Benefits of a Practice Buy-In: For buyers and sellers
By Joshua Flake, Vice President, Practice Pathways
From Print Issue- Summer 2023
Practice ownership is the goal for many physicians, but there is more than one way to get there, and that path looks different for everyone. When most physicians think of getting into practice ownership, they think they need to start their own practice or buy an existing one. But an often-overlooked method that can be a great fit for many physicians is a partial practice buy-in.
What is a Practice Buy-In?
A practice buy-in is when a physician buys a portion of the ownership of an existing medical practice, and the existing owner(s) remain as partners. The portion that is purpurchased can be anywhere from 1-99% of the practice, but usually works best when all the partners have an even split of the ownership. With a buy-in there are multiple benefits to both the buyer and the seller.
Benefits of a Buy-In for the Buyer
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The main benefit is that the buyer gets to buy in to a practice that is already thriving and has solid cash flow, as opposed to starting up a new practice and having to build the cash flow up from zero.
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Having a partner that already has years of experience running the practice on a business level. This mentorship can be priceless. If you own a practice on your own that’s something you don’t usually have access to.
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Stepping into practice ownership as a partner adds a significant asset that you can build as a legacy for your family.
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Increase your income overnight by adding profit distributions to your personal bottom line.
Benefits of a Buy-In for the Seller
There are 2 main reasons for a seller wanting to do a buy-in, and the benefits for each can vary.
1. SELLER WANTING TO SLOW DOWN FOR RETIREMENT:
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Having a younger doctor buy in as a partner will give you an extra set of hands to take over some of your patient load.
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Allows you to reduce hours or days so you can start dipping your toe into retirement.
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Get access to part of the equity in your practice now. This allows you to use the proceeds from the sale to invest, pay off debt, or prepare for retirement however you see fit. It also helps ease tax obligations by breaking up the sale of your practice into multiple events.
2. SELLER WANTING TO GROW THE PRACTICE:
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Increase the practice production capabilities overnight by adding another set of hands to treat patients.
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Take some of the responsibilities of practice ownership off your plate. Dividing some of the day-to-day tasks with a partner will free up more of your time so you can treat more patients.
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Having a partner that is as invested in the success of the practice as you are a proven method for growing and sustaining a practice much better than if you just add an employee doctor to your staff.
How to Complete a Practice Buy-In
So, if you’re now thinking that a practice buy-in is right for you, you may be wondering how to go about completing one. There are 5 main steps to any successful practice buy-in:
1. THE FIRST STEP IS TO MAKE SURE THAT IT’S A GOOD FIT. There’s nothing worse than getting into a bad partnership, so take some time to vet your potential partner. Make sure they are a good fit on a professional, ethical, and personal level. It’s also a good idea to make sure that your treatment ideology and vison for the future of the practice are in alignment.
2. STEP TWO IS TO NEGOTIATE the sales price for the buy-in, the terms, ownership percentages, and partnership structure.
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It is usually a good idea to get a professional 3rd party opinion on the value of the practice to help determine what the sales price should be.
3. APPLY FOR FINANCING.
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Working with a bank that has a division that specializes in healthcare practice financing is critical to your success. This is where National Bank of Arizona and Practice Pathways can help.
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Loans for practice buy-ins are typically structured with the doctor that is buying in as the borrower (either personally or with the entity they will hold their % of the practice ownership in), and with the practice itself as a corporate guarantor.
4. Have a lawyer draft a sales contract and agreements that are fair to all parties involved.
5. Close on the buy-in, transfer the ownership, and enjoy your new partnership!
A practice buy-in truly can be a great option for both buyer and seller. Just as you would advise your patients to come see you, instead of just looking on Web MD for a diagnosis, it’s important that you connect with experienced professionals to make this process as smooth and successful for you as possible.
About the Author:
Josh Flake is the Vice President of Practice Pathways and Regional Director of the Arizona, Nevada, and Utah region. Josh began his career on the financial side of the healthcare industry in 2015. Since then, he has worked with hundreds of practitioners to help them get the financing they need for their practices. He specializes in medical, dental, vet, and optometry practices, while also having a strong working knowledge of pharmacies and med spas. Josh covers Arizona, Nevada, and Utah for Practice Pathways of Zions Bancorporation, and works with the commercial and business bankers at the affiliate banks in those states to provide comprehensive banking and financing services for all healthcare clients.