Buying a medical practice can be an exciting and profitable opportunity. There are several considerations to consider before you purchase a practice. First, you should consider the costs of the purchase. This includes the startup costs, the tax implications, intangible benefits and legal issues. After you have figured out how much you want to spend, the next step is to identify the medical practice that is the best fit for you.
Costs of buying a medical practice
The costs of buying a medical practice may vary depending on the region of the country. In most cases, you can buy a practice for about 70 percent of its value, including goodwill, or less. Hospitals often offer free management services to physicians who are new to the area, and many will help you find call partners for the first few years. Goodwill is an important consideration, since it accounts for 70 to 90 percent of the practice’s value.
Physicians should also account for professional development costs. These include membership dues and continuing education. The costs of marketing a medical practice are ongoing, and physicians should create a website and blog to attract patients. Some physicians also hire a marketing professional to manage their Facebook business page, engage in social media, and write blog posts. This can be expensive. However, if you plan on bringing in a good number of patients, it’s worth the cost.
Medical practice space is another important cost. Depending on your practice size, you’ll have to decide whether to lease or buy. Most practices require between one and two thousand square feet of space. The price of this space can range from $2,000 to $2,500 per month. In addition, if you want to lease a space, make sure the lease covers common area maintenance, insurance, and taxes. If you choose to lease, you’ll have to pay the rent over a multiyear period, so make sure you’re comfortable with the length of the lease.
Besides the financial aspect, there are also intangible benefits of buying a medical practice. Intangible benefits include increased pay and potential incentive-based compensation. Working with other physicians in the practice can also create a great work environment that will lead to higher customer satisfaction and more substantial profits. If you’re looking to buy a practice, you should consider hiring a practice broker to help you find the right practice.
Another cost of buying a medical practice is purchasing equipment. PPS recommends buying equipment that is less than $15,000. If you need to purchase expensive equipment, you might consider financing it. This option is especially attractive when you’re working with rapidly-changing technology. Equipment Loans Online offers several ways to finance a medical practice. You’ll also need to acquire malpractice insurance before starting any medical credentialing paperwork. Malpractice insurance can range anywhere from $17,000 to $40,000. General liability insurance can cost as little as $1,000 per year.
Tax implications
A medical practice is a complicated undertaking, and a physician who is financially savvy may want to consult a CPA before transferring the ownership. Although the transaction is often simple, tax implications when buying a medical practice are complex and important to understand before embarking on the process. Generally, only one component of the transaction will be beneficial to either party. But even experienced physicians can make mistakes that may have long-term tax implications.
A physician practice acquisition is a complex transaction, involving numerous tax, regulatory, and practice valuation considerations. These issues impact both the seller and buyer. This article will provide an introduction to the tax issues involved with health care business sales. In a future client alert, we’ll explore practice acquisition valuation considerations. For now, though, we’ll focus on the tax aspects of practice acquisitions. In the meantime, please contact us for more information.
One of the biggest tax considerations when buying a medical practice is the potential liability. If the health care practice is a C-corporation, the tax implications of transferring ownership are significant. You may be obligated to pay Use Tax on any tangible assets. This may be a huge burden if you plan to sell the practice. A potential buyer should request a Buyer Beware publication if they’re unfamiliar with the tax implications.
The sale price for tangible assets is always based on the fair market value of the assets and must comply with health care regulatory requirements and IRS guidelines. The buyer will recognize a taxable gain or loss upon selling the practice, depending on how much the seller has depreciated the assets. If the price is more than the fair market value, the seller will have to pay a higher tax burden on the excess proceeds.
Intangible benefits
As a physician, you understand the intangible benefits of buying a medical practice. You have worked hard for many years and want to get your fair share for the practice. In order to maximize the value of your practice, you should have a fair appraisal done. Mark Kropiewnicki, president of Health Care Law Associates, P.C. and principal consultant with The Health Care Group, Inc., says that a practice valuation is a must when a hospital decides to purchase your practice. You should also be aware of how this affects tax implications and divorce property distribution.
Intangible benefits are those that people can sense and experience, but which are not directly quantifiable. The value of an intangible is often shaped by reason and emotion. In a chemical company, for example, the importance of intangible benefits is acknowledged in the products it sells. Moreover, it is important to understand that these benefits are often hard to quantify, so you must be proactive in helping the customer assess the value of your products.
Buying a medical practice may have many intangible benefits. You will likely earn higher pay and be eligible for incentive-based pay. You will also benefit from working with other physicians, creating a great team environment that will lead to higher customer satisfaction and substantial profits. The value of a medical practice isn’t just financial; it also comes with a long-term reputation that will be valuable for your practice.
Goodwill is another asset worth valuing. Not only does it add to the value of a medical practice, but it also gives you peace of mind and confidence that your decision will be the right one for your future. Goodwill is an important asset for any health care organization and may make or break an acquisition deal. For example, a hospital might own valuable intangible assets, such as intellectual property, professional licenses, and office systems.
Legal issues
There are many legal issues to consider when buying a medical practice. In addition to identifying the legal and financial constraints, a background check can help determine the level of risk and negotiate favorable terms for the business transaction. In the end, the decision to purchase a medical practice will likely come down to the numbers. These decisions include everything from managing the practice’s finances to corporation questions, office policies, real estate leases and bank loans. Purchasing a practice also requires taking steps to protect the practice from employee theft and address tax issues.
The buyer of a medical practice should negotiate terms of purchase and sale that include terms related to financing and restrictions on the seller’s ability to practice medicine within a specified area. Restrictive covenants should be explored carefully with the seller, and an attorney should be retained to enforce them. In addition to discussing the financial terms of the transaction, the buyer should also understand the seller’s obligations regarding any drugs that the practice may have. In many states, non-compete clauses are limited in geographic range and duration, which is a good place to start.
Regulatory and ethical compliance concerns are another major consideration when purchasing a medical practice. The sale of a medical practice is regulated under several statutes, including Stark law, fraud and abuse regulations, Tax Exempt statutes, and antitrust and unfair competition laws. If the sale of a practice is a non-profit business, certain restrictions may apply. It’s best to discuss the implications of these laws in advance.
In addition to discussing the legal aspects of purchasing a medical practice, the physician should also consider how healthy the practice is overall. It’s critical to consider the potential liabilities of the practice before signing a Definitive Agreement. These liabilities could jeopardize the deal and create a legal risk for the selling physician. The physician should be prepared for such eventualities. A letter of intent should also spell out the terms of the sale and its conditions.
