In recent years, we have seen more and more physicians walk away from private practice. This year, the American Medical Association reported there are now more physicians employed by hospitals or medical groups than physicians who own their own business. Healthcare costs are rising while the demands of compliance are growing, and many physicians are looking for a way out. If you and your business partners have considered expanding your own practice, this trend may be just the opportunity you’ve been waiting for. We are now in a buyer’s market, so you can acquire another practice at a competitive rate. But before you move forward with any purchase, ask yourself these three questions.
What Does the Math Tell Me?
Don’t trust the numbers your target is reporting, at least not without verifying them first. We recommend you commission a business valuation from a third party to inspect what’s happening behind the scenes. Here are just a few things your valuation consultant will look at.
Demands on Working Capital
Working capital (current assets less current liabilities) is the lifeblood of a medical practice. Reviewing your target’s cash flow can show you how efficient their billing and collection process is and can reveal whether you will need to dig into your own cash reserves to assist in the transition.
When you assume another physician’s practice, you also assume their debts. A good business valuation should reveal how quickly that debt must be repaid and uncover liabilities that have not yet been recorded (like unfunded pensions or pending liability claims). Understanding the practice’s debt structure will be essential if you plan to renegotiate debts with preferred lenders.
Future performance is difficult to estimate, but because medicine has been changing so rapidly, forecasted performance may be better predictors of future performance than past successes. If your target calculates their own forecasts, see what numbers are driving their results to ascertain whether those data points are still relevant today. If you cannot rely on their forecasts, your business advisor can always perform those estimates for you.
What Future Investments Must I Make?
Incorporating a practice that already exists in your own operations can be tricky. You will need to spend money upfront transitioning the target’s patients into your electronic systems. For example, you may need to pay for two different electronic health record systems simultaneously as you transition your target’s patients over to your system. You may also need to hire additional staff to coordinate the takeover. This staff person will need to notify patients of the change and answer their questions; they will need to accommodate new insurance providers and pharmacies; and they will need to train staff in systems and them onboard them into the benefits system.
And of course, you may need to invest in physical assets like new diagnostic equipment, waiting room furniture, exam tables, business cards, flyers, etc.
What Is My Gut Telling Me?
The numbers are important, but they should never stand alone. Trust your gut. If you think the practice is worth pursuing, see if the numbers support your interest. If something feels off, dig a bit deeper and see why you feel uneasy. You can ask yourself some of the following questions:
- Does the practice fit in with our existing culture?
- Is the practice location over-saturated with physicians offering this same service?
- Am I comfortable treating their patient demographic?
- Is their facility up to my standards?
- What is the selling physician’s reputation in the community?
- What services does the selling physician offer, and am I willing to continue offering those services?
- Are the current employees happy, and would they feel comfortable working for somebody else?
- Is the timing right for me and my employees?
- Am I staying objective, or is my relationship with the selling physician playing into my decision?
Purchasing a practice while so many others are selling may seem like an odd choice, but for many physicians, it can be a smart business move. Patients want a wider range of care and are looking for physicians who offer specialty services that hospitals are not yet offering. If you can meet those needs, you can outpace your hospital-employed counterparts and enjoy the freedom and satisfaction of owning your own business. If you have questions or need assistance with a tax or accounting issue, Hanson & Co can help. For additional information call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.