Let’s discuss the pros and cons of purchase and new start. We’ve worked with both and they both do have plusses and minuses.
First, let’s discus purchasing:
PROS OF BUYING
• Purchasing an existing practice can be a great opportunity, just be absolutely sure you know what you’re getting and that the price is fair
• If you do find a good one, the referring doctor can act as a mentor and advocate for you and your practice. He/she can introduce you to their established referrals and you, being younger, can add on younger referrals to that base
• They have an established patient base….which is very attractive when just getting started
• You can walk into a functioning facility with operating equipment and start working
• Existing experienced staff, systems and marketing are in place
• You will have immediate income and cash flow
• You are eliminating a competitor in the area if you have a specific town where you want to practice
CONS OF BUYING
• Purchasing issues that need to be addressed such as existing leases or non-competes
• The practice may be in a bad location or run down and the equipment may be old and barely usable
• Your inherited staff may all be ready to retire, or way too highly paid (On a practice P&L-Profit and Loss Statement- employee wages are biggest line item)
• The senior doctor may not have the best of reputations
• Depending on the practice, you may be incurring a great deal more debt than a new start
• We are currently experiencing a great lack of practice availability
o This is due to the recent economy and the fact that our entire population is aging better and wanting to work longer. Docs are retiring older and older and there are very few practices on the market. When they do come on, it’s a feeding frenzy and they frequently sell for a lot more than they’re worth
Now on to new starts:
PROS OF NEW STARTS
• You have more flexibility to choose your specific location – from the area of country right down to side of town you want
• You can create the interior, exterior and flow of the office to your specifications
• You can decide what type of equipment you want be it chairs, carts x-rays etc.
• You can choose your technology be it Mac or PC and the appropriate software
• You create the systems and marketing that work for you and attract the patients you want
CONS OF A NEW START
• You must create the practice with no experience or training
• You will be responsible for hiring and training new employees and setting up systems and marketing
• The practice may produce much less income in the initial years, making those years more difficult
• You will need to work part time in another practice during the first year or two
THINGS TO CONSIDER WHEN DECIDING PURCASE VS NEW START
• Are there any existing purchase opportunities in area you want?
• Do you have a personal connection with the area you want? This can attract patients even before marketing begins
• Is there part time employment available as you start a new practice… without a severely limiting non-compete clause?
• Can you sufficiently close the income gap during start up to care for your family?
• Do you have any major differences in philosophies when purchasing such as Medicaid acceptance or insurance participation?
• Are the patients from the socio-economic area you want, and the age demographic you prefer?
• Are the equipment and computers in good condition? This can be a major expense if they’re not
• Is the practice in a good demographic location? A bad location can only be fixed by moving….and over a 5 mile move will lose a large number of patients
• Is the seller a difficult unreasonable person? The mentor factor goes away when a seller doesn’t care how you do once he gets his money
It’s all a bit daunting, but working with a good team…..banker, consultant, realtor, accountant, attorney, etc. can make a big difference in either situation. One thing we have seen is that if you start a new practice and work part time elsewhere, it closes the income gap very quickly. In a few years, you and your purchasing counterpart can be neck and neck regarding practice income.
So what’s our opinion on which is better? Both and neither. Your personality, risk tolerance, and family situation all have to be factored in. We can only say we’ve had very successful clients in both circumstances. The most important thing you can do is find experts to assist you…these are very big transactions and you need to be very sure before you enter into them!
