Let's look at what you need to know before buying an existing business? Tricks and Traps as well as Myths and Truths.
In most cases, buying an existing practice is a much wiser option; both financially and in terms of risk. The practice will have known fee levels (presumably these will be transferable to you as the new owner – Check), a good and loyal client/patient base, a financial and cost structure which is both understood and works for you, and a sustainable future.
Many of these and other aspects about the practice will be checked and validated by you during Due Diligence. Ultimately, you should be buying a practice you know, understand, and want. More importantly, it should suit you and your personal style of practice as well as your objectives.
It is also important to remember that you are buying the future, not the past. Historical results are only relevant to the extent that they assist you to predict or understand what the future may hold. Future net cash flows are what drives business value and pays your borrowings as well as creates wealth.
Here are a few questions you should ask when buying an existing practice.
- Will the fees transfer to a new owner?
- Why is the practice for sale?
- Can I improve the business?
- What is the outlook for the practice?
- Is the business profitable?
The answers to these five basic questions will either encourage you to proceed with further analysis and inquiry or enable you to realise that this practice is not for you.
These five questions are examples of some of the questions you should ask when reviewing an established practice. You should build your own personal checklist which includes these five basic questions as well as a range of questions relating to your personal objectives, style of practice, and skills/expertise.
These are also a brief insight into the range of topics and questions you should cover in investigating a business. Courses like Medici Capital's Ownership Ready Workshops will also assist you to better understand the process and how to buy an existing practice. It is also worthwhile to get advice from an independent adviser with expertise and experience in assessing practices in your profession.
Next week we'll look at Due Diligence – things to check and validated if you plan to purchase the practice as well as investigate these five questions further.
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