3 Things to Consider When Planning a Practice Purchase

Buying a practice, whether for the first time or as part of a multi-practice expansion, is a significant decision that requires careful thought and preparation. Ensuring you are ready involves more than just finding the right location or clinic-you need to think ahead, particularly about finances and risk management. Here are three key factors to consider when planning your practice purchase that will help you navigate the process smoothly and successfully.

1. Developing a Detailed Financial Plan

Before embarking on a practice purchase, it's crucial to understand the financial implications of owning a clinic. One of the most important steps in this process is to work with your accountant to create a comprehensive 3-year business plan that outlines your projected cash flow. This plan will give you a clear picture of how much you can afford to spend and will also help you manage your financial expectations post-purchase.

A cash flow forecast is not just about covering the initial cost of buying the practice-it's about understanding the long-term sustainability of your investment. You need to be prepared for any potential shortfalls, especially if the practice's income doesn't immediately match the level you anticipate. A well-prepared financial plan should also consider an inflow of cash that may be needed once the sale is finalized, whether for equipment upgrades, renovations, or operational needs. Being financially ready is one of the most critical aspects of successfully purchasing and running a practice.

2. Ensuring a Solid Practice Appraisal

When evaluating potential practices, it's essential to have a clear, independent valuation of the business. Whether you're receiving listings from a broker or dealing directly with the practice owner, you should always request a formal practice appraisal from a reliable, third-party appraisal firm. The purpose of an appraisal is to give you a comprehensive and unbiased view of the practice's value, so you can make informed decisions.

A thorough appraisal doesn't just account for the practice's current revenue-it also looks at factors such as patient retention, operational costs, and growth potential. This detailed evaluation is vital in helping you assess whether the practice aligns with your financial capabilities and long-term goals. Without this independent evaluation, you risk overpaying or buying into a practice that may not meet your profitability expectations. Working with professional appraisers who specialize in practice sales ensures that you get the most accurate value and avoid surprises later in the process.

3. Securing Firm Financing and Pre-Qualification

Financing a practice purchase can be one of the most challenging aspects of the transaction, particularly in the current economic climate, where interest rates are unpredictable. It's important to secure firm commitments for financing early in the process. Relying on verbal agreements or vague promises from your bank can lead to complications, and many buyers find themselves scrambling when their primary lender changes their terms or decides not to provide the loan at the last minute.

The best way to avoid these setbacks is to shop around and obtain firm, written pre-qualification from lenders. Don't assume that your existing banking relationship will automatically cover the practice purchase. Different lenders may have different criteria for practice loans, and some banks might not be as willing to finance healthcare-related businesses as others. By securing financing well in advance, you will know exactly how much you can afford and have the peace of mind that your deal won't fall through due to last-minute financing issues.

Final Thoughts

Purchasing a practice is a complex and often lengthy process, but with the right preparation, it can be a smooth and successful transition. By focusing on developing a strong financial plan, ensuring the practice is accurately appraised, and securing firm financing, you'll put yourself in a position to make informed decisions and set your practice up for long-term success. Working with professionals who specialize in practice sales and appraisals can help you navigate these crucial steps, making the transition to ownership as seamless as possible.

Alan Rustom