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  • Buying a Practice?

    I'm considering buying a small practice. Cost to me would be about 400K. Problem is, the (leased) office space is really small. I would only be able to work 3 days a week (not a terrible downside, i know) given the other providers schedules.

    Any advice from those that have done this? Practice profits look good, overhead a bit high (60%). Selling doc would stay on at least 3 years. Would this be weird?

    If I do decide to purchase, should I take out a loan or liquidate some of my taxable account? I have about 100k in cash, 800k in taxable vanguard account, and 650k in retirement accounts. 200k left on mortgage, no other debt. Our taxable account is invested pretty aggressively (90% stocks) so we've lost some money in the last week.

  • #2




    I’m considering buying a small practice. Cost to me would be about 400K. Problem is, the (leased) office space is really small. I would only be able to work 3 days a week (not a terrible downside, i know) given the other providers schedules.

    Any advice from those that have done this? Practice profits look good, overhead a bit high (60%). Selling doc would stay on at least 3 years. Would this be weird?

    If I do decide to purchase, should I take out a loan or liquidate some of my taxable account? I have about 100k in cash, 800k in taxable vanguard account, and 650k in retirement accounts. 200k left on mortgage, no other debt. Our taxable account is invested pretty aggressively (90% stocks) so we’ve lost some money in the last week.
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    If you would be the owner of the practice why would you only be allowed to work 3d/wk? If working more didnt directly increase your own bottom line I wouldnt do it just for the sake of it, but I'd assess whats actually feasible vs what prior owner thinks is feasible. Many times logistics/scheduling and office flow arent optimized.

    Buying into a practice that already needs an upgrade doesnt seem like a great move, you already know you'll have to increase the space presumably and it isnt owned.

    I dont think it would be weird if the old owner can successfully transition to employee and hands off, etc...which I think is usually hard for people, but if it works thats probably great.

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    • #3
      Why pay $400k for a practice when you could start a new one for almost 1/4 of that amount?

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      • #4




        Why pay $400k for a practice when you could start a new one for almost 1/4 of that amount?
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        100k? Seems pretty cheap. I would assume hes buying an already cash flowing profitable practice that doesnt need any buildup. Not saying that makes it worth it, but thats the draw Im sure.

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        • #5
          It really depends on what you are buying.  Is there a lot of equipment?  I started my practice for much less but I already had a patient base.  Different specialities haVe different start up costs.

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          • #6
            Think it would be pretty easy even in a small office, lets say leased for even cheaper, to just do min decorating, a few computers and basic inventory would run over 100k pretty easy. If you were buying the place that increases costs but not necessarily up front. If its that cheap I would have done it a while back(maybe it is, lets hope so!). For my kind of practice, I would assume yearly marketing costs would push you near 100k alone, especially the first year.

            Probably varies a lot by location for RE and marketing costs alone.

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            • #7
              hatton’s point is probably the reason I slightly exaggerated in my post. $100k may be exagger for many specialties/situations (I don’t think $150k is though so it’s not terribly far off), but the OP didn’t really provide any info. Depends on specialty, years already in practice and location of current practice, location of new practice, current gross collections, net income of providers and/or net profit of the practice, practice’s assets, time remaining on current lease, etc. I was trying to pry some of that out, get em to explain why $100k is ridiculous and $400k is a good deal.

              To be fair I’m admittedly very skeptical of practice valuations. I’ve just found too many that were clinging on to goodwill and chart value that just doesn’t exist anymore. Especially in a specialty where the local hospital networks can buy your referral sources or hire their own specialist and dry up your business overnight. Maybe that’s a bit extreme but it’s a real concern.

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              • #8




                hatton’s point is probably the reason I slightly exaggerated in my post. $100k may be exagger for many specialties/situations (I don’t think $150k is though so it’s not terribly far off), but the OP didn’t really provide any info. Depends on specialty, years already in practice and location of current practice, location of new practice, current gross collections, net income of providers and/or net profit of the practice, practice’s assets, time remaining on current lease, etc. I was trying to pry some of that out, get em to explain why $100k is ridiculous and $400k is a good deal.

                To be fair I’m admittedly very skeptical of practice valuations. I’ve just found too many that were clinging on to goodwill and chart value that just doesn’t exist anymore. Especially in a specialty where the local hospital networks can buy your referral sources or hire their own specialist and dry up your business overnight. Maybe that’s a bit extreme but it’s a real concern.
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                I dont believe there is any value to a practice beyond real estate and hard assets. All else is wishful thinking. Not extreme at all. Everything I've seen for people trying to sale has been ridiculous and hopeful. Always been cheaper to simply start your own, but not as cheap as you guys are saying. I will accelerate plans if I can get anywhere close to that.

                Still cant wrap my head around anything that would be so cheap to start from the ground up however unless you got a space that was already set up perfectly, which will cost you as well. I am thinking about first year in operations really. I dont need much of anything as far as equipment to start up if I would be going skeleton startup, but still dont think 150k would get you anywhere with any kind of safety net as far as working capital.

