Okay so you’ve decided to purchase an existing healthcare practice. What do you need to do next? You’ve begun your search based on a number of elements, now you need to narrow your search by asking the following questions:
- Why is this practice on the market?
- Are local economic and market conditions right for the continued success of this practice?
- Is the practice profitable?
- Is the practice in a good location?
- What is the practice’s reputation in the community?
Once you have asked yourself these questions you will have one of two responses. Your interest has been piqued and you want to find out more or your search continues.
Let’s say you found a practice that is being sold due to the owner retiring. This business is well established and the owner has built up a loyal patient database and is referred by other professionals in the community. You’ve read the sales prospectus, the photos are appealing and the practice/clinic looks promising. Now what? It’s time for due diligence, and scrutiny is key. The following is a list of things you and your accountant should scrutinise carefully before making a decision.
Financial Documents:
Your accountant will want profit and loss statements straight out of the practice management software as well as those that have been verified by an accountant and lodged with the tax department. Add-backs will also be required for any one off expenses and income and expenses should also be provided. The purchase price needs to be supported by the profits of the practice.
Patient Statistics:
Patient statistics are important as they will show you whether there has been a steady upward trend of new patients. How many existing patients are returning etc.
Chattels:
A list of equipment with purchase price and cost is required. This will show the age of the equipment. Buying a practice with rundown equipment can be costly.
Lease Agreements:
A copy of the current lease document is important. Make sure you check the options to renew and find out if the current land lord is happy to accept a new tenant.
Associates and administration staff:
Obtain a copy of all employee agreements and contracts and make sure they are up to date. Ask about the staff? Do they know the practice is on the market? Are they likely to want to stay?
Marketing:
Does the practice have a website? Social media interaction? Do they advertise locally? Do they have a referral program in place? Does the practice have a patient reactivation program in place? This will help determine if there are any gaps and therefore opportunities for growth.
If you are happy with all of the above information, it’s time for an inspection. You may want to do this earlier, but there’s no point in visiting the practice if the due diligence isn’t adding up.
At the inspection,
- Ask if you can meet the staff (if they’re aware of the sale).
- Size up the space, treatment rooms,
- Inspect the equipment.
- Ask to see the practice management software.
- Look at the general appearance of the practice. Is it neat and tidy?
- Ask to see the paperwork. Is paperwork clear and neat? (not dog eared and tired).
- Check the parking facilities, and wheelchair access if there is any
- Inspect the kitchen and bathroom facilities
- Ask if the vendor is willing to stay on for a transition period
By doing all of the homework above, you will not only know exactly if this practice is right for you but you will also have a good idea of what you are willing to pay for it.