The Practice Manager's Guide to Buying a Practice - McMasters ...

at no more than 30%, since it can be distributed and paid to an investment company. John and Bettyare making more than $200,000 more than they were before they became owners, are workingshorter hours, are able to take time off when the children require support, and are building upvaluable investments every week.Buying a practice was the best financial investment Dr John and Dr Betty will ever make.A selected list of sales is displayed in appendix 4 at the end of this guide. This appendix is not acomplete list of the sales McMasters’ have been engaged in over recent years, and further evidenceof the market values of general practice goodwill can be supplied on request.A special note for specialistsThe position of specialists and goodwill is more difficult than it is for general practitioners. Thestronger emphasis on a refined and focused body of knowledge, and the greater need to rely on abody of referring doctors, means the specialist doctor is less likely to be able to sell the practice at aprice that shows goodwill.But there can be exceptions. For example, a medical-legal specialist could be able to gather togethera small team of professionals to provide services under a common letterhead. Here the letterhead isimportant, and not the particular doctor who signs that letterhead. Goodwill exists here.In certain specialties, such as radiology and pathology, the need for a wide distribution network andthe need for a large amount of capital expenditure create almost insurmountable barriers to entry. Adoctor has little choice but to join an established practice and, after having earned his or her stripes,buy in to the practice at a price which reflects goodwill.Some ophthalmologists achieve large goodwill payments, particularly where laser techniques areused. However, some periodontal practices have also done very well in the goodwill stakes.Generally, though, specialists should discard goodwill and look to maximising their long-term wealthby increasing profits, and by directing excess cash into other investments.3.5 PRACTICE VALUATIONMcMasters’ are frequently asked to comment on the value of a client's medical practice. Thequestions are asked for a variety of reasons: the client may be interested in selling all or part of hispractice, the client may be interested in buying all or part of a practice, a divorce might be imminent,or the client simply wants to know what his practice is worth.The question is asked more frequently for a partnership than a sole proprietorship. For obviousreasons there are more changes in partnerships than there are in sole proprietorships. Value needsto be calculated each time a partner leaves, or joins, or the fractional shares of the partners change.19