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A Physician’s Guide To Buying and Selling A Medical Practice

Growth and Operations

A Physician’s Guide To Buying and Selling A Medical Practice

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Updated: Nov 4, 2019

Owning a private medical practice comes with both benefits and risks. If you plan to start your own practice — whether to offer a new type of treatment or have more control over the patient care process — you may want to consider buying an existing practice in your specialty. 

On the other hand, if you want to change specialties, return to hospital work, prepare for retirement, or simply no longer practice medicine, you might be considering selling your medical practice. 

Either way, buying and selling medical practices is a big decision, so it’s crucial to do your research and recruit the right help. Consider hiring a healthcare attorney and accountant who can advise you on legal and financial decisions. 

In the meantime, we’ve compiled a guide to get you started. Here’s everything you need to know about buying or selling a medical practice:

How to buy a medical practice 

Buying an existing medical practice takes work. Depending on the practice, you’ll either have to adapt and adjust to the current culture and processes, or else overhaul the current systems in place and risk losing patients and staff. 

Buying an existing practice comes with certain advantages, though. Not only do you have a built-in patient base and trained staff, but you also don’t have to spend money on startup costs. 

If you’re shopping around for medical practices, take the following five steps before buying. 

1. Figure out what you’re looking for 

Before you make any decisions, it’s a good idea to get clear on what type of practice you’re interested in buying. Think about the types of patients you want to treat, the services you want to provide, and the area you want to practice in. 

It’s also helpful to make a list of core values you hope to reflect on your practice, whether it’s empathy, empowerment, transparency, or flexibility. Clarifying your intentions can help you narrow your focus and eliminate options that don’t support your goals. 

2. Decide whether or not the culture is a fit

When you’re buying a medical practice, you need to figure out whether or not the practice aligns with your particular vision and patient care philosophy.

Start with the basics: Does your specialty line up with the practice’s services? Do you like the facility, neighborhood, and location the practice is in? Can you envision yourself working there?

Next, consider whether you would continue serving the same patients or try to target different patient demographics. Similarly, you have to figure out whether the current staff would stay on or whether you’d need to hire new people when the sale of the medical practice goes through. Asking patients and staff about their experiences can also alert you to potential red flags or issues with how the practice is run.

When you examine the practice’s operational processes, find out how their staff organizes medical records and facilitates billing and payment. Learning about a practice’s management style — including how a practice onboard new patients or resolves billing disputes — can give you better insight into how smoothly the practice runs.

Ultimately, you have to determine how much cultural and operational change would be necessary to ensure the practice supports your goals. Acquiring a business inevitably requires effort during the transition period, but it’s important to be honest with yourself about what level of effort you’re comfortable putting in.  

3. Do your due diligence 

Before you acquire a business, it’s critical to do your due diligence. This includes a practice valuation to determine what the practice is worth and whether or not it has long-term value (in case you ever want to consider the sale of the medical practice in the future). 

Make sure to review the practice’s cash flow, revenue forecasts, accounts receivable and payable, debts, assets, permits, contracts, and equipment, as well as any past legal issues or claims. You may also want to conduct a building inspection to make sure the practice facility is up to code and in good condition.

It’s also helpful to find out why the current owner is selling the medical practice. Depending on what your attorney advises, you may want to request a background check for the seller, so you’re not surprised by any litigation claims or financial issues that crop up. 

Reviewing all this information won’t just help you determine the potential risk involved with purchasing the practice, it’ll also allow you to negotiate a favorable purchase price and set of terms.

4. Crunch the numbers

The decision to buy a medical practice will likely come down to the numbers. The price is one component, but you also need to consider how much it will cost to run — and improve — the practice. 

Make a list of operational costs, including payroll, utility bills, IT services, building maintenance, and inventory. Beyond those base costs, consider what else you might need to spend money on. Maybe you’ll have to remodel the office space, hire new staff, or update the current electronic health record (EHR) system. All of these expenses can become a factor when selling medical practices, as you want to ensure you’re turning a profit when it comes time to transfer ownership.

Consider how long it will take for you to earn a profit and whether or not you can keep the practice operational until then. Beyond covering basic expenses, you’ll want enough cash to make necessary changes to the practice, whether that means buying new furniture, replacing outdated equipment, or hiring a new office administrator. It’s also smart to factor in the cost of lost productivity during the transition, as well as the potential loss of patients. 

5. Look into financing

Buying a medical practice is a massive financial commitment, so you may need medical practice financing. Review your personal finances and credit score with your accountant to see which loans you’d qualify for. Bank loans, loans backed by the Small Business Administration, and loans from online lenders all have different terms and benefits, so do your research to find out which option is best for you. 

How to sell a medical practice

Figuring out how to sell a medical practice requires patience and strategy. The process of finding a qualified buyer you can entrust with the future of your practice may be long and tedious. However, the potential payoff is huge. Here are three key steps for securing the sale of a medical practice:

1. Get multiple quotes

As a selling physician, getting multiple quotes is key to getting the best offer for your practice. Don’t wait for potential buyers to come to you; instead, contact a handful of viable buying prospects, including medical groups and group practices, to tell them about your plans to sell. 

Start by reaching out to your competitors in the area to ask if they want to expand their practice. Local groups or hospitals are also a good resource; someone on the board may know a staff member interested in starting their own private practice.  

2. Improve an area of your medical practice before selling

If you aren’t receiving any good offers, consider revamping certain aspects of your practice to boost its value. For example, you may want to redo the waiting room decor, invest in a new X-ray machine, or update your EHR software. Changes like this when selling medical practices can increase the value of your establishment and make it more appealing to a potential buyer. 

3. Evaluate your sale options

If you own the building or facility you practice in as well as the practice itself, then you may have an opportunity to maximize your profits with two sales. 

As a double owner, you have a couple of options. If you want to remain the owner of the building, you could sell your medical practice, then lease the space to the new owner. Depending on your mortgage payments and the current real estate market, this could let you earn passive income, or it could be a drain on your finances. 

Another option is to sell both the practice and the facility. This is a good route to take if you don’t want to be responsible for monthly mortgage payments and facility upkeep. If the buyer of your practice doesn’t want to purchase the facility, you can always sell the space to a different buyer. 

Discuss the possibilities with your real estate broker and accountant to ensure you’re making the right choice when it comes to selling medical practices. 

4. Communicate with your staff and patients about the selling of the medical practice

Before you open up to your staff and patients, it’s important to talk to the buyer to ask whether or not they’ll keep the current staff and continue seeing your patients. Getting this information ahead of time before the sale of the medical practice goes through will help you better communicate with your team and patients. 

Try to give your staff and patients as much notice as possible that you’ll be stepping down as owner and selling the medical practice. Be transparent about your departure date and reason for leaving, provide as many details as you can about the future of the practice, and take time to answer questions. 

You may even want to stay on for a few months under a temporary employment contract. You can use this time to educate the new owner about your health care processes and procedures, help your patients transition, and train any new staff. 

Whether you’re selling medical practices or planning to purchase an existing practice, it’s important to be strategic. Do your research, review your finances, and hire professional help to ensure a smooth transition for everyone involved. 

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