Many doctors dream of having a stake in their own practice or surgery center. But the process to get there can be daunting. Primary ownership is an option. However, buying into an existing medical practice can be a smoother transition to achieving this goal.
Buying into a practice provides benefits of ownership. Big ones include potential financial gain and also having a say in how a practice is run. But, this comes without the headaches that come with being the sole owner of a practice. If partnership is an avenue you want to explore, here are five important things to know before buying into a medical practice.
And I’ve asked Michael Jerkins, MD and founder of Panacea to help me with this!
#1: How the buy-in offer is structured
Knowing the structure of an offer requires thorough document review.
An experienced legal team can help you review and understand each aspect of the deal. They will help by examining the existing bylaws of the practice and the shareholders’ agreements.
Together with your advisors, evaluate factors like:
- financial information,
- assessment of leverage,
- financial return forecasts,
- extent of the offered interest,
- partner personalities,
- legal control and
- elements of value
Michael shares some great tips on how to find good experts that can help you navigate a buy-in at the end of this article.
#2: How much the practice or surgery center is worth
If you are buying something, you need to know how much it is worth! It’s simple in theory but can be really challenging, especially with no experience, in practice.
Understanding aspects that affect the buy-in price can help you have a more holistic understanding of the value of the practice. These include:
- hard assets,
- real estate,
- accounts receivable,
- book value,
- cash flow and
- goodwill
With your CPA or a financial advisory firm, perform due diligence of the practice’s financials. Make sure to include tax returns and financial statements. Important financial statements include:
- balance sheets,
- evaluation of profit and loss,
- depreciation statements,
- accounts receivable summary, and
- breakdown of physician productivity for the past year
I know this seems like a lot of “to-do” lists. However, these items are “must-do’s” before buying into any medical practice.
Unfortunately, as physicians we don’t receive this education in a formal setting. That’s what makes it so important to have access to these valuable resources!
Related Post:
Financial Education Needs To Be Tied Into Medical Education
#3: How the practice distributes income
Though there are many different compensation structures, the three most common methods for distributing income are:
- equal allocation,
- productivity and
- a hybrid of the two
Equal allocation is best for partnerships that have equal responsibility and workloads. However, this structure can cause strain if one partner feels they are doing the majority of the work.
Productivity is best for incentivizing hard work but can create an “every person for themselves” mentality.
Hybrid models combine the benefits of the two.
You can learn more about compensation models in this post: Doctors, How Do You Want To Make Your Money?
#4: What will happen if you decide to leave the practice
Before buying into a practice, you should know under what circumstances your interest will be repurchased. You also need to know when you are required to participate in future purchases.
You should know how a departing partner’s stock will be bought. Is it bought at a set price, at a value determined upon buy-out by a previously-agreed-upon method, or is a partner entitled to a buy-out at all?
Consider the protections for the on-going group and how they would affect you should you decide to leave. This includes things like percentage of gross income, competitive practice, reduction for short notice, termination for cause stipulations and post-termination liabilities.
#5: How you will pay for the buy-in
Before becoming a partner at a practice, it is important to know how you will pay for the buy-in.
Pay through your paycheck. With this method, you can expect a certain amount to come out of your paycheck over a set amount of time. This can be beneficial to you because you will be paying in cheaper, pre-tax dollars.
Consider a lump sum. Even if you don’t have the cash on hand, partner buy-in loans can be a great option for an immediate investment to kickstart the purchase. Michael and his group at Panacea Financial offer an unsecured buy-in loan with same-day approvals up to $400,000, and more if needed. This is different from most banks that require some sort of collateral or lien on the practice itself, which can be off putting to current partners.
Before you go…
Taking the leap into practice ownership or partnership can be exciting but daunting. With these tips, I hope you can pursue your goals with confidence.
As you prepare for this transition, I encourage you to consult with professionals who have an understanding of the process and can advise you on the unique circumstances of your deal.
Ready to assemble your team but don’t know where to find trusted experts?
You can learn more in this video as I chat with Michael about the best way to buy in to a practice!
I strongly encourage you to schedule a free consultation wit Michael and his team at Panacea Financial’s Build Your Team page. Here you can connect with healthcare-specific experts including CPAs, wealth advisors, and attorneys for free! Chat, email, or submit your info to start the process.
Managing your practice the right way is so imperative to your career satisfaction and success!
Here are some additional resources to help doctors in all practice configurations:
- 9 Things I Wish Someone Had Told Me About Starting a Private Practice
- 8 Reasons Employed Doctors Should Consider Employment Lite
- 5 Tips to Build Your Perfect Practice for Employed Physicians
- 7 Ways for Doctors to Create Passive Income in Medical Practice
What do you think? Have you bought into a medical practice? How did it go? Are you thinking of buying into a medical practice? What holds you up? Let me know in the comments below!
