Buying a Nephrology Practice From a Retiring Physician
Buying a nephrology practice from a retiring physician can provide an opportunity to acquire an established patient base, experienced staff, existing systems, and a history of operating revenue. For physicians considering nephrology practice financing, an acquisition from a retiring owner also creates several financial and transition considerations that should be addressed before closing.
Why Buy From a Retiring Physician?
A retiring physician may have spent many years building the practice and establishing relationships with patients, referring physicians, employees, and other healthcare professionals.
An acquisition can allow the buyer to step into an existing operation rather than starting completely from scratch.
Potential advantages can include:
- Existing patient relationships
- Established referral sources
- Existing employees and systems
- Established office space
- Historical financial records
- Existing equipment and technology
- An established reputation in the community
How Should the Practice Be Valued?
The purchase price should be supported by a reasonable valuation of the practice.
Factors that may influence value include revenue, profitability, cash flow, assets, accounts receivable, patient volume, referral relationships, and other characteristics of the business.
Buyers should understand how the seller arrived at the asking price before agreeing to the transaction.
Review the Practice’s Financial History
One of the advantages of purchasing an established practice is the availability of historical financial information.
A buyer should review financial statements and other records to understand:
- Revenue trends
- Operating expenses
- Profitability
- Cash flow
- Accounts receivable
- Payroll expenses
- Existing liabilities
The goal is to determine whether the practice’s financial performance supports the proposed purchase price and financing.
Ask Why the Physician Is Retiring
Retirement is often a normal reason for selling a medical practice, but buyers should still understand the circumstances surrounding the transition.
A buyer may want to know whether the retirement is planned, whether the practice has experienced recent changes in revenue, and whether there are operational issues that could affect the business after the seller leaves.
The Transition Plan Matters
A retiring physician may be willing to remain involved for a period after the sale.
This can help introduce the new physician to patients, referring physicians, employees, and other important relationships.
The transition period should be clearly discussed and incorporated into the purchase agreement.
What Happens to the Patients?
Patient continuity is an important consideration when purchasing a medical practice.
The buyer should have a plan for communicating the ownership transition and maintaining continuity of care.
The seller may be able to assist with introductions and communications during the transition, subject to applicable legal, regulatory, and professional requirements.
Review the Employees and Operating Costs
An established practice may have employees who are essential to its daily operations.
The buyer should understand current staffing levels, compensation, benefits, roles, and employment arrangements.
It is also important to review major operating expenses to determine whether the practice’s existing cost structure is sustainable under new ownership.
What Financing May Be Needed?
The buyer may need financing to purchase the practice and potentially cover other acquisition-related expenses.
Depending on the transaction, financing may potentially be used for:
- Practice acquisition
- Equipment
- Working capital
- Leasehold improvements
- Commercial real estate
The appropriate financing structure depends on the transaction and the lender’s requirements.
Can the Seller Help Finance the Purchase?
A retiring physician may sometimes be willing to provide seller financing as part of the transaction.
Seller financing can be structured in different ways and may represent a portion of the purchase price.
If seller financing is being considered, the buyer should have the terms reviewed by the appropriate legal and financial professionals and confirm that the structure is acceptable to any senior lender involved.
Don’t Forget About Working Capital
The purchase price is not the only financial consideration.
A new owner may need capital for payroll, supplies, marketing, technology, repairs, and other operating expenses during the transition.
Including working capital in the overall financing plan can help the buyer avoid putting too much pressure on practice cash flow immediately after closing.
Review Existing Debt and Liabilities
The practice may have existing equipment financing, lines of credit, leases, or other obligations.
The buyer should determine which liabilities are included in the transaction and which remain the seller’s responsibility.
The purchase agreement should clearly address these issues.
Due Diligence Should Come Before Closing
Even when the seller has a long history in the community, buyers should conduct appropriate due diligence.
This may include reviewing:
- Financial statements
- Tax returns
- Accounts receivable
- Contracts
- Equipment
- Employee information
- Existing debt
- Lease or real estate documents
- Other material business obligations
The purpose is to understand exactly what the physician is purchasing before completing the transaction.
Get Financing Started Early
A buyer should consider beginning the financing process before the expected closing date.
Lenders may need time to review the buyer, practice financials, purchase agreement, valuation information, and other documentation.
Starting early can provide more time to address questions and coordinate financing with the seller’s transition timeline.
What Should the Buyer Negotiate?
The purchase price is only one part of the negotiation.
Other items may include:
- Seller transition period
- Training and introductions
- Equipment included in the sale
- Real estate
- Accounts receivable
- Employee arrangements
- Seller financing
- Noncompete and other applicable agreements
The final terms should be reviewed with qualified legal and financial professionals.
Final Thoughts
Buying a nephrology practice from a retiring physician can provide a physician with a path to ownership while acquiring an established healthcare business.
The buyer should look beyond the purchase price and evaluate the practice’s financial performance, assets, liabilities, employees, patient relationships, transition plan, and financing requirements.
Starting due diligence and financing early can help a physician better understand the opportunity and prepare for a successful ownership transition.
