10 tips to know before buying a medical practice in Australia

If you are thinking about buying a medical practice in Australia, you will know that it is a big step, particularly if this is your first practice purchase.

There are many reasons why people elect to buy practices or buy into a practice. Perhaps you are seeking increased earning capacity, a larger share of profits, or simply to have some control over the bigger picture of life in a practice. If you are already involved with the practice, buying in will typically allow you to have a greater impact on shaping the culture of your workplace. However, making the transition from doctor to business owner takes time as well as patience, in order to ensure that things go smoothly.

Like any business, buying a medical practice is a big investment - both financially and professionally - and there are a number of elements to consider before you sign on the dotted line. Below are ten considerations to prepare you for what to expect, from when you first start looking for a practice to buy, through to signing on the dotted line.

1. What is it that you really want?

It is a good idea to take time to think carefully about what you are seeking in a practice before you begin looking. This ensures that you won’t get distracted by prospective medical practices that won’t serve your vision. Having some non-negotiables established will help. 

Think about your ideal scenario. What kind of patients does that practice serve? Does it incorporate a specialty area, such as obstetrics? Do you want to solely own it, or do you want to have partners in the business? How big would your team be? Where would it be - close to home or a bit of a distance away, so you have a bit of anonymity in your free time?

2. What are you really taking on when you buy?

You need to understand exactly what you would be taking on with any practice you consider buying. Is the medical practice busy and thriving? Will a lot of patients stay with the practice upon handover, or would they follow the outgoing doctors? While this may not become obvious until you have done your due diligence, you will need to ensure you look at the contractual obligations of the staff. Then, you can weigh up the likely impact upon the medical practice if, or when, key people leave.

Next, think about how much time you will be required to spend on the business side of the practice. Is there a Practice Manager and administration support? A key consideration is whether the staff have been there a long time, in which case they may be best positioned to assist you with the transition. 

You will need to do your due diligence and understand the specifics of what you are buying into. Some documents you will want to review include profit and loss statements for the past three years, tax returns for the past two years and a fee schedule. You will also need to examine the staff agreements, both the Full Time Employee Agreements and any Doctor’s Agreements, and make sure they are clear and up to date. 

If you’re not currently working in the practice you are considering buying, ask for current photographs of the practice that clearly show the condition it is in. As well as photos, you will want to see a floor plan demonstrating the set-up. This may be attached to the lease however, check it is up-to-date, as internal walls and room formats can change over the years.

Examine any lease that you will be taking over and ensure you understand the key terms, including your responsibilities under the lease and the timeline. Look at when the lease is due to end. Determine if you will be able to apply for an extension and, if so, when? 

Sometimes, the owners of the medical practice own the property through another entity. It may be the case that you will be leasing it from them unless, of course, the property is part of the sale price.

3. Know what is and is not included in the sale

It is critical that you understand exactly what is covered under the prospective sale. The following concepts may not all apply to the medical centres you look at, but it is worthwhile to consider them nonetheless. 

You may be buying the goodwill of the practice, which can include patient records and lists, appointment lists, recall lists and referring doctors’ lists. You may be buying a business name and business intellectual property such as a trademark. You may also be buying plant and equipment or the lease to some equipment, as well as the lease to the property.

What you might also be buying are liabilities, such as outstanding or ongoing debts. 

4. Get to know the market

Don’t settle for the first medical practice you see or even what you think you want. Give yourself time to think. Familiarise yourself with the market, just like you would if you were looking to buy a house in a particular suburb. Look at what has sold recently, as well as similar businesses for sale. This will give you an idea of what you can expect to get for your investment and what kind of price you can expect to pay. Start searching early, even if you are looking at buying in at the practice you currently work at. You need to be aware of the broader market to know what will be best for you overall, in both the short and long term.

5. Valuation

Now that you have some context, you need to determine the value of the practice you are most interested in. Is it a reasonable price for what you will be getting? Can you negotiate? What about GST and stamp duty? Be clear in your mind about what you can afford and where you are getting the money from. 

You need to be sure that this practice is a wise investment, so this is where you will need to work closely with your accountant.

6. Communication

Communication is key in any sale. We recommend that you and the seller are on the same page. Ask them questions about what they plan to do after selling and where they are going. Could they be a potential competition? 

It may be wise to include a restrictive covenant in the contract restraining them from setting up nearby. Or, if they wish to continue to work in the practice, either short or long-term, an agreement will need to be made that is clear and covers the specifics of this arrangement. Even if they intend to stay on, taking into account a non-compete restraint in the first few years of taking over is wise.

7. Understanding the steps to take and the type of sale you are engaging in

Generally, the sale of any business involves a period of negotiation, an exchange of contracts and then completion. When it comes to buying a medical practice, there are two main types of sales, and there are different considerations for each.

Corporate Sale

The first is a corporate sale where all the partners are bought out by an independent buyer. In this case, there will need to be a Heads of Agreement covering the process leading up to the sale. The Sale Agreement then sets out the details of what is to occur with the assets, shares or units, depending on how the business is structured. A Practitioner Services Agreement will be needed if the outgoing owner intends to continue working for the practice.

Internal Sale

The second is an internal sale, where one partner sells their share to the others, or another person buys in. If you already work in the practice that you are buying into, that is an internal sale. This often ensures a smoother transition since you will be familiar with the practice and with the staff. 

In the case of an internal sale, foundation documents such as the Owner's Agreement may govern the process. If you are replacing a partner rather than just buying in, an Exit Agreement will be needed to spell out the terms of the former partner’s departure. There may be other governance documents that will need to be prepared, but the content of these will depend on how the business is structured.

8. Privacy Obligations

Ensure the Sale Agreement includes how privacy obligations under State and federal legislation will be met. It should detail the records you can access, how to store patient records and for how long to store them before you are able to destroy them.

9. Be patient with the process

Owning and operating your own business requires not only an investment of money but also considerable time and energy. If you have not owned a business before, you will need to develop a new skill set that grows with the business. 

Many of the above steps may contain concepts that are entirely foreign to you at this point, and getting your head around them can be daunting. However, you are not alone in this process. Your accountant will be an incredible source of data and insight. Equally, when you seek out advice from people like us who assist in these processes daily, you can be confident that we can talk you through any concepts that are unfamiliar to you and know what to look out for.

10. Plan ahead for insurance

In the event you decide to purchase, you will need insurance. You will want to make sure your practice insurance commences immediately from the completion of the sale, so you will not need to worry about anything except familiarising yourself with your new role. You may also need life insurance policies as a Director.

Often, accountants refer you to us, although you do not need a referral to contact us. We can assist you in drafting your due diligence documents, including reviewing all documents once you have obtained them. We can draft the Memorandum of Understanding and assist you with the legal due diligence if it is required. What can be overlooked in medical practice transactions are the nuances in a sale that lawyers, less familiar with this area of law, may overlook. Due to our experience in helping people buy medical practices in Australia, we are familiar with the issues that can arise and are experienced in crafting solutions for problems.

Related Articles: From Sole Practitioner to Medical Centre Owner

How to grow a thriving medical practice

Because we work with practice owners and managers every day, we are uniquely qualified to assist people through this significant transaction and ensure it can be the smoothest possible transition for you. Thinking about buying a practice? Reach out to us here, and we will select the right team member to match your needs.