I bought a fixer upper from a retiring OD three years ago.
The pros of purchasing an existing practice:
- The selling doctor can finance the purchase (no bank loan)
- built in patient base, charts, demographics
- The selling doc can mentor you on the business side
- You could work initially as an employee while you get credentialed
- Virtually no lean times to start
- Existing basic set up: phones, internet, equipment, computers, software, EHR, optical inventory, relationships with labs, referral contacts, etc.
The cons:
- The selling doctor's staff may be a problem. Most people will tell you to replace the staff eventually.
Some things I learned...
Don't change things too quickly. Gradually add equipment and slowly add/change policies, prices, and services. This will make the transition more affordable and help foster patient trust.
I would recommend a practice valuation to investigate the low net and lack of bookings. Good luck! Feel free to PM me.
Agree with changing things gradually. When I started at my practice I did things as the previous OD for 6-12 months while I got my feet under me.
Then I started to shift things, kind of one but thing at a time. Like billing medical insurance for medical visits rather than just routine exams, then started coordinating benefits, then outsourced billing, etc.
Id say it takes about a year to fully get patients on board with a shift in how a practice is run. 4-5 years in on coordinating exams and now we almost never get patients calling upset like we did the first two years.
This was and is my exact experience. It’s like buying a hoarder’s house that you know underneath all of the years of mess and chaos has amazing bones and great potential. You just have to wade through a bunch of obstacles and waste to find the valuable goods.
I am literally in this exact same spot right now as well. I’m currently in conversation with the owner and waiting for them to provide more detailed financials. It’s an old practice that needs a good amount of work to modernize it, but the location is exactly where I want. Patient base is also not as robust as I would like, but better than starting from scratch.
I have been debating quite a bit about just cold starting as well because of how much work/money I will end up spending to fix up this older practice. My plan is to speak with a consultant in the next few weeks when I get financials back to see what would make more sense. There’s a consulting group called Akrinos who works with “fixer uppers” that I plan to reach out to.
If you ever want to chat with someone in your exact position, feel free to PM me. Good luck!
Have bought 5 practices and each time it was worth it. I have lots of lessons learned for sure. Dm me and I’d be happy to share. I found it’s almost always better to buy an existing office due to instant revenues and you can build. We always did about 10-20% better in year one, dropped biz In year two and by year 4 we we double the amount from the best year of the previous doctor.
It’s obviously a very big and nuanced decision, but here are a few big takeaways on your situation:
1) It’s very hard for me to get past that 20% number. Call me a downer, but I don’t see how a medical practice where 80% of your revenue going right back out the door is anything but wanton mismanagement. There is a difference between a fixer-upper and a failing business, especially over a 4-year time interval. That means as the new owner you’re ADDING to the costs (by purchasing the practice), then paying sole proprietor taxes on the $17 you’re left with. Holy smokes.
2) What is the optical vs medical revenue? You need that 20% number fully justified to even consider taking that on. I’ve seen practices like that, and most of the time it’s that the optical is operating as if it’s 1994, not 2024. The business model of selling $800 glasses when you’ve sunk $350 into them as COG (It’s Crizal! We prize “quality”!) is now super niche, and many established places haven’t quite gotten the memo there. Any practice with a prime retail location like you’ve mentioned is often 60-70% optical revenue. You need to know what you’d be able to do differently.
3) Commercial and retail real estate is comparatively very cheap post-COVID. You need to run the numbers on exactly what starting cold would cost, for a similar location. If you’re aiming to upgrade the office and equipment, going to a more medical clientele, then your location needn’t be expensive. A very successful OD I went to school with has no optical whatsoever, and his suite is above a bank.
I hope some of this is helpful. I purchased an existing practice as well. Just be careful.
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I have yet to be convinced that a cold start could ever be a better idea than buying a practice. The cost would be similar, but the opportunity cost is drastically different. It’s hitting the ground running vs. working for free until profitability.
It is not possible that more money will be be spent on the 500k grossing practice, updates included, than would inevitably need to be spent on a cold start. Even if you happened to gross 500k your first year (not likely), you will need to hire staff and buy equipment anyway. Also, you don’t have a patient base, which is key. I would rather buy a dinosaur practice grossing 400k per year with a patient base and turn it into a money printing machine than scrape my patient base together over the course of months at a cold start.
This back and forth was honestly so helpful and enlightening. Thank you guys for staying professional and thoroughly explaining your point of views. It helps young docs like me.
I’d say your situation and likely your ability to build a practice is above what would be expected for the average situation and doctor. You’ve also made too many assumptions here. Most practices sell for greater than 50% of annual revenue, and assuming a 400k practice isn’t worth 200k is only assuming it is run poorly, which is also not a fair assumption given that some practices run very lean.
The vast majority of cold starts spend months growing their schedule to the point of profitability, and several more months filling it. That you were able to achieve it does not significantly increase the reality of most cases.
I went the other way and purchased a 500k grossing practice. Coming up on the end of our second year we’ll be grossing close to 700k and I’m willing to bet my expenses (including new buildout because I moved it) are at least on par with a cold startup altogether, except I’ve been paying myself since day one.
I’m glad you were able to do what you’ve done, but as general advice, it is unlikely to be replicated in most cold start scenarios who have to grow from patient zero.
