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

3.1 TO BUY OR NOT TO BUY?SpecialistsFor specialists the question of whether to buy or not is easy to answer, as specialists rarely buypractices. The specialist’s service is usually just too personal to justify a goodwill figure, and locationis not critically important. The capital cost of starting up is too low to justify buying an existingpractice as a going concern, as opposed to starting one from scratch. Goodwill may be found wherethe specialist practice derives a large part of its income from plant and equipment, and/or theefforts of other practitioners. Radiology, sleep disorder units and cardiac assessment centers are afew good examples.Although in some specialties, for example periodontics, large sums may change hands in order totake over the referral base of retiring periodontists; generally, there is little goodwill in specialistpractices. Specialists usually start their practices from scratch, (typically on a part time basis whilekeeping other part time jobs elsewhere), and gradually build up to full time private practice. Thepattern may be accelerated by joining an existing specialist group, and getting some “spillover work”or extra sessions through this connection.There are some exceptions, and in the case of specialist dentists, the goodwill values can besurprisingly high: $300,000 for a busy periodontist practice is not unusual. The rule of thumb,however, is that most specialist medical practices do not have a financial measure on goodwill.General practitionersFor general practitioners the position is different. There is a serious shortage of GPs throughoutAustralia. It is not hard to find a practice that is prepared totake on an owner doctor, if that is their intent. The laws ofNot Buysupply and demand are firmly in favor of buyers, due tothis shortage, and practice prices, i.e. goodwill, isB U Ycommensurately low.Goodwill values are very low at present. Low values skewthe “to buy or not to buy” decision firmly in favor of “Buy”.Both options, however, have their advantages anddisadvantages.Starting from scratch is probably the harder and moredaunting option, but it has the advantage of not having topay for goodwill. It also has the advantage of having control over what happens, not being restrictedby what has happened in the past, or what business partners may decide to do. Location, staff andpremises are an open book, allowing decisions to be made autonomously.Goodwill can be created to enable the possibility of selling to another practitioner down the track:the 50% discount on all assets held for more than 12 months, the 50% exemption for capital gains onthe sale of active assets, and the rollover rules for the remainder, means in most cases the amountreceived is capital gains tax (CGT) free.4