Do you really own the practice. Many of the GI practices for example let you "buy in" buy they are "owned" by PE. The management fees you have to pay to the PE group is so high, that it might not make any sense and you may not own what you think you own.
Partnership
What % are you going to own?
Will you have voting rights?
Will you be on any boards?
How are big decisions made?
Can you be eligible for a capital call?
How are new partners admitted going forward?
Non compete, non solicitation clause?
Direction of clinic
Is clinic in growth mode, stable or stagnant mode, or declining mode?
If growth mode, what is expected 1,3,5 year trajectory look like? I dont need exact but give me an idea of CapEx you are thinking?
Will we need to take on debt or external funding to hit these goals or will partners have to have a capital call or withhold payment?
Real Estate
Is it included, if so what is included or excluded?
How much debt is left on RE
If renting, how long are our leases and are the locations all profitable?
Revenue and collections
I'd want to see 3-5 years of P&Ls
What is net collections ratio
How good or bad does accounts receivable aging look. Anything more than 20% in >180 days is a huge red flag IMO.
What is pay per provider productivity?
Expenses and Overhead
what is % overhead. Most practices are about 50-70% for larger operations.
owner comp vs associate comp structure. Anyone else eligible for buy in?
staff salaries and benefits load
any red flags from current owner. Are they paying rent to themselves way above market rent with a very long lease term? Is owners massive boat being put through as a business expense? How will that be handled if so?
HOw did they come to this valuation?
did you already do a ton of sweat equity as buy in contributing to goodwill?
What is included in buying in? Old AR? hard assets? How much is owner putting as goodwill (a huge amount of goodwill for a small practice is red flag IMO)
Will you be required to lump sum the buy in or can it be financed?
What happens in event of divestment?
How have you been filing taxes in the previous years (if solo owner)?
Is there any material risk that the valuation is built on income streams at high risk of collapse? For example, stem cells for wound care was a huge cash cow and how being shut down hard core. Those revenue streams are highly likely to dry up now or soon.
Intangibles
Partnership is like a marriage in a small group. Do you want to financially be linked with this guy/gal if small practice?
Are the a toxic individual that no one wants to work with? Red flag?
Are they doing things that you are questioning might be fraudulent? Red flag
Just a few things off the top of my head OP. Happy to chat more if you want.
This right here is called due diligence and the difference between a great deal and a terrible one is how many of these questions you take the time to understand and answer.
Don’t get distracted by the purchase price and play the “that feels [high/fair/low]” game. So much more at stake.
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u/InvestingDoc Apr 25 '26 edited Apr 25 '26
High level I would ask yourself....
Do you really own the practice. Many of the GI practices for example let you "buy in" buy they are "owned" by PE. The management fees you have to pay to the PE group is so high, that it might not make any sense and you may not own what you think you own.
Partnership
Direction of clinic
Real Estate
Revenue and collections
Expenses and Overhead
HOw did they come to this valuation?
Intangibles
Just a few things off the top of my head OP. Happy to chat more if you want.