Can anyone help me buy a Dr's Office?

[yngdog]

I am a 31 year old chiropractor living not too far outside Pittsburgh. I was wondering if anyone here was familiar with buying an existing business and hopefully a medical-type office? If so, I would appreciate your help, or advice anyone else may be able to offer.

I currently have a small practice, which I started from scratch, and I was approached by a doctor who is a few years from retirement about buying his practice (about 5 miles from my office now). He had an appraisal (and offered me his tax returns and other office data) and has come up with this formula to offer me:

1) We take the last 3 years of his gross collections, average them, and I pay 40% of that number. At this point I am a 40% owner and thus collect 40% of what he and I make as well as pay 40% of expenses.

2) We work together for 3 more years, we would take his collections over those 3 years and average them again, and I would pay him 70% of that number at which point I would be 100% owner and he would have the option to stay and work as my employee for a period of time.


Does this sound like a reasonable idea? Is this how things are typically structured?
The 40+70=110% sounds a bit high to me as a total amount to pay. Also, I don't like the idea of making a 40% investment and letting him be the only person with the power to make a unilateral decision. But I do like the idea of working with him for 3 years so his current patients can get to know me better (and are more likely to stay with me once he leaves), and he can direct new patients to see me over those 3 years so I can build my base (though I am bringing some people from my current practice over to his....my current practice, though I have only been working for 3 years is about 1/5 maybe 1/4 his size in total amount of patients).
Of course, this is also a chunk of money I would be spending and maybe a smart business person would tell me I should just advertise more and build myself up more and not buy this practice.

Sorry for such a ramble, please let me know what you think, I am open to any related comment or criticism. Thank you

[StormRichards]

DisneySteve would be the best member to respond to this one.

Curious to read what advice he as to offer. Seems like a bizarre arrangement to me.

Why not just put more money into advertising to build your own practice?

[disneysteve]

please let me know what you think, I am open to any related comment or criticism.

Welcome to the site.

The reason StormRichards mentioned me is because I am a family practice physician.

That said, my advice is that you've come to the wrong place. This is a great site for all sorts of personal finance info but when it comes to negotiating a business contract like this, you really need professional assistance.

Do you already have an attorney representing you? If not, the best ones I know of are The Health Care Group (healthcaregroup.com). They are based outside of Philadelphia. I'm not sure if they do any work in Pittsburgh but it wouldn't surprise me at all. I would contact them and get them involved in this process. If they don't do business in your area, ask if they might be able to recommend someone who does.

There are many different formulas for buy ins and sales of practices. Docs tend to overvalue their practices and put too high a price on the goodwill piece. You really need an experienced attorney on your side to make sure you get a good and fair deal.

[~bs]

you need to discuss with your attorney and accountant.

understand when you buy a practice or book of business, you will lose a portion of the clients. What that portion is, I cannot say. The smoother the transition, the less clients you are likely to lose.

But normally transitioning, as you are doing, is beneficial to both parties.

[yngdog]

Welcome to the site.

The reason StormRichards mentioned me is because I am a family practice physician.

That said, my advice is that you've come to the wrong place. This is a great site for all sorts of personal finance info but when it comes to negotiating a business contract like this, you really need professional assistance.

Do you already have an attorney representing you? If not, the best ones I know of are The Health Care Group (healthcaregroup.com). They are based outside of Philadelphia. I'm not sure if they do any work in Pittsburgh but it wouldn't surprise me at all. I would contact them and get them involved in this process. If they don't do business in your area, ask if they might be able to recommend someone who does.

There are many different formulas for buy ins and sales of practices. Docs tend to overvalue their practices and put too high a price on the goodwill piece. You really need an experienced attorney on your side to make sure you get a good and fair deal.

Thank you. I will reach out to them.
Do you have any other personal stories or know of anyone who sold/bought a practice and ran into trouble? Any little redflags would be helpful. Because if this or a future deal has too many redflags, I won't bother hiring a firm and just move on.
Thank you for your post and help.

[disneysteve]

Any little redflags would be helpful. Because if this or a future deal has too many redflags, I won't bother hiring a firm and just move on.

Since you will be working together for a few years and then taking over on your own, I'd say the biggest thing to look for initially is how compatible the two of you are. Do you get along personally? Do you approach patient care similarly?

