How Much Does It Cost to Buy an Internal Medicine Practice?
Buying an established internal medicine practice can be a significant investment for physicians, and the total cost can vary considerably from one practice to another. The purchase price is only one part of the transaction. Physicians may also need to consider equipment, working capital, commercial real estate, renovations, technology, and other expenses.
Understanding the potential costs involved can help physicians evaluate an opportunity and determine how much internal medicine practice financing may be needed to complete the acquisition.
Here are five important costs physicians should consider when purchasing an internal medicine practice.
1. The Purchase Price of the Practice
The purchase price is usually the largest expense associated with acquiring an internal medicine practice. However, there is no standard price for a medical practice.
The value of an internal medicine practice can depend on factors such as:
- Annual revenue
- Practice profitability
- Patient volume
- Patient retention
- Location and local market conditions
- Practice growth history
- Medical equipment and other assets
- Staff and operating structure
- Payor mix
- Provider productivity
Physicians should carefully evaluate the financial performance and operations of a practice before agreeing to a purchase price.
2. Equipment and Other Practice Assets
The purchase of an internal medicine practice may include medical equipment, computers, furniture, office equipment, technology, and other business assets.
The condition and age of these assets can affect the overall value of the practice and the buyer’s future expenses.
A physician purchasing an established practice should determine which assets are included in the transaction and whether any equipment will need to be replaced or upgraded after the acquisition.
Potential post-acquisition expenses may include:
- Medical equipment replacement
- Computer hardware
- Electronic health record technology
- Practice management software
- Office furniture
- Communication systems
- Other technology upgrades
These costs should be considered when estimating the total capital needed for the acquisition.
3. Working Capital After the Acquisition
Physicians should also account for working capital when determining the total cost of buying an internal medicine practice.
A practice may have ongoing expenses for payroll, rent, insurance, medical supplies, utilities, technology, and other operating costs. Revenue and payments may not always arrive at the same time expenses are due.
Maintaining adequate working capital after closing can provide the practice with liquidity while the new owner transitions into the business.
Working capital needs can vary based on the size of the practice, staffing, operating expenses, patient volume, and other factors.
4. Commercial Real Estate Can Significantly Increase the Total Investment
Some physicians purchase an internal medicine practice together with the commercial property where it operates.
If real estate is included in the transaction, the total investment can be substantially higher than purchasing the operating business alone.
Physicians considering a practice and real estate acquisition should evaluate:
- The purchase price of the medical practice
- The value and purchase price of the property
- Existing property financing
- Property taxes and insurance
- Building improvements
- Maintenance requirements
Commercial real estate financing may potentially be available for qualified borrowers and eligible properties.
5. Additional Costs Should Be Included in the Acquisition Budget
The purchase price does not necessarily represent the full cost of completing a medical practice acquisition.
Physicians may also encounter costs associated with:
- Legal and professional services
- Accounting and financial analysis
- Business valuation
- Loan closing expenses
- Licensing and administrative requirements
- Office renovations
- Marketing and branding
- Staffing changes
- Technology implementation
These expenses can vary depending on the complexity of the transaction and the condition of the practice being purchased.
How Is an Internal Medicine Practice Valued?
There is no single formula that determines the value of every internal medicine practice.
A valuation may consider the practice’s financial performance, assets, earnings, patient base, location, growth prospects, and other characteristics.
Physicians should carefully review the practice’s financial statements and other information before determining whether the asking price is appropriate.
A professional valuation or financial review may also be useful when evaluating a significant acquisition.
Can Financing Cover the Cost of Buying an Internal Medicine Practice?
Qualified physicians may have several potential financing options when purchasing an internal medicine practice.
Depending on the transaction and lender requirements, financing may potentially be used for eligible acquisition costs as well as certain related expenses such as working capital, equipment, and commercial real estate.
Physicians considering an acquisition can learn more about financing options for internal medicine practices before determining how to structure the transaction.
How Much Should You Borrow to Buy an Internal Medicine Practice?
The appropriate amount of financing depends on the specific acquisition and the physician’s financial position.
Rather than focusing only on the purchase price, physicians should consider the total capital required to complete the transaction and operate the practice after closing.
A financing plan may need to account for the purchase price, working capital, equipment, real estate, improvements, and other eligible expenses.
Having a clear understanding of these costs before applying for financing can help physicians make more informed decisions.
Final Thought
The cost to buy an internal medicine practice can vary significantly depending on the practice’s financial performance, location, assets, patient base, purchase price, and whether commercial real estate is included.
Physicians should look beyond the initial purchase price and consider working capital, equipment, technology, renovations, professional expenses, and other costs that may be associated with the acquisition.
Evaluating the complete financial picture can help physicians determine how much capital may be required and whether the acquisition fits their financial objectives.
