Merging an Existing Practice

​If you already own a practice, have you ever considered buying an existing practice located close to your first practice and merging them together?  If you ask most doctors, they will say the best way to build a practice is through taking care of your patients and bringing in new patients via word of mouth and marketing.  And, they would be correct.  However, acquiring a second practice and merging the two together makes sense in many ways.

First off, have you ever calculated the cost of acquiring a patient via old fashioned word of mouth?  It requires a lot of work if you include everything from building your brand, training your staff, maintaining a spotless, high-tech practice, etc., the cost could easily be $1,000 per patient.  The cost of acquiring a patient via marketing is even more.  Acquiring a practice with existing patients can typically run from $800 per active patient to $1,000 per active patient.  Slightly less to maybe equal of acquiring a patient through a normal channel.  However, you get a high volume of patients very quickly.

Secondly, you acquire a stream of revenue at a near dollar to dollar relationship.  If the selling practice is producing $500,000 per year, you should be able to repeat the $500,000 in revenue by merging the practices together, or worst case, slightly below the $500,000.  The good news, is you don’t bring over all of the expenses of the selling practice.  You typically can save in a number of ways including reducing staff of the selling practice, utilities are not double as the practices merge to one location, there is only one rent payment (more on that in a minute), only one set of books, so only one payroll service and one bookkeeper and accountant and several other services can be eliminated.  So, while getting the majority of the revenue to increase your practice collections, you only get a portion of the expenses.  This increases the income of the practice owner – you!

Regarding rent, you may initially have to bite the bullet and take on an additional rent.  A perfect scenario is when the seller is month to month on their lease, or a short period left on the lease.  But, if there is a longer period of time left on the lease, you can evaluate the location to determine if it can be sub-leased.  Another scenario may call to take on the second location for a few years while the lease runs out.  This dilutes the savings, but still allows you to increase your collections.