Thinking of buying your practice because the owner is selling or retiring? At Alecto we have seen many GPs in this position who have been pressured to pay a high price to preserve their positions. These GPs pay double or triple the actual value of the practice in order to secure themselves a job, however they end up working incredibly hard to pay off large loans.
If you are thinking about buying your practice, you need to know how practices are valued.
The owner is likely to dictate the price that they want with little questions asked as GPs might be feeling pressured to buy back their own job. The pressure may be subtle but very real.
However, keep in mind that the price of the practice is not determined only by the current owner. The commercial value of a practice may be quite different to the expectations of a retiring owner.
As a general guide, the value is not based on patient numbers as patients are not tied to a practice. In fact, patient databases can be a liability (see below). For a general indication of the price of a practice, you need to look at the profit after it has been ‘normalised’ to take out any circumstances that won’t apply after you buy it. GP Practices are usual sold at a 4- or 5-times multiplier of their profit. For example, if the practice made $100,000 profit in the financial year, then you should not be paying more than $400,000 for it.
Selling a practice is often a difficult process, if the owner was not to sell, then they would have a multitude of problems to deal with. When faced with shutting down a clinic, the owner would need to ensure that all patient files are kept and stored for a minimum of 7 years and in some cases up to 25 years. These patient files need to be secure and patients must be allowed access if requested. This is all a cost that the practice owner must bear if the practice is not sold.
GPs are the real value of the practice as they are the heart of the business and ensure a steady income. The more GPs within the practice, the more the price could increase. Don’t undervalue yourself or your fellow GPs and be informed before buying a practice.
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