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Buying into practice , partnership, share holder...etc. How to figure it out ?

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  • Buying into practice , partnership, share holder...etc. How to figure it out ?

    Greetings to all, I'm currently interviewing for a new job. Although I applied to a couple of employed positions, I feel I value the financial security/independence of private practice more. I'm not looking to start from scratch and I want to join an established small practice or buy in. The issue is that I don't understand how to value the practice or how much to pay to buy in ? Some will offer salaries for the first two years suggesting I won't be making any profit and then take that investment later in yearly contribution to expand practice / make profit for practice owners ( company own several practices across the country). How to learn about that in a practical way ? I tried a few books but none of them talk numbers!!

     

    Thank you .

  • #2
    I'm sure there are some good books out there somewhere, but this is really not a DIY project. Every contract and situation is different and it would be easy to make a life-altering mistake if you buy into the wrong practice - not so critical if you're just joining, of course. You need to be working with a CPA or a practice consultant and an attorney with relevant experience if you're considering a significant purchase. If you're just looking for the usual work for 2 years and then become partner, you might do just fine with a physician-centric contract reviewer and/or attorney.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      typically they have an accountant value the practice.  they take the depreciated value of the hard assets and add the assets and subtract liabilities.  ideally from your perspective, there is no goodwill surcharge.

      they should have an established way of valuing the practice already.  they can then determine the buyin value.  make sure you understand the buyout value as well, in case it doesn't work.  you likely won't have too much flexibility on the buy in value, so i wouldn't worry about it if you think they are a solidly run practice and don't cook the books.  you mention company owns several practices across country--likely have very limited negotiating power at all.  you have much bigger fish to fry-determine whether it's a good cultural fit and can be reasonably profitable at the work level you choose.  there are way bigger issues than the buy in price.  that's just the easiest number to focus on and calculate.

      also you know, continue to learn to practice medicine.  and billing and coding.  and risk management medicine.  and landscape of local medical environment. 

      for this, you don't want to be figuring out yourself.

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      • #4
        Many (most?) private practice groups will have some kind of associate period before you are allowed to buy in. This both serves you with the support of the group to grow your practice, and for the group to make sure they want to keep you around before offering partnership. Do not expect a guaranteed offer of partnership after a certain time.
        However, there should be a clearly defined time at which the group must make a decision so they cannot string you along.

        Do not expect to be quoted a buyin amount at the time of joining the practice. The value of the practice today will not be the same as the value at the time of the buy-in. Instead, ask questions about how many associates have been hired, how many have been offered partnership, and if possible ask the new partners if they thought the buyin process was fair. There are practices out there that churn associates, wringing out profit by working the associates like crazy then denying partnership and hiring new associates. These seem to be most prevalent in big cities with lots of fresh grads to prey on. You want to avoid that if possible.

        It sounds like you are describing a corporate practice structure, rather than a small democratic group. If that is true, I would definately want to know exactly what your buyin gets you as there is the potential of divorcing governance of the practice from the physicians.

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        • #5
          There are as many ways to structure a PP buy-in as there are PPs. I talk to people in my field about this all the time, and I have never found two that were identical (or even close).At some level, you are going to have to take a leap of faith, but you should get as much information as you can.

           

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          • #6
            value of buy-in is just one part of the puzzle - should be relatively straight-forward to calculate by a CPA by looking at the books. also, what do you get with the buy in - equal ownership, or just part?  another part of it is what is the compensation formula?   in talking with my CPA about this, there are countless variations of how practices determine compensation for each partner.   that is what is going to determine how much $ goes into your pocket. make sure there is clear written documentation of how buy in is calculated, when partnership is offered, and how the compensation is calculated - don't just take them at their word, "oh yea, in 2 years we'll offer you partnership, and we'll figure it out then..."

            of course, personality, fit, treatment philosophies, schedule, location, flexibility, outlook of practice, etc are also things to consider.

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            • #7
              There can also be substantial differences​ between specialties with respect to what is customary (sweat equity buy in, promissory note, Bank loan, etc)

              Our speciality has a number of practice management lectures given by medical consulting firms at our annual academy meeting which I thought were​ quite helpful with regard to specifics on valuation methods, contract provisions, buy-out, etc.

              I agree with those above that this is not something to DIY. There are apparently significant tax implications to the way the deal can be structured for the benefit of the senior partners or associate doc depending on which side of the table you're representing.

              Check with your specialities society and put your annual dues to work!

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