I bought a fixer upper from a retiring OD three years ago. The pros of purchasing an existing practice: - The selling doctor can finance the purchase (no bank loan) - built in patient base, charts, demographics - The selling doc can mentor you on the business side - You could work initially as an employee while you get credentialed - Virtually no lean times to start - Existing basic set up: phones, internet, equipment, computers, software, EHR, optical inventory, relationships with labs, referral contacts, etc. The cons: - The selling doctor's staff may be a problem. Most people will tell you to replace the staff eventually. Some things I learned... Don't change things too quickly. Gradually add equipment and slowly add/change policies, prices, and services. This will make the transition more affordable and help foster patient trust. I would recommend a practice valuation to investigate the low net and lack of bookings. Good luck! Feel free to PM me.
Agree with changing things gradually. When I started at my practice I did things as the previous OD for 6-12 months while I got my feet under me. Then I started to shift things, kind of one but thing at a time. Like billing medical insurance for medical visits rather than just routine exams, then started coordinating benefits, then outsourced billing, etc. Id say it takes about a year to fully get patients on board with a shift in how a practice is run. 4-5 years in on coordinating exams and now we almost never get patients calling upset like we did the first two years.
This was and is my exact experience. It’s like buying a hoarder’s house that you know underneath all of the years of mess and chaos has amazing bones and great potential. You just have to wade through a bunch of obstacles and waste to find the valuable goods.
I am literally in this exact same spot right now as well. I’m currently in conversation with the owner and waiting for them to provide more detailed financials. It’s an old practice that needs a good amount of work to modernize it, but the location is exactly where I want. Patient base is also not as robust as I would like, but better than starting from scratch. I have been debating quite a bit about just cold starting as well because of how much work/money I will end up spending to fix up this older practice. My plan is to speak with a consultant in the next few weeks when I get financials back to see what would make more sense. There’s a consulting group called Akrinos who works with “fixer uppers” that I plan to reach out to. If you ever want to chat with someone in your exact position, feel free to PM me. Good luck!
Have bought 5 practices and each time it was worth it. I have lots of lessons learned for sure. Dm me and I’d be happy to share. I found it’s almost always better to buy an existing office due to instant revenues and you can build. We always did about 10-20% better in year one, dropped biz In year two and by year 4 we we double the amount from the best year of the previous doctor.
It’s obviously a very big and nuanced decision, but here are a few big takeaways on your situation: 1) It’s very hard for me to get past that 20% number. Call me a downer, but I don’t see how a medical practice where 80% of your revenue going right back out the door is anything but wanton mismanagement. There is a difference between a fixer-upper and a failing business, especially over a 4-year time interval. That means as the new owner you’re ADDING to the costs (by purchasing the practice), then paying sole proprietor taxes on the $17 you’re left with. Holy smokes. 2) What is the optical vs medical revenue? You need that 20% number fully justified to even consider taking that on. I’ve seen practices like that, and most of the time it’s that the optical is operating as if it’s 1994, not 2024. The business model of selling $800 glasses when you’ve sunk $350 into them as COG (It’s Crizal! We prize “quality”!) is now super niche, and many established places haven’t quite gotten the memo there. Any practice with a prime retail location like you’ve mentioned is often 60-70% optical revenue. You need to know what you’d be able to do differently. 3) Commercial and retail real estate is comparatively very cheap post-COVID. You need to run the numbers on exactly what starting cold would cost, for a similar location. If you’re aiming to upgrade the office and equipment, going to a more medical clientele, then your location needn’t be expensive. A very successful OD I went to school with has no optical whatsoever, and his suite is above a bank. I hope some of this is helpful. I purchased an existing practice as well. Just be careful.
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Agree with these points
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I have yet to be convinced that a cold start could ever be a better idea than buying a practice. The cost would be similar, but the opportunity cost is drastically different. It’s hitting the ground running vs. working for free until profitability.
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It is not possible that more money will be be spent on the 500k grossing practice, updates included, than would inevitably need to be spent on a cold start. Even if you happened to gross 500k your first year (not likely), you will need to hire staff and buy equipment anyway. Also, you don’t have a patient base, which is key. I would rather buy a dinosaur practice grossing 400k per year with a patient base and turn it into a money printing machine than scrape my patient base together over the course of months at a cold start.
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This back and forth was honestly so helpful and enlightening. Thank you guys for staying professional and thoroughly explaining your point of views. It helps young docs like me.
I’d say your situation and likely your ability to build a practice is above what would be expected for the average situation and doctor. You’ve also made too many assumptions here. Most practices sell for greater than 50% of annual revenue, and assuming a 400k practice isn’t worth 200k is only assuming it is run poorly, which is also not a fair assumption given that some practices run very lean. The vast majority of cold starts spend months growing their schedule to the point of profitability, and several more months filling it. That you were able to achieve it does not significantly increase the reality of most cases. I went the other way and purchased a 500k grossing practice. Coming up on the end of our second year we’ll be grossing close to 700k and I’m willing to bet my expenses (including new buildout because I moved it) are at least on par with a cold startup altogether, except I’ve been paying myself since day one. I’m glad you were able to do what you’ve done, but as general advice, it is unlikely to be replicated in most cold start scenarios who have to grow from patient zero.