                Maybe startup and running could be funded with that, I guess I'd like a couple months operating costs just to be safe which doesnt count the same, so I guess I can see it near 150 if you dont fully stock at start (you dont need to for sure).

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                • #9
                  Hospitals agree with you. A hospital I interviewed with had recently purchased a local ENT group and turned them into employees. They sent a bean counter through the office, said you have $X in assets, here’s your check for $X. I believe they added in a signing bonus that was some %(smaller than you’d like) of AR. But that was it. And a group that has been depreciating assets may only have $20-30k of equipment and supplies on the books.

                  I’m assuming you have colleagues that have started their own practices and have a good idea of what it would cost you. $100k in marketing alone would be outrageous to me, but then again our needs are likely different. I have a good friend that spent less than that and he salaried someone to do the marketing for his practice. In my specialty I’ve seen people open up shop for anywhere from just shy of $150k to $200k. I’m sure it’s been done for less and that others have gone back to the bank to get more. But my point is really, it will never cost you nearly as much to open a practice as it will to buy one. From my experience, the difference is often times too great to justify the purchase. Sweat equity is dead, but nobody has told the guys and gals retiring...

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                  • #10




                    Hospitals agree with you. A hospital I interviewed with had recently purchased a local ENT group and turned them into employees. They sent a bean counter through the office, said you have $X in assets, here’s your check for $X. I believe they added in a signing bonus that was some %(smaller than you’d like) of AR. But that was it. And a group that has been depreciating assets may only have $20-30k of equipment and supplies on the books.

                    I’m assuming you have colleagues that have started their own practices and have a good idea of what it would cost you. $100k in marketing alone would be outrageous to me, but then again our needs are likely different. I have a good friend that spent less than that and he salaried someone to do the marketing for his practice. In my specialty I’ve seen people open up shop for anywhere from just shy of $150k to $200k. I’m sure it’s been done for less and that others have gone back to the bank to get more. But my point is really, it will never cost you nearly as much to open a practice as it will to buy one. From my experience, the difference is often times too great to justify the purchase. Sweat equity is dead, but nobody has told the guys and gals retiring…
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                    Im sure you're right, Im just being overly cautious since my field aesthetic plastics, its nearly 100% marketing and has quite extreme seasonal variation and of course is very very sensitive to the economy.

                    Totally agree with you. It would be nice to buy a practice that had a good location and set up, but they always want so much youre like, but....I can do it exactly how/where I want for a third less. Strange.

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                    • #11
                      I bootstrapped opening my practice in the 90s.  I had been out of residency for 5 years.  I was sharing office space with another doctor.  It was too crowded.  I found some space in an old building near my main hospital with cheap rent.  The landlord renovated it (paint and wall paper).  It took about a month.  I bought exam tables from a medical equipment firm.  They really tried to get me to upgrade to more expensive tables than I needed.  I bought waiting room furniture at a discount wicker place.  I bought one computer at first.  Copier, fax machine, exam lights.  I had a phone system installed.  I shopped at Walmart for stuff like garbage cans, stools, chairs.  Basically anything that you need that you get from a source other than a medical supply place will be cheaper.  I found some used equipment as well.  I am sure getting deals on used equipment is easier now.  I leased an ultrasound machine.  I notified patients.  I was good to go in one month while running my OB practice. I was exhausted but you can do it.  I never marketed my practice but plastics is totally different in that regard

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                      • #12




                        I bootstrapped opening my practice in the 90s.  I had been out of residency for 5 years.  I was sharing office space with another doctor.  It was too crowded.  I found some space in an old building near my main hospital with cheap rent.  The landlord renovated it (paint and wall paper).  It took about a month.  I bought exam tables from a medical equipment firm.  They really tried to get me to upgrade to more expensive tables than I needed.  I bought waiting room furniture at a discount wicker place.  I bought one computer at first.  Copier, fax machine, exam lights.  I had a phone system installed.  I shopped at Walmart for stuff like garbage cans, stools, chairs.  Basically anything that you need that you get from a source other than a medical supply place will be cheaper.  I found some used equipment as well.  I am sure getting deals on used equipment is easier now.  I leased an ultrasound machine.  I notified patients.  I was good to go in one month while running my OB practice. I was exhausted but you can do it.  I never marketed my practice but plastics is totally different in that regard
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                        Yeah, no marketing and you're dead in a few months due to crowding out. Maybe not in the midwest but true in California.

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                        • #13
                          I think I spent about 25k on everything.  In 1995 dollars

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                          • #14
                            Several independent plastic docs in my city.

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                            • #15




                              Several independent plastic docs in my city.
                              Click to expand...


                              for sure plastics is one field where you can remain independent so far.

                              number of fields where that remains true is shrinking.

                               

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