While each practice sale is as individual as the buyer and seller involved, there are many constants that occur in the sale of each small, closely held healthcare business. The following is a list of the five most important considerations for a first time practice purchaser.

The only way to really know what a practice is worth is to have it appraised. The value of a business that is currently transacting (on-going concern) is based on the positive cash flow of the business. Usually, when a Doctor purchases a practice he or she is, in fact, buying a job with a salary. One of the major questions answered by a professional valuation is, “How much salary should I reasonably expect to earn as a salary if I purchase this business?” It quickly becomes apparent if the reward (potential salary) is justifies the risk (sales price). A professional valuation will answer this question as well as offer a supported and impartial opinion on the Fair Market Value of a the business. Beware of “Rules of Thumb,” they are usually wrong.

SEEK OUT THE ASSISTANCE OF PROFESSIONALS WHO ARE FAMILIAR WITH HEALTHCARE PRACTICE SALES

You will need the assistance of professionals who are familiar with healthcare practice sales in order to have the most favorable outcome possible. This team will include a lender who is familiar with lending to healthcare practitioners (collateralizing goodwill), an accountant (asset allocation assistance and incorporation), an attorney (sales documents), and either a management consultant or a business broker (due diligence and facilitation assistance).

YOU HAVE THE RIGHT TO DO DUE DILIGENCE WHEN PURCHASING A BUSINESS. IF YOU FORFEIT THIS RIGHT YOU WILL REGRET IT 100% OF THE TIME

Due diligence is defined, in this context, as verifying all material facts prior to the culmination of the transaction. When contemplating a practice purchase, the seller or broker should provide the buyer with historical financial data (tax returns, profit and loss statements, balance sheets) that are used as the basis of a professional valuation. The valuation should includes adjusted cash flow analysis (financial statements that are adjusted to reflect what it should cost a new buyer to operate the business) that supports an fair market value (sales price). In addition to verifying the accuracy of financial data, it is important to ensure that the number of active patients in the practice is correctly represented, and that the equipment included in the sale is in working order. Unless stated otherwise in the asset purchase agreement, a business is usually purchased “as is” with no recourse for the buyer after the sale.

THE LOCATION OF YOUR PRACTICE CAN SIGNIFICANTLY IMPACT YOUR ABILITY TO BE PROFITABLE

Important considerations relative to practice location are competition, visibility, accessibility, signage, community growth trends, demographics, walk by traffic, and drive by traffic patterns. A visible, busy practice location can make the difference between a business that is stagnant and a business that thrives. The current trend in starting up a practice is to locate the business in a strip mall with a supermarket anchor. Women are the primary healthcare decision makers for the family and women shop for food an average of three and one-half times per week. The high visibility and a strip mall location near a supermarket results in walk in traffic and increased patient flow.

BEING A GREAT CLINICIAL DOES NOT ENSURE THAT YOU WILL HAVE A SUCCESSFUL PRACTICE

You may have heard the phrase, “If you don't know where you are going any path will take you there.” A practice owner who creates and monitors a strategic business plan will consistently and significantly financially outperform a business owner who does not. Many Doctors choose to utilize the services of a management consultant in the first year of practice as an advisor if they are not knowledgeable or experienced in operating a practice. Your business plan should address strategic issues such as yearly practice growth goals as well as tactical plans to support the strategic goals. Tactical plans might include an advertising budget and strategy, the purchase of new equipment to increase the range of services that are offered, or an internal referral program.