There are many advantages to purchasing an existing practice; not only do you have an existing building, equipment, staff, patients, and a reputation, but you also have a consistent cash flow. While it can be incredibly tempting to buy a practice and make it your own, there is a certain amount of due diligence that you have to do beforehand. After all, you don’t want it costing you more than it’s worth! Here are 12 things you need to consider BEFORE buying a practice.
12 PRE-PURCHASE CONSIDERATIONS
- Patients – what were the total collections last year? How many patients were seen? What were the collections per patient?
- Staff – how many staff members are there? What are their roles? How much are they paid and is this in line with regional norms?
- Overheads – what is the percentage of overheads? Is there a trend of up or down and why?
- Billings – what was the collections ratio of insurance allowed amounts? What is the average number of days taken from the charges being sent to payment? What percentage of the accounts receivable are over 30, 60, and 90 days? Is the billing outsourced or is it done in house?
- Equipment – is the equipment up to your standards or will a lot of it need updating or replacing? Are there enough exam lanes and space to grow?
- Systems – does the practice have an EHR? Is it compatible with other systems (such as IRIS registry for MIPS quality reporting)? Does the practice meet meaningful use for EHR and PQRS (now MIPS)?
- Property – how many years are left on the lease? Are rates expected to increase on its renewal? What is the current relationship with the landlord like?
- Location – is the location favourable? How heavy is the competition in the area? Can you see yourself and your spouse living here for the next 15-20 years?
- Referrals – what per cent of patients are new vs returning? What are the referral sources?
- Growth – is the practice stagnant or still growing? How are they currently advertising? Is there potential for growth?
- The Owner – how does the owner plan to handle the transition? Will they leave straight away or will they want to be involved for a while after? What role will they have and for how long? Will there be competition with the current owner? How will they be compensated?
- The Reputation – what is the current reputation of the practice? What do staff, patients, and other primary care doctors or dentists think?
BUYING A PRACTICE DOESN’T NECESSARILY MEAN SUCCESS
When you buy a practice, you may lose patients and staff members or you may be stuck with old systems or equipment that will cost you to update them; you could even run into trouble with the landlord or have problems with the lease.
Always make sure that you do your research beforehand. Consider the 12 points above and know exactly what you’re buying (well as much as you can anyway). What’s great about being prepared is that it also puts you in a much better position to negotiate the purchase price too!
Need help with your decision? We can help you with your business planning, including creating a cash flow and profit strategy to ensure that whatever decision you make is a success. Just contact me via email@example.com and I’d be keen to help.