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Australian Osteopathic Association 25
Awell conceived and executed
practice plan, with location,
premises, professional staff and
support staff all finely tuned to patient
needs and expectations is a profitable
and valuable enterprise. While starting
a practice from scratch has some
advantages, it does not suit everybody.
Buying an established practice has the
advantage of certainty and a helping hand
from the previous owner to make sure all
goes to plan.
BEFORE YOU BUY
Before you buy, conduct a thorough "due
diligence" or checking process. Work some
sessions and make sure the pulse and feel is
right. Review the patient records and make
sure the business has documented, or is
willing to complete, its obligations under
the Privacy Act. Check the staff records
and look for inefficient or excess staff.
Check the lease, and make sure there is a
reasonable term remaining, and/or options
to extend the tenancy.
We used to be relaxed about auditing
the figures on the basis that a fellow
professional could always be trusted. But
a recent client experience taught us this
is not so. By completing some basic audit
processes prior to purchase you can be
sure the books have not been cooked.
WHAT'S A GOOD PRICE?
Be prepared to pay a good price for a good
practice. As to what is a good price, the
reality is that practice values are not that
high. The relatively low set up costs mean
that a potential buyer always has the set
option in mind. This creates a natural cap
on market value -- ie the amount that a
willing but not anxious buyer, and a willing
but not anxious seller would agree on.
There has to be a good reason to pay more
than the equivalent set-up costs, which will
rarely be more than around $50,000.
Higher prices are observed when the
practice produces higher than normal
sustainable profits. For example, if a
practice has generated an average annual
profit of say $200,000 a year for three
years, and has been established for 10
years in a good location with an excellent
reputation, there will be some goodwill.
There is no rule that applies to goodwill,
and no established market for comparable
sales. The answer always reflects the
relative bargaining skills of the buyer and
seller, and the laws of supply and demand.
Our view is that goodwill would probably
lie somewhere between $150,000 and
$300,000, assuming a market salary to
the owner of $100,000 a year and set-up
costs of $50,000. This is a wide range and
suggests a multiple of between 1.5 and
3 being applied to a return on equity of
$100,000 (ie the $200,000 profit less the
owner's salary of $100,000).
Higher values will normally be connected
to more established practices that have a
number of non-owner practitioners,
a good track record and local reputation.
Percentage sales, where the owner, usually
the founder, sells down a percentage to
a trusted colleague under a succession
plan are particularly interesting. Here the
buyer can be very certain of getting what
has been promised, and the seller will
be there for the long term. This suggests
that a higher price is in order, which is
appropriate, due to the lower risk.
TIPS FOR SELLERS
A well-prepared sale information
memorandum and business plan will not
hurt the seller's cause and individuals
shouldn't hesitate to get expert help.
Our advice to potential sellers is quite
straightforward; your business is not your
superannuation and is unlikely to provide
enough to retire on. Make sure you build
up other assets while running your practice
and don't rely solely on someone buying
the practice from you. We have seen hearts
broken, where after decades of dedicated
practice, no one wants to buy the practice,
and clients have to shut the doors. •••
Terry McMaster is the Director of
McMasters' Accountants, Solicitors,
Financial Planners, a multi-disciplinary firm
specialising in doctors, dentists, and other
health and professional persons, self-
managed superannuation funds and high
net worth individuals.
For information or advice, visit:
BUYING AND SELLING
The financial and professional rewards of buying a practice
are profound, provided it is done right.
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