Starting a new practice is an extremely risky venture as a result of increased competition and an unpredictable economy. A doctor would be wise to consider purchasing an existing practice instead of starting a new one.
It makes sense to acquire the “good will” of a doctor already established in the community. Being introduced to and treating hundreds and even thousands of patients of the acquired practice accelerates growth and income tremendously.
The potential income ranges accordingly between purchasing a practice with an established cash flow, to starting a new practice where growth and net income can be painfully slow.
Consider the following scenario:
1. Dr. “A” purchases a practice grossing $250,000 per year and within two years builds it into a $350,000 per year practice.
2. Dr. “B” starts a new practice and in seven years builds it to a $350,000 gross. Projected first year income is $50,000, second year $100,000, third year $150,000 increase, etc. (This is much higher than average growth rate for a new practice.)
The fixed overhead expenses for each office is the same; production expenses (lab and supplies and extra staff, etc.) were higher for the purchased practice, but so is the income.
In seven years, the purchased practice produces gross revenues of $2,300,000 and a net profit of $1,100,000. The new practice produces gross revenues of $1,400,000 and a net profit of $560,000.
Dr. A, in the same seven years, will earn $540,000 more net income than Dr. B!
The reason? There was an established patient-base that resulted in immediate income to Dr. A’s practice. He was busy from the first day he took over the practice.
Dr. B, on the other hand, has to spend a great deal of time and effort getting established in the community. Patients begin to trickle into the office, and the practice grows slowly over time. The problem for Dr. B is that the overhead is high while the income is low, so there is little or no profit for quite a while.
Dr. A enjoyed a substantial net income from the first month in practice and continued to enjoy a higher income for that period.
You cannot afford to make a mistake. Call Legacy Practice Transitions and discover the practice opportunities that await you.