Have you spent much time in his office? If not, I would definitely suggest that you do. Spend some time shadowing him. See how he interacts with patients. See if his treatment protocols mesh with your own. Spend time observing the office staff. Is the place a well-oiled machine or is it chaos? How receptive do the staff members seem to you? You don't want to get there and hear nothing but "That's not how Dr. Jones does it." Pay attention to the patient population. Even though it's only a few miles from your own practice, that doesn't mean the demographics are the same.

That's all the basic sort of stuff. As I said, when it comes down to analyzing the finances and negotiating the deal, you need a CPA and attorney on your side. This is absolutely, positively not something you should even begin to attempt on your own.

[MooseBucks]

I'm not a Dr but as a consumer I'd agree with DisneySteve on making sure that you mesh well together. If not, I'd be concerned that when he leaves many off his patients may find a new location. What is he life span of an average chiropractic patient? Do they actually visit for years or do they go for six months and leave when they feel better? If that's the case why even buy in? Are there a large number of potential buyers for this practice or is it just you? If not many buyers or other chiropractors in the area I would think the value of the practice is greatly diminished because if he doesn't find a buyer the patients come to you for free.

[bjl584]

I'd rather be a landlord than a business partner.
Find a nice commercial office space and lease it out. But, I'm not a doctor and have no interest in running a practice, so my advice is naturally biased.

If you want to pursue this, then you need a good attorney to navigate you through the proper channels and steps.

[StormRichards]

You never responded about putting money (or more money) into advertising your current practice.

I am going to put my Shark Tank hat on and ask you if you know what your acquisition cost is for obtaining a new patient? And how would that compare to your acquisition cost for eventually taking over the patients of your potential business partner?

[MooseBucks]

You never responded about putting money (or more money) into advertising your current practice.

I am going to put my Shark Tank hat on and ask you if you know what your acquisition cost is for obtaining a new patient? And how would that compare to your acquisition cost for eventually taking over the patients of your potential business partner?

I agree with this statement. You need to know not only the acquisition cost but the retention rate of taking over the previous clients.

[yngdog]

Since you will be working together for a few years and then taking over on your own, I'd say the biggest thing to look for initially is how compatible the two of you are. Do you get along personally? Do you approach patient care similarly? Yes, similar. Though I only know him in a casual setting

Have you spent much time in his office? If not, I would definitely suggest that you do. Spend some time shadowing him. See how he interacts with patients. See if his treatment protocols mesh with your own. Spend time observing the office staff. He did invite me. I will take advantage of this
Is the place a well-oiled machine or is it chaos? How receptive do the staff members seem to you? You don't want to get there and hear nothing but "That's not how Dr. Jones does it." Pay attention to the patient population. Even though it's only a few miles from your own practice, that doesn't mean the demographics are the same.

That's all the basic sort of stuff. As I said, when it comes down to analyzing the finances and negotiating the deal, you need a CPA and attorney on your side. This is absolutely, positively not something you should even begin to attempt on your own.

Ty for the great ideas, beyond the numbers

[yngdog]

What is he life span of an average chiropractic patient? Do they actually visit for years or do they go for six months and leave when they feel better? Great point. Thanks!

Are there a large number of potential buyers for this practice or is it just you? If not many buyers or other chiropractors in the area I would think the value of the practice is greatly diminished because if he doesn't find a buyer the patients come to you for free.

only me.
That's not to say a new graduate may or may not have interest in a year or two or three.

[yngdog]

You never responded about putting money (or more money) into advertising your current practice.

I am going to put my Shark Tank hat on and ask you if you know what your acquisition cost is for obtaining a new patient? And how would that compare to your acquisition cost for eventually taking over the patients of your potential business partner?

Very sorry.

I am currently not doing much in the form of advertising. Recently I started advertising on Facebook and am interviewing people to hire which will help my SEO.

Shark Tank - I do not know my acquisition costs. How do I calculate that?

[MooseBucks]

Shark Tank - I do not know my acquisition costs. How do I calculate that?

Spend $500 on advertising - Get 5 new patients. $500/5 - $100 to get each new patient.

[disneysteve]

Spend $500 on advertising - Get 5 new patients. $500/5 - $100 to get each new patient.

That's so difficult to calculate, though. It isn't always so clear cut. Maybe I see an ad for Dr. Jones. Two weeks from now, my neighbor says she's looking for a new chiropractor so I mention that I heard about a new guy in town, Dr. Jones. When she goes in and fills out "How did you hear about us?" and she writes, "From my neighbor" that won't get attributed as being from the advertisement.

Or maybe I myself went to see Dr. Jones as a result of the ad. I was really pleased so I told several people and a couple of them ended up going to him, too. My visit might count but theirs wouldn't.