One of the first things new graduates often think of is opening their own practice. Not only is the idea of being their own boss enticing, offers of 100 percent financing seem to pave the way to becoming a business owner in their chosen field.
For others, working in an established practice means having a flexible schedule while avoiding the accumulation of more debt. They get paid a certain amount and don’t have to deal with the day-to-day aspects of running a business. But they also take home less than an owner.
If opening or buying a practice is your goal, ATB’s Tricia Dekker, Director Business Development, Healthcare Professionals, has a few tips.
Be prepared with all your financial information. Lenders want to know as much about you as possible before committing to your vision, she says. The first think she looks for is how long you’ve been practicing since graduation – two years being a starting point.
“Experience is key to being able to make the kind of financial commitments required of going into business because it brings awareness of, not only nuances like dealing with staff but also their own ability as a dentist,” Tricia says.
Getting to know you
As a matter of course, lenders will scrutinize your business and personal finances. They tally up personal debt, including student loans, credit card balances and mortgages. The business information ATB relies on usually comes from the practice itself: is the clinic on a lease or is the site mortgaged, how much is invested in equipment, what are the staff contract obligations.
The information is used to determine if the debt obligations associated with the purchase price meets the applicant’s ability to pay them. For example, a person with a $500,000 student loan might need more funding and the ability to draw more from the clinic than someone with $100,000 in student loans.
A fully developed business plan will increase your opportunities with lenders. If completed well, a business plan shows you’ve done your due diligence, know the existing clinic’s value and your market.
“We want to make sure they’re not going to make significant changes to the clinic because we have seen where a client makes changes that alienate the existing patients and eliminates good will,” Tricia says. Experienced lenders also want to make sure the clinic is suited to the individual. For example, an urbanite might not suit the idiosyncrasies of a rural clinic.
The right partners play key roles in determining if the transaction is appropriate and working towards its success. Get comfortable with mortgage and insurance brokers, lawyers and accountants who are experienced with the industry and health care professionals; they will guide you through the complexity of land leases, staff contracts and other challenges associated with buying a practice.
The perfect partner:
- Has more than two years of experience
- Is already working at the clinic they want to buy
- Demonstrates fiscal responsibility through savings and debt servicing, as well as consistent cash flow
- Has a business plan, lawyer and accountant in place
Add in all the costs
There are a number of “hidden” costs to be aware of when looking into acquiring a practice.
Often a lease negotiator is required to review the clinic’s lease. You might need to create new terms, and make sure any demolition clause is mitigated. Whether you hire a lease negotiator or have your lawyer complete the function, the costs can be substantial, however, the benefits can be just as substantial.
Other costs include legal fees around the purchase contract, as well as drawing up new associate agreements if hiring back the selling practitioner. The purchase agreement often includes keeping the existing staff in place. However, if you are buying shares of a company, you want to ensure you’re not personally liable for any of the staff.
And ATB doesn’t have application fees, we often use the client’s lawyers to register the clinic as collateral, and for loan guarantees, and will bill you for the legal fees.
Are you ready?
You’ve taken the first steps towards becoming a business owner, as well as a practitioner. We’re here to help you take the next. Download our Entrepreneur Guide to Starting and Growing a Business, or read more in our Business Good Advice section.