For Small Practices, The Quicker The Better
Are you thinking about buying someone’s solo practice? One important question to ask the seller: “Do you need to continue to work?” If the seller is financially dependent on working at the practice, it is a serious red flag. For most single-doctor practices, the seller should go as quickly as possible.
In Most Cases, Senior Doctors Are Given Too Much Credit
Historically, it has been ingrained into doctors’ minds that a long transition period is required when a new doctor takes over, in which the old doctor “introduces” the new doctor to the patients over a period of months or even years. I disagree, and that in most cases senior doctors are given too much credit for continued success of the business. The buyer has a vision for his new practice, and the seller often insists that new ideas can’t possibly succeed. Since the staff is loyal to the old doctor, this is rarely a desirable situation for the new doctor. Strong practices have systems in place that allow a new doctor to step in seamlessly.
That’s Why It Is A One Doctor Practice In The First Place
The biggest problem, though, is the financial reality that most one doctor practices don’t have enough cash flow to support two doctors. That’s why it is a one doctor practice in the first place! Let’s look at an example of a practice that grosses $800,000 with one full-time doctor, and an asking price of $480,000 (60% of gross). Let’s assume the practice nets 30%, the owner finances 100% of the purchase price, and pays himself a salary of $150,000 per year. As the example shows, a net profit of $240,00 allows the owner to pay himself and the bank, but there is nothing left to pay another OD.
The Only Way To Afford To Pay Two Doctors Would Be
The only way to afford to pay two doctors would be to increase the net profit, either through higher gross and/or net profit percentage. I have found that adding another doctor rarely does either, and the practice usually doesn’t have the infrastructure to support another doctor anyway.
Stay No More Than Two Or Four Weeks
So my advice to you as a buyer? Have the doctor send out a letter to the active patients introducing you (at his expense), and stay no more than two or four weeks, or at the very least have an at-will employment agreement that allows you to release him at any time. If the seller doesn’t agree to this because he needs the income, you should walk away.
If you would like to know more how McDaniel & Scibal Consulting could help you buy or sell your practice please feel free to contact us