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Expert offers tips on buying into a practice

February 13, 2012

By Sam Quintero, O.D., AOA Practice Advancement Committee member

Buying an existing practice can be one of the most rewarding decisions for advancing one’s career path in optometry. There are many more advantages than disadvantages in buying into a practice: one can anticipate the income and operating expenses of the existing practice, there is higher income potential, and the staff is already familiar with existing practice operating systems, the established location and an active patient base. The greatest benefit comes from immediate equity ownership and financial and estate planning opportunities for the future.

The disadvantages of buying into a practice are not insurmountable, but the following are considerations to examine: potential patient attrition (though it should be minor), updating equipment for new business systems, clinical care instrumentation, developing relationships with existing staff, and perhaps retraining the staff to new operational systems. And one of the more important hurdles will be transferring provider panels of which the existing doctor (seller) is a member and that may not be easily transferred.

A practitioner buying into an existing practice will also discover that the obstacles of a new start-up are obviated, and burdens such as securing financial support (loans), identifying a desirable location, leasing space, hiring staff, purchasing inventory, equipment, office furnishings, computers and business software systems, opening accounts with vendors, arranging for utilities, and building a patient base are all substantially eliminated by the very existence of an ongoing enterprise.

There are numerous variables of a practice to consider, both internal and external, that affect the feasibility, desirability, and ultimate value of a practice. The value of a practice is closely aligned with its prominence in the local market and the practice reputation, and, consequently, that makes it more likely that a buyer will pay a higher price. 

Government and managed care regulations affecting provider reimbursement will have an impact on practice value and the opportunity for transferability of managed care plan participation. More efficient and updated office operations and computer systems should enhance the value of the business.

Newer instrumentation and updated lease hold improvements that yield a turn-key operation will also add to the value and facilitate the transfer to a new owner. 

While all of these factors affect purchase feasibility, no other factor affects purchase feasibility more than cash flow after expenses – the net operating income.

The purchaser of an existing practice, unlike the practitioner in a new start-up, must perform a different type of due diligence.

The purchaser must adequately evaluate the potential worth and the fair market value of an ongoing enterprise and determine the practice’s financial stability to see if it can support the lifestyle needs of the new owner, generate sufficient revenue to retire the debt load associated with the terms of the loan, and also demonstrate additional revenue for long-term financial and estate planning considerations.

In the final analysis, a practice is only worth what someone is willing to pay for it and is able to afford. Therefore, both the buyer and seller must weigh practice value relative to lifestyle considerations. Knowing how much income is required to satisfy the lifestyle of the buyer and how much the practice nets can easily provide insights regarding affordability of buying into a practice.

Visit www.aoa.org/PracticeTransitions for more information on buying and selling a practice.

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