Private Practice Revenue and Exit

[blackvorte]

Hi, I am new so please move this post if needed.
I have a psychiatric practice and would like a $2 million exit.
How much gross/net revenue for how years would I have to show to achieve my exit goal.

Thank you

[jfoxcpacfp]

Hi, blackvorte and welcome to the forum! This is a problem that you really should work out with your CPA and/or financial planner, prob start with the CPA, though.

Sorry for punting on your first question, but please do not let that deter you from continuing to participate!

[blackvorte]

Hi Fox. I'm not looking to sell today. More, I like to hear stories from colleagues who sold practices and what revenue multiple they sold for and any snags/hiccups they experienced. This is a long term plan.

Thanks and glad to be here

[jfoxcpacfp]

Ok, I didn’t think so about selling, but if you could reword and/or clarify your question, it would help (at least impo).
A couple of thoughts -

• what is a $2M exit? Sales price? Investments needed to build $2M?
• By “how much gross/net revenue” do you mean amount saved? Salary (gross)? Net income (after your salary) and paid out in distributions (S-corp) to be fully invested?
• do you want stories about bringing in a partner(s) and selling to them? (Is there such a thing as a PE buyout for psychiatry?) Being absorbed by a larger practice?
  • Same for snags/hiccups.

If I am way off base, I apologize, trying to move this along without stepping too far out of my lane. The more specific you can be without writing a treatise on your first thread, I think the more helpful input you will get.

[childay]

Let's hear more about the practice. Solo? Employees? Therapists? Etc

[Hank]

Have you saved enough for a comfortable retirement without the proceeds from the sale of your practice?

You get an entire working career and plenty of years of favorable tax treatment to save for retirement in qualified accounts. The proceeds from the sale of a practice should be gravy on the top, not the majority of your planned retirement nest egg.

Let’s be real here: there aren’t many hard assets to sell and the barriers to entry to set up a new psychiatry practice appear to be low. Just how many working psychiatrists can afford to purchase a psych practice at $2 million?

Nothing wrong with growing a business and selling it for an appropriate multiple of EBITDA, but how many $2M psych practice sales take place every year? (Heck, why this specific number as a targeted practice sales price?)

[Mitchel674]

Do people actually purchase psychiatry practices? $2m seems like a lot of money to take over someone's practice. Why do you think anyone would pay that? What value do you bring to the deal? Please explain further.

[Random1]

I was offered 1 x net for Primary Care office , a few years ago , by big Medicine. This included charts , but not real estate or other depreciated assets. I did not take it. So I am guessing , for solo Psych - 2-300k give or take.

[blackvorte]

Thank you all for the responses. This a telemedicine practice (low overhead). The plan was to grow revenue to 400k-500k and sell for 4/5X revenue, hence the $2 million mark. The values is in the patients, not physical assets. Why would anyone sell for 1x when you can hold on for another year and make the same amount. If that really is what is being offered, will simply work forever and hopefully pass it on to one of my children.

[blackvorte]

To clarify further, solo practice. I do both medication and therapy. No employees, run from a home office, no rent, mortgage actually is a write off.
Wife handles insurance/billing.

[DCdoc]

Thank you all for the responses. This a telemedicine practice (low overhead). The plan was to grow revenue to 400k-500k and sell for 4/5X revenue, hence the $2 million mark. The values is in the patients, not physical assets. Why would anyone sell for 1x when you can hold on for another year and make the same amount. If that really is what is being offered, will simply work forever and hopefully pass it on to one of my children.

That's a steep multiple and not a particularly lucrative practice. Can't a new grad in pscyh walk into an employed job and make 300k right off the bat? I know the job market for psych is strong. Why would they spend 2M to buy a practice when they can get an employed job? I don't want to be rude, but I think that multiple is an absolute ludicrous amount. You have no assets like equipment, office, etc that a person would be interested in buying.

[blackvorte]

Appreciate all of your input.
Thats why I came here.
Will simply work and travel.

[PWMDMD]

4-5x revenue? All I can say is in dentistry the multiple is typically <1.0 and I believe the average is 0.65 x revenue. What buyers really want to know is what can they expect to earn? Even if your overhead was zero and someone could theoretically earn $400K per year a $2M small business note (which I don't believe any bank will UW) over 10 years at 6.5% is $22K per month or $264,000 per year. Now they're bringing home $136K for 10 years. Also, while there is value in the patients there are no guarantees any of them will stay. Maybe you are just the most fantastic person in the world to talk to and no one can match you. There is always some attrition under the best of circumstances and under the worst, there is significant attrition.

I'd much rather work for someone else 3 or 4 days per week if it means I could make >$136k per year and slowly build a new practice (especially if it's telemedicine and can be done evenings, days off, and weekends from home) for a fraction of the cost. Again, this is a dentist's viewpoint so grain of salt but 4-5x revenue seems insane. I make my financial decisions not relying at all on the sale of my practice and I will consider that just some extra gravy.

[jhwkr542]

If you're the only employee and will quit upon sale, then why would anybody buy into potential future equity? Unless you have a reliable stream but that's such a risky sale for a buyer. Nobody will buy a telepsych solo practice at that multiple because the business could vanish as soon as the ink is dry. There are different ways to value the sale but most of them will take into account potential future earnings. Why would anyone buy your practice when they could easily start their own telepsych business and get your clients? You'd need good contracts to sell.

[Shant]

If you want that you probably need to add the real estate and additional employed practitioners. Otherwise expect to need to save your $2m out of your revenue over the years.