Tips for Buyers

Once you decide you are going to acquire a practice and are ready to get that endeavor underway, put your thoughts about price and terms on hold and instead focus on:

  1. Be honest with yourself. You have strengths and you have weaknesses. Identify each and be real about the size and type of practice you should acquire. Too often we hear about buyers who take on more than they can handle and really struggle to make the acquisition a success.
  2. Fit. We wrote an article on this topic in March (click here to read). Finding a practice that is a good fit for you should be your top priority. This is by far the first and best step in minimizing your risk.
  3. Review Historical Data. Working in an advisory role with a buyer last year, I was surprised to see how many practices in the market are priced on year-end projections, with little actual financial information supplied. This should be a huge red flag. Before moving too far forward with any transaction (i.e. before making any offer) you should be provided with detailed financial information (revenue and expenses) for the prior three years. We sometimes price on year-end projections late in a year, there is nothing wrong with doing so, but this is always done with an understanding of the previous three years based on the historical financial data supplied to the prospective acquirer.
  4. Economics. Be smart in evaluating the economics of any transaction. Determine the discretionary earnings of the seller and then reduce this with your income requirement, debt service, and other anticipated expenses. Be sure you have a comfortable margin of safety in this calculation prior to moving forward with any acquisition.
  5. Bank Financing. It is out there and readily available to most would-be-buyers. In a seller’s market (which the market still is) this is an important component of your offer to any seller who is entertaining more than one buyer. By taking some of the burden of financing off the seller your offer will be much more appealing. Financing will also improve your cash flow since most bank financing is amortized over 10 years and most sellers are only willing to financing three to five years. That shift in amortization is tremendous.
  6. Due Diligence. Do it. Do it thoroughly. Do not rely on the terms of your transaction to cover your sloppy review effort (in my opinion, this is part of the reason the earn-out transaction model is so appealing to buyers). Identify all that you would like to review, document it, and let the seller organize it so it is an efficient, timely, and thorough process.
  7. Transition. Combined with fit this is the most important step in retaining the clients as the business is transferred. Go into the transaction with this in mind and begin developing a plan with the seller at the outset, so by the time the transaction closes there are already steps underway and there is no abmiguity about next steps or about who is responsible for implementing them.
  8. Put Yourself in the Other Party’s Shoes. Having the ability to see the transaction from the seller’s perspective is crucial when trying to arrive at a deal that works for both parties.

Price and terms are important, but by focusing on the above first and foremost you will have a much more successful acquisition experience and result.

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