What Financial Documents Are Needed to Buy an Internal Medicine Practice?
Buying an internal medicine practice requires careful financial planning, and physicians should be prepared to provide a variety of documents when evaluating an acquisition and seeking financing. Having the right information available can help buyers understand the practice’s financial condition and allow lenders and other professionals to evaluate the transaction.
For physicians considering internal medicine practice financing, organizing financial documents early can make the acquisition process more efficient and help identify potential issues before closing.
Here are seven types of financial documents physicians may need when buying an internal medicine practice.
1. Practice Profit and Loss Statements
Profit and loss statements can provide an overview of the practice’s revenue and expenses over a specific period.
Physicians evaluating an acquisition may review several years of financial statements to identify trends in:
- Gross revenue
- Operating expenses
- Payroll
- Supplies
- Rent and occupancy expenses
- Insurance
- Net income
Reviewing historical financial performance can help a buyer understand how the practice has performed over time.
2. Business Tax Returns
Business tax returns can provide additional information about the practice’s historical financial performance.
Lenders may request multiple years of business tax returns when evaluating an acquisition financing request. Tax returns can also help buyers and their advisors compare reported income and expenses with the practice’s other financial records.
The exact number of years requested can vary depending on the lender, financing program, and transaction.
3. Balance Sheets
A balance sheet provides information about the practice’s assets, liabilities, and equity at a particular point in time.
Assets may include:
- Cash
- Accounts receivable
- Medical equipment
- Office equipment
- Other business assets
Liabilities may include existing loans, leases, accounts payable, and other financial obligations.
Reviewing the balance sheet can help a buyer understand the financial position of the practice beyond its annual revenue and profitability.
4. Accounts Receivable Information
Accounts receivable can be particularly important when evaluating a medical practice because revenue may be collected after services are provided.
Physicians may want to review information regarding:
- Total accounts receivable
- Age of outstanding receivables
- Collection history
- Outstanding insurance claims
- Patient balances
Understanding the practice’s accounts receivable can help provide a clearer picture of its cash flow and collection performance.
5. Personal Financial Documents From the Buyer
In addition to the practice’s financial records, a physician seeking financing may need to provide personal financial information.
Depending on the lender and financing program, this may include:
- Personal financial statements
- Personal tax returns
- Bank statements
- Information regarding personal assets
- Information regarding personal liabilities
- Existing debt obligations
These documents can help lenders evaluate the physician’s overall financial position as part of the financing process.
6. Practice Purchase Agreement or Letter of Intent
When purchasing an existing internal medicine practice, lenders may also need documentation describing the proposed transaction.
This can include a purchase agreement or letter of intent outlining important details such as:
- Purchase price
- Assets being purchased
- Terms of the proposed transaction
- Seller information
- Other relevant transaction details
The specific documentation required can depend on the stage of the acquisition and the lender’s underwriting process.
7. Information About Existing Debt and Leases
Buyers should understand any existing financial obligations associated with the practice.
These may include:
- Business loans
- Equipment financing
- Equipment leases
- Real estate loans
- Lines of credit
- Other contractual obligations
Understanding these obligations can help the buyer and their advisors determine which liabilities will remain with the seller and which, if any, will be part of the acquisition.
Why Financial Documents Matter When Buying a Practice
Financial documents help provide a more complete picture of the practice being purchased.
A physician should not rely solely on the seller’s asking price or gross annual revenue when evaluating an acquisition. Reviewing revenue, expenses, profitability, cash flow, accounts receivable, assets, and liabilities can provide a better understanding of the practice’s financial condition.
This information can also be important when determining how much financing may be required.
What Documents May a Lender Request for Acquisition Financing?
The exact requirements vary by lender and financing program, but physicians may be asked to provide a combination of personal, business, and transaction-related documentation.
A financing request may involve:
- Personal financial statements
- Personal tax returns
- Business tax returns
- Practice financial statements
- Profit and loss statements
- Balance sheets
- Bank statements
- Accounts receivable reports
- Existing debt information
- Purchase agreement or letter of intent
- Business projections when applicable
Preparing these documents in advance can help physicians respond more quickly when lenders request additional information.
How Early Should Physicians Prepare Their Documents?
Physicians should ideally begin organizing financial documents before making a final commitment to an acquisition.
Starting early provides more time to identify missing information, review financial performance, discuss the transaction with professional advisors, and explore potential financing options.
It can also help prevent avoidable delays later in the acquisition process.
Final Thought
Buying an internal medicine practice involves reviewing a significant amount of financial information. Profit and loss statements, tax returns, balance sheets, accounts receivable reports, personal financial statements, purchase documents, and existing debt information can all play a role in evaluating an acquisition and obtaining financing.
The exact documentation required will depend on the lender, financing program, physician, and structure of the transaction. Preparing financial information early can help physicians better understand the practice and move through the acquisition process more efficiently.
Whether you’re evaluating an internal medicine practice for purchase or preparing to apply for acquisition financing, having your financial documents organized can help you make a more informed decision.
