First-time buyer
Information gives you a negotiating edge
By Stanley Greenfield

Purchasing a practice from another practitioner is an involved process. An absolute imperative — research. Don’t sign on the dotted line until you have dug up sufficient information to make an intelligent buying decision.

What kind of information? Let’s look at a hypothetical purchase situation:

Dr. Palmer has listed his practice for sale and the price seems reasonable. You decide to check it out. Dr. Palmer is a “nice guy” and shows you around the office and even uses the same adjustment technique you do.

The equipment is not quite what you would like to have, but he offers it to you at a good price. He does not have an X-ray unit, but you think you could find a spot for it. His practice is primarily insurance-based, and even though you want a cash practice, you feel that you can change it over.

He is anxious to sell; the price seems right; so you decide to buy.

Was this a good purchase? Did you (the purchaser) get all the information you needed to make a valid decision?

No. Unfortunately, this example is not as extreme as it sounds. New (and sometimes experienced) practitioners overpay, because they don’t do their homework.

Let’s revisit this scenario and see what should have been done.

Dr. Palmer has his practice listed for sale. You set an appointment to visit the practice. Prior to the visit, ask some questions and request some necessary documentation:

PRE-VISIT

1. Why are you selling the practice?

2. What are your plans? Will you continue practicing? Are you staying in the area?

3. How old is the practice?

4. How many active patients do you have? Patient visits per week? Average charge per visit?

5. How many new patients do you have per month? For this year? For last year?

6. How much of your practice is insurance-based? Cash? Personal injury?

7. What equipment is included in the sale? How old is the equipment?

8. Will you provide copies of profit and loss statements and copies of your tax return (at least Schedule C) for the past two years, as well as a copy of your current lease and current utility bills?

9. What is your asking price? Are you willing to finance?

Get answers to every question. Each is important. And the seller should make this information available. If the seller is reluctant to provide the information, then the doctor may be trying to hide something. Look elsewhere.

THE VISIT

Assuming you get all the questions answered and you are still interested, arrange a visit to the office:

• Ask to see several days’ worth of sign-in sheets to verify that the practice is seeing the number of patients that you have been told.

• Look at a several charts to see how the record-keeping has been done.

• Examine the equipment. Is it equipment you are interested in and would be happy using? If not, don’t buy it. You will just end up giving it away and buying what you really want. A bargain is not a bargain unless you are really going to use it.

A word about accounts receivable: Don’t purchase them! Although they look like “good” dollars available at a discount, the “return” will not what you expect.

If everything about the practice lives up to your hopes, it is time to ask yourself: “Is this the office for me?” If you hesitate in saying yes, the office is not for you.

THE OFFER

You want to pay the least amount you can for the practice. On the other side, the doctor wants to get as much for this practice as he or she can. Each of you has a number in mind.

These numbers are almost always far apart. But each of you also has a second number in mind — the amount that you are willing to settle for.

The seller will have to come down and you will probably have to go up. The question is, how much?

How much is the practice worth? A rule of thumb — to be used only as a starting place — is a starting figure six to eight times the monthly gross. This “rule” is in no way to be used as the final formula for you to determine what you will pay for a practice.

The bottom line is that the price has to feel right for you, and the seller has to feel right about it, too.

Stanley Greenfield is a registered financial consultant and a registered professional disability and health insurance underwriter (RHU). He is president of Greenfield’s Financial Power Program and offers financial and practice management to the chiropractic community. He can be reached at 800-585-1555.