Written in collaboration with Leon Garber of Aesthetic Growth Partners Leon@aestheticgrowthpartners.com
Phase 1: Get a General Overview of the Practice
The first step when considering the purchase of a healthcare practice is to get general information about the practice and its customer base to determine if it would be a good fit for your business goals.
- Ask: Why is the seller selling?
- Does the seller work “in” the business or “at the business”?
- Is the seller also the lead provider? If yes, will they stay on after the sale?
- Evaluate the practice’s patients and treatments.
- How often does the average patient visit?
- What are the top 5 treatments as a % of revenue?
- How many active patients are there (visited in the last six months)?
- What is the average order value?
- Who are the top 20 patients by revenue?
- Treatment trends over last 3 years: increasing or decreasing for each treatment type, and why?
- Evaluate the practice’s social media and marketing.
- How extensive is their email list?
- What is the average email open rate?
- How many followers do they have on each social media platform?
- How engaged are the followers?
- Review the books.
- Ask for three years of tax returns, balance sheets, and profit and loss statements.
- Ask about any threatened or pending claims or lawsuits.
- Ask for all loans and liabilities.
- Compare EOY accounting software generated statements against that year’s tax returns to understand current year’s interims better.
- Ask about the real estate.
- How long is left on the real estate lease?
- Is the landlord willing to extend?
- Will landlord accept an assignment or require a new lease?
- Will a personal guarantee will be required? If yes, full lease term or descending obligation?
- Ask about capital equipment on site:
- Will all of it stay and is it all owned by the entity to be acquired?
- Is it under warranty (if yes, from manufacturer or 3rd party maintenance).
- When were last P.M.’s completed?
- What is the cost of consumables per treatment?
- Ask: What assets and liabilities is the seller including in the sale? (equipment, loans, working capital, accounts receivable, rebates, etc).
Phase 2: Due Diligence
If you are still interested in purchasing the practice, now it’s time to do some due diligence to ensure you identify any hidden pitfalls before making the purchase.
- Review the practice’s compliance with healthcare laws and regulations.
- Are they set up correctly for their state?
- Do they have an MSO/MSA?
- Do they have a protocol manual?
- Do they have the required licenses for the space?
- Are they following scope of practice laws?
- Ask: What employment and other contracts and promises are currently in place?
- Is the seller willing to sign a non-compete and non-solicitation?
- Are the providers being paid commissions?
- What is/are the compensation models currently in place? How long have they been in place (compare/contrast revenue, etc…from prior to comp plan implementation to after implementing).
- Is compensation above market and will it need to be adjusted? If likely, “mystery shop” local medspa/aesthetic employment scene to ascertain what competitive compensation looks like locally.
- Obtain an independent valuation of the practice. We can recommend valuation companies to you.
- Ask: Are there any pending or threatened lawsuits?
Phase 3: Closing the Deal
At this point, you have a solid understanding of the healthcare practice for sale, putting you in a strong position to negotiate with the seller and create a mutually-beneficial transition plan.
- Ask: Is the seller willing to share the risk with you?
- Are they ok with a holdback or earnout?
- Will they offer seller financing?
- Make a transition plan.
- Who will run this practice post-sale?
- How much will they be paid to do so?
- Which employees will stay?
- How long of a transition period is the seller and key employees willing to agree to post-sale?