How to Prepare Financially to Buy an Internal Medicine Practice
Buying an internal medicine practice is a significant financial decision, and physicians should begin preparing well before making an offer.
Understanding personal finances, existing debt, available cash, financing requirements, and the expected financial performance of the practice can help physicians prepare for the acquisition process.
For physicians considering internal medicine practice financing, financial preparation can also make it easier to determine how much they may be able to afford and what financing may be appropriate.
Here are eight important steps physicians can take to prepare financially to buy an internal medicine practice.
1. Review Your Personal Finances
The first step is understanding your current financial position.
Physicians should review:
- Income
- Savings
- Investments
- Existing debt
- Monthly expenses
- Available liquid assets
Having a clear picture of your personal finances can help establish a realistic acquisition budget.
2. Review Your Credit
Credit history can be an important part of the financing process.
Before pursuing an acquisition, physicians should review their credit reports and identify any potential issues that may need to be addressed.
Physicians should also avoid taking on unnecessary new debt before applying for practice financing.
3. Understand Your Existing Debt
Many physicians have existing obligations such as student loans, mortgages, auto loans, or other debt.
Before purchasing a practice, physicians should understand how their existing monthly payments will fit alongside a potential practice loan payment.
This can help create a more realistic picture of their overall financial obligations.
4. Determine How Much You Can Afford
Physicians should establish an acquisition budget before beginning negotiations.
The budget should consider more than just the purchase price.
Potential costs may include:
- Practice purchase price
- Working capital
- Equipment
- Technology
- Renovations
- Professional fees
- Closing costs
- Other transition expenses
Understanding the total financial commitment can help prevent a physician from focusing exclusively on the seller’s asking price.
5. Maintain Adequate Cash Reserves
Physicians should consider maintaining sufficient liquidity after completing an acquisition.
A newly acquired practice may experience unexpected expenses during the transition.
Cash reserves can potentially help cover:
- Payroll
- Rent
- Medical supplies
- Equipment repairs
- Insurance
- Marketing
- Other operating expenses
Using every available dollar toward the acquisition could leave the practice with limited flexibility after closing.
6. Research Financing Options Early
Physicians should not necessarily wait until they find a practice to begin learning about financing.
Potential financing options may include:
- SBA financing
- Conventional business financing
- Medical practice financing
- Commercial real estate financing
- Equipment financing
The appropriate financing structure will depend on the transaction, borrower qualifications, practice financials, and lender requirements.
7. Review the Practice’s Financial Performance
Once a physician identifies a potential acquisition, the practice’s financial performance should be carefully reviewed.
Important information may include:
- Revenue
- Profitability
- Operating expenses
- Accounts receivable
- Patient volume
- Existing obligations
Historical financial performance can help the physician determine whether the asking price and proposed financing make sense relative to the practice’s expected cash flow.
8. Build a Professional Advisory Team
A practice acquisition can involve financial, legal, accounting, and operational considerations.
Physicians may consider working with professionals who can assist with areas such as:
- Accounting
- Legal review
- Financial planning
- Practice valuation
- Financing
- Due diligence
Having the right professionals involved early can help identify potential issues before the transaction reaches the closing stage.
How Early Should You Start Preparing?
Physicians should ideally begin preparing financially before they find a specific practice they want to purchase.
Early preparation can provide time to review credit, organize financial documents, understand existing debt, determine an acquisition budget, and explore financing options.
Being prepared can also make it easier to move forward when an attractive acquisition opportunity becomes available.
What Financial Documents Should You Have Ready?
Physicians pursuing practice financing may need to provide financial information during the application and underwriting process.
Depending on the financing program, this may include:
- Personal financial statements
- Tax returns
- Bank statements
- Proof of income
- Information about existing debt
- Credit information
The exact documentation required will vary depending on the lender and financing program.
Final Thought
Preparing financially before buying an internal medicine practice can help physicians better understand what they can afford and how an acquisition may fit into their overall financial plan.
Reviewing personal finances, credit, existing debt, available cash, financing options, and the financial performance of the practice can help physicians make more informed acquisition decisions.
Starting the preparation process early can also help physicians move more efficiently when the right internal medicine practice becomes available.
