.

[Tim]

Given the situation, the physician and spouse are motivated. Can the practice support two full time physicians in the case he recovers completely?
If yes, then they may truly desire a dedicated partner and it can be lucrative for you and beneficial for them.
If either party is “negotiating the best price”, most likely it’s unsuccessful. Give and take on both sides.

[SValleyMD]

“One doc practice with the office manager being the spouse.”.. that sentence would make me more nervous than about anything out there. I’m full partner from day 1 or I’m not touching that with a 20 foot pole.

[mmrizwan1]

Thanks guys for the valuable comments. I really mean it !

Silly question but , how do you evaluate a practice purchase price ? Everybody thinks their practice is worth millions

@ Tim - The practice has room for additional providers. Most of the competitors are booked 2 months out in that specialty / city

[ZZZ]

"Silly question but , how do you evaluate a practice purchase price ? Everybody thinks their practice is worth millions"

Not a silly question at all. It's really hard. As you note, owners think they're worth millions.

In your particular case, if the wife must stay on ad office manager, I'd say the value is $0.

1.5-2x EBITDA is probably safe. Depending on what they own and other factors, a larger multiple could be justified

It's likely worth way less than they think it is.

[Kamban]

mmrizwan1 wrote:

Silly question but , how do you evaluate a practice purchase price ? Everybody thinks their practice is worth millions

Click to expand...

Basically depreciated assets like infusion chairs, exam tables etc. You can pay what a consignment medical office supplier will charge you should you need used medical office equipment.

I would say they get to keep accounts receivable for what they billed till you take over. From the time you take over the amount is yours and you get to keep it and pay for office expenses. So what additional money you pay is goodwill for the office establishment and patients who will stay with the practice. That is where they think it is millions and you think it should be thousands or less. Because some patients might leave and go to the competitors infusion centers, especially the higher paying ones

The unknowns

1. Does the wife stay or go. If she stays she is an employee and the PA's will answer to you as the final say and not her.

2. Who owns the building. The doc and his wife? What happens if they do not renew or ask ludicrous sums and you can't move to another facility ina year or two when you are getting established and sunk money buying the practice.

3. Do you want to be a solo doc and have responsibilities like that doc? Do you have entrepreneurial spirit. Can you run a practice. Do you like finance. Ask yourself all these questions before you buy this.

And finally, do not become an employee.

 

[Tim]

The easy part is the hard assets and receivables. Fair market value. The hard part is the intangible value of a practice that’s up and running. Some practices and markets are extremely challenging. Some of the business may leave if he is out of the picture.

One option is 50/50 percent partnership with the option dissolution being the same or continue if he pulls through. Valuing 50% is different than 100% (control issues and terms of exit if needed. Does he want to keep the option open to continuing practice and to what extent? You can always get an appraisal. The uncertainty is the hurdle, you are his “insurance”.
A dormant business is worth close to zero. A good deal would be where either party is content with the term, be it buying or selling. The talked about “employee”. It’s a long way to finding out their desires. Giving him the option of retaining and practicing at 50% is valuable.
I would say hash it out at a bar, but that rarely ends well.
You may want a purchase option or he may have zero intent to sell unless ——-create value for heirs.

[Zaphod]

Eh, I wholly agree with all the paranoid people in the thread. They have zero leverage, you can just pick up the pieces assuming spouse is non medical and likely cannot legally own a practice. Also agree no way in heck I would easily enter into a family business as the willing victim.

[jacoavlu]

is “infusion heavy” medicine what you want to do?

could reimbursement suddenly change for the worse? I would assume much of the million dollar profit is markup on drugs?

Seems risky, without a deep understanding of these factors.

[jfoxcpacfp]

Wow, so many intangibles here. This is not an “X times Y value” situation, impo, too many active factors. If you are REALLY interested, you might suggest the practice pay for a professional appraisal (and yes, it is possible to get a good one for a medical practice) and take the chance that the appraisal will be higher than they are pricing (not likely). OR pay for your own appraisal (prob not ready for that at this point) OR get your CPA to help you come up with a value/offer.

Hiring an appraiser will likely cost $5k - $10k+. Your CPA, if very experienced with medical practices, may be able to offer some very valuable direction without preparing a formal appraisal. If the family believes the practice without the physician is worth 7 digits, they better really have their crap together and be prepared to justify it. Sounds cold, I know, but it is a business decision and your $$.

I don’t see you doing this and making a good deal w/o good outside professional assistance - unless you happen to get lucky and they happen to land opposite. Possible to spend $10k+ and save $100k+. Iow, don’t isolate fee, consider context.

Finally, do not be in a hurry. If you think this is a “once in a lifetime” opportunity, you are assuming you will never come across another. Think about it.

[q-school]

what features attracted you to your current employed position?  do you want to be an owner because something changed?  it sounds like they dangled another employment offer to you.  at least to yourself, articulate the reasons you would take the position.

unfortunately, it sounds like the other person is in a tough spot.  you can either buy the practice from them (and i would suggest pouring over their books carefully) or open your own practice.  it sounds like there is plenty of room in the market for another practice, and the existing practice will either be sold to someone or close.   you can stay in your current position as well.

running a practice takes time and energy.  instead of going home at quitting time and enjoying life, you have cash to reconcile, business plans to develop, meetings with insurers,  meetings with suppliers, leases to negotiate, phones to buy, payments to make.  be sure that if people think you are inattentive, people are going to steal from you, or at least take advantage of you.

i personally don't think it's that easy for a non dermatology single physician clinic based practice paying fair market rates to be profitable over a million dollars per year paying market rates and without skirting the edge of ethical behavior.   what happens if infusion reimbursement rates change ... because they definitely will someday.  you don't want to be caught buying high and stuck with a mortgage while rates plummet.   especially when you can start your own practice for no good will.

i don't think your options are limited to a or b.

tl;dr

doubt the numbers are as represented.

if you want to be an owner, investigate all options.  by the questions you ask, strongly advise professional guidance.

if you want to be employed, this may still represent a better opportunity than current, but just be clear about what your personal goals are.

[mjohnson]

I would take a step back while looking at this potential offer.  They are scared due to the cancer diagnosis and likely the physician is trying to protect his family financially so they can keep making money when he is gone.  Family is most important in this situation, you will be an outsider and expendable if an employed type agreement.  Unless you buy the practice and become the sole owner I wouldn't be interested.