Purchasing A Practice? 10 Key Issues To Consider…
Buying a professional practice is a time-consuming, demanding process for a professional at any age, mainly because it’s a very complex transaction that forces you to make some difficult decisions. First, it is important to determine where you want to practice.
For example, you may decide you need to be within a 30-minute drive from home because of a desire to be close to family and friends. This limitation has prevented many health care professionals from relocating and considering thriving practices for sale outside of a major city like Toronto or Vancouver. The sooner you commit to your preferred location to practice, the more precise your search will be. However, it’s best to set your sights on two preferred areas and after your search select the best one for you.
Things to Consider First:
- How much debt are you prepared to incur? $250,000, $750,000, or more? Many young professionals have student loans, car loans, new families, mortgages, etc., and they may not want to borrow a large sum of money for a practice at this stage in their careers.
- How many days or hours per week do you want to work? Some practices offer part-time hours that may be suitable if you have parenting obligations. Others may demand that you work 50 – 60 hours per week plus some evenings and weekends. It is a reality in today’s market, that when you purchase an office (particularly a smaller one/start-up) you will have a necessity to maintain an associateship position. Do you have a non-compete? Will the principal that you have been working with support your venture into ownership and will this position still be available when you branch out on your own? Again what is the best plan for you?
- What is the scope of treatment you can offer, and what procedures should you refer to a specialist? Do not overestimate your skills too early—problems may arise when inexperienced practitioners take on cases that they should have referred out.
- How fast is your dexterity and operative speed? How much full-time experience do you have? Getting the ergonomics correct are so important. Much of dentistry is repetitive and setting the stage to maximize your daily productivity will exponentially impact your entrepreneurial success.
- Will you be expanding your practice in the future to include other services, associates or specialists? If your long-term goal is to own a large practice, think well ahead. Relocating is very expensive and can be a serious disruption to practice income.
Once you have answered these questions, you can begin your search:
10 Key Issues to Consider
- Start by phoning several health care practice brokers, let them know you are in the market and express your commitment to thoroughly investigate practices in the city, town or rural location you prefer. Many brokers have more buyers than practices for sale.
- Each practice you consider should have a professional appraisal ready for your viewing. Most brokers ask that you sign a confidentiality agreement stating that your personal information, and the data supplied to you about the other practitioner, will be protected. This is usually done just prior to viewing the appraisal report, which should include all operational and financial data about the practice. If a proper appraisal is not available (complete appraisals are usually 50–75 pages in length) you are entitled to request one, so that you will have the data you require in order to make an informed decision.
- A professional appraiser does not mind if you take the report to another professional appraiser for a second opinion — as long as he or she is informed. You will likely pay a fee for this service, as the other party will not be involved in the sale.
- Visit your accountant. This is the most important step and will determine your ability to manage the practice. Accountants will also prepare a budget for your personal living expenses and income taxes over and above the office expenses.
- You’re now ready to view a practice. This is usually done after hours. Most health care professionals do not tell their staff the practice is for sale due to the risk of damaging their goodwill. Staff and patients have been known to leave practices when rumours about an owner are started, because some may think the owner has personal, health, or financial problems.
- Verify the information found in any appraisal or report given to you. For example, counting charts in a practice is something you should do, because a chart count will help determine how busy you may be in the future. However, a chart count is a very unreliable way to value the goodwill of a practice. The revenue earned from patients is a far superior indication of value.
- Brokers usually work for, and are paid by, the seller and accordingly our duty under agency law is to represent only the vendor. This does not mean you participate without representation, so be sure to include your accountant, lawyer and banker. It is uncommon for two different brokers to be involved in the sale of dental practices. It is of utmost importance that purchaser hire professionals that understand their business. Be sure to make sure that your banker specialises in the healthcare space and have similar clients under management. Doctors are awarded certain privileges and all buyers should be taking advantage of the trust that banks extend to medical professionals. The same goes for your lawyer. Medical practice sales are uniquely nuanced and your lawyer should not need to learn these conventions during the sale process.
- Once you have viewed the practice and performed your own verification of charts, appointment books and financial records, it’s time to draft an offer. At this point it is essential to obtain legal advice. Remember that the Agreement of Purchase and Sale document is designed to be fair to both parties and since most brokers want your business in the future, we must treat you fairly. Under agency law you are entitled to full disclosure of all meaningful business facts about the practice you are purchasing.
- The broker will perform most of the negotiations between both practitioners. He or she acts as the intermediary between the lawyers, accountants and any financial institutions, if necessary.
Purchasing a practice is initially a very daunting experience, which quite quickly becomes very accessible. It can be likened to the purchase of a first home. Once the shopping process starts and the landscape of the market begins to “click”, all of a sudden you become ready. This is unique for everybody and it also depends here one is at in their professional life.
As brokers we are often put in the role of matchmaker and sometimes our vendor has designs on the type of person that they want to succeed them at their office. We encourage purchasers to pen a brief note about their philosophy and vision for the office. Respect is an important quality in a would-be owner, how a purchaser purports themselves throughout the process will be conveyed to the vendor and certainly factored into the reckoning during the decision process.
- Be certain you have investigated the entire process before signing the final offer. If you are not sure, walk away. Do not act too fast or bow to pressure by anyone who threatens that you may lose this opportunity. There will be other practices for sale in the future. Do not compromise your career because of a rash decision.