Four Valuable Tips on Buying Out a Medical Practice Partner

By Ed Durant, Chief Credit Officer, BHG Financial 

Four valuable tips on buying out a medical practice partner  

Medical practice partnerships are often created from a shared vision and a desire to work together for the long haul, but there are certain circumstances where one partner decides to buy out the other. 

Perhaps your partner is considering retirement, your ambition is to expand the practice beyond their willingness, or you want to take it in a new direction. Whatever the reason, it’s important to understand the process. From identifying and partnering with the appropriate professionals to finding the right financing options, this article will help you learn four valuable tips on buying out a medical practice partner.

1. The right experts for the right job

While not always necessary, working with experienced advisors can help ensure the buyout of your medical practice is successful. These professionals can include lawyers, lenders, and other consultants to help structure deals that benefit all stakeholders. 

• Attorneys for enhanced communication — Attorneys can skillfully start and facilitate conversations with your medical practice partner, potentially making the meetings more constructive. 
• Accountants to evaluate tax implications — Accountants can assess the tax implications of the buyout, helping you structure the deal in a tax-efficient manner. 
• Lenders to explore financing options — A lender or financial consultant can advise you on various buyout options. These can be business loans or other types of financing, but they can help guide you toward the most appropriate one for your circumstances. 
• Other professionals — There is value in bringing in additional professionals. For example, a business advisor can ensure a well-rounded approach to the buyout process.
  

2. Determine the value of your medical partner’s stake

One of the critical aspects of a buyout is determining the fair value of your partner’s stake in the practice. 

An impartial, third-party professional appraiser is a good choice in order to calculate the fair market value. They will look at various aspects of the practice, such as the company’s financials (i.e., assets and liabilities), patient base, practice physical footprint and local market conditions. 

Examples of factors that go into determining a valuation: 

• Projected revenue growth 
• Forecasted margin growth 
• Shareholder cash returns 
• Debt-to-equity ratio changes 
• Economic conditions in the industry 
• Geographic market volatility

3. Reference the buy-sell agreement 

A buy-sell agreement is designed to provide clarity and protection as partners approach the transition in practice ownership. Here’s what you should review: 

• Valuation clause — Outline whether the value of a partner’s business interest is calculated using a fixed price or formula or should be based on an independent appraisal at the time of the buyout. 
• Payment terms—Refers to instructions on how and when the payment should be made per the agreement. Options may include a lump sum, installment payments, or a combination of both. 
• Contingencies—Stay aware of any conditions that must be met for the buyout to proceed. This could involve securing external financing or obtaining regulatory approvals. 
• Rights and obligations—Understand the rights and obligations of both parties during and after the buyout process.

4. Consider financing options for the medical practice partner buyout 

A financial professional is the best resource to advise on available financing options. Some of the most common financing options used to buy out a partner include: 

• Business loans—A business acquisition loan may provide the necessary capital to purchase the stake of the departing partner and provide you with the flexibility to pay back the loan over an extended period. Compared to bank loans, BHG Financial offers business loans up to $500,0001,2 and flexible terms of up to 12 years1, and the support of a dedicated team to guide you through the process. 
• Self-funding—If you have enough cash flow in your business or personal accounts, you may be able to self-fund a partner buyout. However, the sum of money required is often too large for most to pay in a lump sum and could put your savings and business at risk. 
• Partner financing plans—Another option is to set up a financing plan with your partner where they receive payments over time rather than one lump sum payment at closing. 

Purchasing a medical partner’s equity share is a significant decision, necessitating meticulous planning, legal expertise, and transparent communication. Seeking professional guidance can help you successfully navigate the buyout process, safeguard your interests, and ensure the continuity of your practice. With careful planning and patience, it’s possible to navigate a mutually beneficial situation where all involved parties can come away with their desired outcome.  

If you would like to learn more about BHG Financial’s Medical Practice Loans, click here. 

1.Terms subject to credit approval upon completion of an application. Loan sizes, interest rates, and loan terms vary based on the applicant’s credit profile. Finance amount may vary depending on the applicant’s state of residence. 

2.BHG Financial business loans typically range from $20,000 to $250,000; however, well-qualified borrowers may be eligible for business loans up to $500,000. 
For California Residents: BHG Financial loans made or arranged pursuant to a California Financing Law license – Number 603G493.