What to Look for When Buying an Internal Medicine Practice
Buying an internal medicine practice is a major decision that requires more than evaluating the purchase price. Physicians should carefully examine the practice’s financial performance, patient base, employees, equipment, location, contracts, and future growth opportunities before completing an acquisition.
Thorough due diligence can help a physician better understand what they are actually purchasing and identify potential issues before the transaction closes.
For physicians considering internal medicine practice financing, evaluating these factors can also help determine whether the proposed acquisition and financing structure make sense.
Here are eight important things physicians should look for when buying an internal medicine practice.
1. Consistent Financial Performance
A practice’s historical financial performance can provide important insight into the strength of the business.
Physicians should review several years of financial information when available, including:
- Revenue
- Operating expenses
- Net income
- Cash flow
- Accounts receivable
The goal is not simply to identify how much revenue the practice generates, but to understand whether that revenue and profitability have been relatively consistent.
2. A Stable Patient Base
The patient base is one of the most important assets of an established medical practice.
Physicians should evaluate:
- Number of active patients
- New patient volume
- Patient retention
- Visit frequency
- Referral sources
- Patient demographics
A practice with stable patient volume may provide a different opportunity from a practice experiencing declining visits.
Physicians should also consider whether patients are likely to remain with the practice after the ownership transition.
3. Experienced Employees and Staff
Employees can play an important role in maintaining continuity during a practice transition.
Physicians should understand:
- Number of employees
- Employee responsibilities
- Compensation
- Benefits
- Length of employment
- Staffing needs
A physician should also determine which employees are expected to remain after the acquisition and whether additional hiring may be necessary.
4. The Condition of Medical Equipment
Medical equipment can represent a significant investment.
Before purchasing a practice, physicians should evaluate the age, condition, ownership, and remaining useful life of major equipment.
This may include:
- Examination equipment
- Diagnostic equipment
- Computers
- Medical technology
- Office equipment
Older equipment may require replacement shortly after the acquisition, which can create additional capital requirements.
5. The Practice Location
Location can have a major impact on a medical practice.
Physicians should consider:
- Patient demographics
- Population growth
- Accessibility
- Parking
- Competition
- Nearby healthcare providers
- Proximity to hospitals
If the practice leases its office, the buyer should also carefully review the lease terms, renewal options, rent increases, and remaining lease period.
6. Existing Debt and Financial Obligations
Physicians should understand whether the practice has existing financial obligations.
These may include:
- Business loans
- Equipment financing
- Equipment leases
- Lines of credit
- Accounts payable
- Other contractual obligations
The buyer should determine which obligations are included in the transaction and which remain with the seller.
7. Opportunities for Future Growth
A practice’s current performance is important, but physicians should also evaluate its potential for future growth.
Potential opportunities may include:
- Adding another physician
- Expanding office hours
- Increasing patient capacity
- Adding services
- Improving marketing
- Updating technology
- Expanding the facility
A physician may be able to improve the practice after taking ownership, but projected growth should be based on realistic assumptions.
8. The Purchase Price Compared With the Practice’s Financial Performance
The asking price should be evaluated against the financial performance and assets of the practice.
Physicians should consider whether the purchase price is supported by:
- Revenue
- Profitability
- Cash flow
- Patient volume
- Equipment
- Other business assets
A high-revenue practice is not necessarily a strong acquisition if its expenses are also unusually high.
What Financial Documents Should Buyers Review?
Before completing an acquisition, physicians may want to review documents such as:
- Business tax returns
- Profit and loss statements
- Balance sheets
- Accounts receivable reports
- Bank statements
- Existing debt information
- Employee information
- Lease agreements
- Equipment records
The specific information required will depend on the transaction and the professionals assisting with the acquisition.
Why Due Diligence Matters
Due diligence allows a physician to evaluate the practice before committing to the transaction.
It can help identify financial trends, operational issues, unexpected expenses, equipment replacement needs, contractual obligations, and other factors that could affect the value of the acquisition.
Physicians should consider working with qualified legal, accounting, financial, and other professional advisors during this process.
Final Thought
Buying an internal medicine practice requires careful evaluation of the entire business, not just the purchase price. Physicians should examine financial performance, patient volume, employees, equipment, location, existing obligations, and future growth opportunities.
Thorough due diligence can help a physician better understand the practice and determine whether the acquisition fits their professional and financial goals.
Whether you’re purchasing your first internal medicine practice or expanding through another acquisition, taking the time to evaluate the business carefully can help you make a more informed decision.
