For specialists like ENT doctors, the journey to practice ownership is especially challenging. High costs for specialized equipment and technology are just the beginning. You also face the hurdle of attracting a specific patient demographic in need of your expertise. These challenges are in addition to navigating complex regulatory, legal, and financial requirements—not to mention the task of building a solid reputation in the medical community. Considering all these obstacles, many physicians find that purchasing an existing otolaryngology practice for sale offers a more straightforward route to ownership.
Are you interested in buying an otolaryngology practice for sale and are wondering how much it will cost to do so? This blog discusses how to accurately value a practice and what to consider during the purchase.
How to value a medical practice
According to Medical Economics, the prices of primary care practice have significantly dropped since the mid-1990s, now hovering around a third of the annual gross revenue. But specialized practices like an otolaryngology practice for sale can command a higher price.
Accurate valuation is vital for gauging a practice’s long-term viability and profitability. Professionals recommend consulting a knowledgeable medical practice broker for reliable valuation services, allowing you to make an informed decision.
It’s also important to understand the key financial metrics before you buy an otolaryngology practice for sale. Take note of the following:
- Accounts receivable – This is the money yet to be paid by insurance companies or patients for provided services. Understanding the state of accounts receivable can give you insights into the practice’s financial health and its efficiency in billing and collections. A high accounts receivable could indicate slow payments, affecting cash flow.
- Cash flow – This is the total income without factoring in net income and expenses, plus non-cash expenses such as depreciation. Positive cash flow indicates that the practice is generating more income than expenses, making it a viable investment. A review of past cash flow statements can reveal trends and help forecast future cash flow.
- Assets – This includes office furniture, equipment, computers, patient lists, and the practice’s Electronic Health Records. Be sure to check the age and condition of these assets. After all, outdated equipment might need replacing, affecting both the practice’s cost and efficiency.
Due diligence is essential. Employ a seasoned medical practice broker for professional valuation services. A qualified broker can help you navigate the intricacies of the deal, from understanding the value of the practice to negotiating terms that align with your goals. They can also facilitate necessary legal and financial consultations to ensure you’re making an informed purchase.
Calculating your return on investment (ROI)
Understanding how long it will take to recoup your investment is crucial when considering the purchase of an otolaryngology practice for sale. The payback period—the time it takes to earn back the initial investment—can reach five years. So, if you invest $2 million to acquire the practice, you should aim to generate enough revenue to cover this amount within a five-year timeframe.
Note that this period can be influenced by additional expenses you might incur post-acquisition. These could include new equipment costs, facility renovations, or increasing employee salaries. Each of these factors can extend the time needed to recover your initial investment.
Additional factors to consider
Aside from the ROI, you’ll need to determine how to compensate yourself during this period. Will you take a salary, a share of the profits, or some other form of compensation? This decision will also impact your payback timeline.
You also need to think about taxes. Consulting a tax advisor can provide clarity on tax implications, which vary depending on the practice’s existing business structure.
How can Strategic Medical Brokers assist you?
If you’re planning to buy an otolaryngology practice for sale, Strategic Medical Brokers offers personalized guidance, confidential search services, and competitive pricing options. Our brokers also handle due diligence and negotiate favorable terms on your behalf. To schedule a consultation, reach out by leaving a message on StrategicMedicalBrokers.com or calling 888-970-1210. Browse the latest listings on our website for more information.