Medicine and business are more and more intertwined – this is especially so when a doctor is looking to buy a practice. As you are considering your options, there are certain things you should look out for, like negotiating the price, contracts, and whether or not it is a stock purchase or an asset purchase. To help you out, here is some expert advice when buying a medical practice.
- consider buying a medical practice to get established
- decide between a stock purchase or an asset purchase
- be thorough about representation and warranties
- structure the transaction wisely
- forget about the assignment of contracts
- be impatient
- be naïve about the doctor opening up shop next door
- try this alone
There are a number of scenarios where an individual would consider buying a practice. For example, purchasing a medical practice from a retiring doctor can be an excellent idea for a younger doctor looking to take on greater responsibilities and further establish him or herself in a community. Sometimes, a medical practice represents a sound investment opportunity. There are a number of elements that will come into play when a physician considers buying a practice.
Every practice has a wide array of facets you need to investigate. Among the top priorities is the structure of the transaction. Is this a stock purchase or an asset purchase? If it’s a stock purchase, the seller will be able to step away from the practice and the liabilities accrue to the buyer. If it is an asset purchase, the seller will retain ownership of shares of the stock of the business and the buyer – you – must either create a new entity or use another existing entity for the transaction. In an asset purchase you will know exactly which assets you are acquiring, and you will know what liabilities are assumed.
The complex nature of a medical practice requires that you consider all the information asserted in the contract very carefully. Every contract will involve representations and warranties. Representations are statements of facts or arguments, and cover a wide range of time up to the present. Warranties look ahead and offer safeguards for the future. The combination of representations and warranties offer the buyer a set of assurances for the future, based on the present and past activities and issues of the practice. Read them carefully – understand what is being represented – and read between the lines. Understand what is not being said. Make absolutely certain you are comfortable.
Doctors who know their stuff about medicine might not know how structure a transaction that makes sense. Skilled attorneys can help structure the sale or purchase and facilitate the payout in a way that works best for both parties. Will there be an earn-out? Or will the deal include a promissory note? Will it be paid in cash or stock? An attorney who specializes in the buying and selling of medical practices can create a deal where all the elements are thoughtfully considered and appropriately structured.
As healthcare gets increasingly more complicated, the assignment of contracts and consents is a critical aspect of the purchase of a practice. Don’t take this aspect lightly – specific contracts can be the foundation of the practice – you must be certain about which ones can be assigned to a new party, and use precise language in making the transition ironclad.
If you are buying an established practice, the doctor who founded it may be eager to sell – and reluctant to let go at the same time. Patience and patients are both important during a medical practice transaction.
Include a non-compete statement. Simple enough. If you are purchasing a practice, the exiting doctor should not compete with you.
You wouldn’t buy a house without consulting a real estate specialist. The same goes for buying a practice. Consult an expert who can guide you through the process, can review the contracts, understand the fine print, and offer advice and counsel. It’s a big step to buy a practice, but the rewards can last a lifetime.
For many doctors, a smart way to get established is to buy a medical practice that has a good reputation, solid cash flow, and a roster of satisfied patients. Buying the right practice for the right price is a vital skill set. Physicians must look for the right practice and the right guidance.