Buying an Existing Medical Practice Vs Starting Your Own Medical Clinic

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Potential medical practice owners must decide whether to purchase an established medical practice or start one from scratch. If organizing and managing a project doesn’t intimidate you, and you have the funds and business skills, then creating a new business can be very attractive. With a new practice, you have complete freedom and control over everything from the location and design to staffing and setting the practice’s direction and culture. Starting from the beginning allows you to shape a practice that aligns with your vision and goals for your finances and lifestyle.

However, starting a practice can be stressful. You’ll have to design a compliant practice, secure permits, buy equipment and supplies, hire staff, manage the practice, and market it—all of which can be costly and take a lot of time. This is why many doctors opt to buy an existing practice that’s already up and running. It’s usually less risky because an established practice has a steady client base, ensuring ongoing revenue after you take over. Plus, you can experience the practice firsthand, which offers more certainty about its future profitability.

Advantages of Buying an Established Medical Practice

Some of the other advantages of buying an established medical practice include: 

  • The existing client base provides revenue and cash flow. When you’re buying a medical practice with an established patient base, there will be cash flow from the start and when taking over which enables the business’s financial commitments to be better met. 

  • Experienced staff means that we already have employees who are familiar with the running of the clinic, its processes and are familiar with patients. The staff usually won’t need to perform more training to be competent and efficient so we can save time and costs. 

  • Obviously, there will be no time and effort required for setting up we don’t need to factor in lengthy time to plan, build and set up a new practice. Existing equipment, supplies, furniture, and IT infrastructure should already be in place. 

  • The practice already has goodwill and hopefully, an established reputation: The suburb and its residents will already be familiar with and know of the practice and the dental services it can provide. 

  • Reduced marketing requirements: You won’t need to invest in an extensive launch campaign, which will save on marketing and advertising costs. 

Disadvantages of Buying an Established Medical Practice

Of course, there are also disadvantages when buying an existing medical practice. These include: 

  • Aged or dated equipment: An older medical practice may have old equipment, furnishings or outdated IT hardware systems and IT infrastructure. The signage and outside of the premises may need to be updated.  

  • Employee issues: Some staff members may not initially like any new processes rosters, systems or changes we wish to make, or we may not be happy with aspects of employee workplace performance and overall staffing requirements and structure.  

  • Rebranding costs: You may want to rebrand the practice, and this will involve new marketing and promotional costs, or redesign the physical premises, resulting in added cost. 

  • Professional reputation of the practice previously and currently: The practice may have received negative reviews online or feedback or been confronted with some reputational damage in the past which can be difficult to rectify especially online. 

  • Loss of goodwill: Often for variety of reasons patients may decide to leave after any change of ownership. Fee structures and new treatments and treatment plans may be off-putting to existing clients. Existing patients aren’t guaranteed to stay with the practice but may follow the previous medical professionals to their next practice if the previous owner leaves to another clinic. Often the principal will stay and or there will be restraint of trade clauses to prevent this situation. The previous owner staying for period is often crucial to the initial success of the new business.  

Important Considerations When Buying a Medical Practice

When deciding whether buying an established practice is the right decision for you, there are some important factors to consider: 

  • Location of the clinic and price of the practice: A practice that’s located in a busy metropolitan area may have a higher purchase price, but then access to more clients over the long-term than a clinic located in a country area. We should always get our professional team of accountants to analyse and review the practice’s financial statements to assess its value and consult with business brokers like Palladium business brokers for appraisal of the business. We should also plan to review future income earning and growth potential.  

  • Owning the freehold. There can be situations where the previous owner still owns the property, or will it involve leasing the premises? We would need to review the terms of the lease and are we able to takeover and continue the lease for at least a longer number of years. Often a long tenure is much more secure, and financiers will often demand this. 

  • The value of any medical equipment, IT hardware and servers, software systems, furniture, instruments and stock. Checking what’s included in the sale. We need to check what needs to be updated and its associated costs. How current is IT hardware and what type of clinical and billing software is present at the practice? Does the practice have cybersecurity IT and strong privacy and record management systems in place? 

  • Other assets or intangible asset value: These can include actual client lists and patient records, the clinic’s previous and current reputation, the relationships with patients and specialists, and the expectation of a good recall rand return visits from patients. Does the practice have an agreement with any health insurance providers or other third parties or even pathology companies? Is it bulk billing or private billing or both? It can be a good idea to seek a professional appraisal or even a valuation before buying a business. Palladium Business Brokers offer free appraisals on medical businesses considering selling. 

  • Are there existing Employee liabilities: New practice and business owners usually take over the existing staff contracts. With the help of our legal representative, we need a clear picture of current employees’ annual leave, sick leave, long service leave and tax liabilities, before entering any contract of sale as these can have a bearing on the sale price. 

  • Future considerations: Growth potential and any planning issues that may affect the location. How long will the previous owner stay for? Are there any developments or council regulations planned for the location? Are there opportunities to either expand, improve, and grow the business through marketing and new treatments?  

Professional legal and financial advice is vital to making sure of a smooth transition into owning and managing your own practice. Whether that’s buying an established medical practice or commencing a new one. Often the choice between setting up a new clinic or purchasing an established medical clinic comes down to the practitioner’s individual circumstances, financial considerations, stage of their professional career and their desire and need for business development of their own design. Palladium Business Brokers are available to help medical healthcare professionals achieve their goals.  

Written by

Dr Philip Baker

As a former healthcare professional of 28 years, Dr Philip Baker is now a registered Sales Agents Representative and Business broker. Philip has been involved in numerous sales and purchases of large successful dental clinics. Philip is a Licensed Agents Representative and a member of the REIV and is also a member of the Australian Dental Association (35 years), Australian Institute of Business Brokers. Phil’s extensive experience and knowledge, along with his professional manner will help his clients achieve their ultimate aims and help achieve successful sales and purchases for their health care businesses.

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