Here’s a scenario: You just saw a listing for the exact type of medical practice you were hoping to buy. You’re already dreaming of what you want to do with the practice and how it will contribute to your professional and personal goals. You’re so excited, you want to speed through the transaction and get to the other side.
Buying this practice will let you jump right into an established business versus spending years building one from the ground up.
But wait. Slow down there.
Buying any business – but especially buying a medical practice – is a complex process and there are many facets you should consider when you find that practice you’ve been dreaming of purchasing.
We represent parties on both sides of medical practice transactions, giving us keen insight into critical questions you can ask that will save you time and money when buying a medical practice.
These questions will also protect you from jumping into transactions that might not be wise long-term decisions, or, alternatively, give you increased confidence that this truly is the practice of your dreams.
Table of Contents
Here Are 10 Questions to Guide Medical Practice Buyers
- 1) Why is the seller selling?
- 2) How long of a transition is the Seller willing to offer post-sale?
- 3) What is the insurance mix of the practice (commercial, Medicare, Medicaid, self-pay)?
- 4) How many Medicare (Medicare Part B, Medicare Advantage) lives do you have?
- 5) How many active patients are in the practice (unique patients seen in the past 24 months)?
- 6) Is the Seller willing to share in the Buyer’s risk?
- 7) What are the gross collections and seller’s discretionary earnings during the past three years?
- 8) What assets are included in the sale (working capital, accounts receivables, equipment)?
- 9) What employment contracts are currently in place? Will the staff likely remain with the new owner?
- 10) What restrictive covenants will the buyer receive from the seller?
Here Are 10 Questions to Guide Medical Practice Buyers
1) Why is the seller selling?
Maybe they’re moving on to retirement or new professional goals. Or maybe there’s something particularly difficult about their current practice or personal circumstances that is causing them to sell. Gaining an understanding about those elements will help you make a fully informed buying decision.
2) How long of a transition is the Seller willing to offer post-sale?
Ideally, the seller will agree to a transition period to ensure the post-sale period goes smoothly for you, the new buyer and owner. This will ensure you’re fully in-the-know about all elements of the business and can maintain business continuity.
3) What is the insurance mix of the practice (commercial, Medicare, Medicaid, self-pay)?
Understanding the insurance mix will give you insight into how many patients or what percentage of the revenue comes from each plan. You don’t want your practice to be too dependent on any one plan, so that your revenue and cashflow remain diversified.
4) How many Medicare (Medicare Part B, Medicare Advantage) lives do you have?
If you treat elderly patients with chronic conditions, you can receive performance bonuses from shared savings plans. The pay can be generous for conducting these patients’ annual wellness exams and patient reporting, which can help support your practice’s bottom line.
5) How many active patients are in the practice (unique patients seen in the past 24 months)?
Compare this number against the practice’s financial statements to understand how much business is necessary to sustain the practice. You should also ask what percentage of patients are personally treated by the practice’s owner. In any medical practice transition, there will be some patients lost due to the owner’s departure, and if the owner provided care for a high percentage of those patients, the number of departing patients could be higher.
6) Is the Seller willing to share in the Buyer’s risk?
You want the seller to be invested in your success after the close, and lenders also want sellers to have skin in the game. If they receive all their proceeds at closing, they have little financial incentive to help ensure your success. If there is high uncertainty about patients remaining with the practice, an earnout is an option where a portion of the sales price is paid to the seller based upon the practice’s future performance.
7) What are the gross collections and seller’s discretionary earnings during the past three years?
You should be able to see at a minimum, three years of tax returns and profit and loss statements to give you a good sense of the financial trends of the medical practice. Having a solid valuation done on the practice will give you more confidence about its worth. Doing a thorough review of the books will help you think through how you could potentially grow the business or how it could be affected by outside factors.
8) What assets are included in the sale (working capital, accounts receivables, equipment)?
Again, this factors into the total financial situation that you’ll be stepping into a closing. If there are significant assets not included in the sale, you’ll need to account for those expenses yourself.
9) What employment contracts are currently in place? Will the staff likely remain with the new owner?
Retaining key staff is important to maintaining business continuity through the transition from seller to you as the buyer. Ask about the practice’s current personnel and whether there are contracts in place to ensure they remain with the practice – ideally long-term, but at least through the critical transition period.
10) What restrictive covenants will the buyer receive from the seller?
What is the seller willing to commit to in terms of a non-compete, non-solicitation, or trade radius agreements? These will help protect your practice from unexpected future competition.
Buying a medical practice is an exciting time! Having an experienced broker in your corner will ensure you ask all the right questions so that you can reap the benefits of a seamless sale and smooth transition.
If you’re looking to buy a medical practice, you can check out the practices we have listed ourselves. Or if you are looking at a different practice or have questions about the process of buying, set up a discovery call with us to find out how Strategic Medical Brokers can support you and help you make informed decisions about your practice purchase, every step of the way.