Thanks for all the advice friends.
Here is the current situation - It was a 2 doc practice (one of the oldest practices in the area)
The doc (doc #1) that's selling his shares retired end of 2021. The other doc (doc #2) hired me as an associate Fall 2022, he currently owns the other 50% of the practice.
I will be buying shares from retired doc #1 once my 1 year associate contract expires. Doc #1 tells me verbally that the valuation of the practice will be based on year 2021, the year before I came onboard.
I have been basically inheriting doc #1's patients and so I am familiar with the way he works and the patients know upfront that I do not operate the same way doc #1 did - and they are fine with it. Doc #2 is open to changes to the practice once I become partner (I have ideas of essentially "modernizing" it)
Also, Doc #2 is planning to retire in the next 2-3 years or so - so I may be buying him out down the road as well.
Still waiting doc #1's proposal for the offer
There's a lot here that makes me cringe.
1. The first doctor is retired. He was retired before you even got there. He was no longer seeing patients. He doesn't have a practice. Now he owns half of the depreciated equipment of the practice.
2. Note that the partner who stayed didn't buy them out at the time even though the partner who stayed is the person who inherited this person's "practice". All the patients that stayed went to doctor #2. Why isn't doctor #2 paying through the nose for the right to this good will? Why hasn't doctor #2 cut him a buy-out for the equipment? Or for the patients?
3. How will this person be paid if you leave (they won't). Imagine trying to explain their compensation/buy-out to a new associate if you left. Well 2 years ago there was a partner and he wants to be paid based on 2021. Ugh huh. What would a private equity pay these people? They wouldn't.
4. Valuations based on past value are essentially almost always bad. Somehow overhead never comes up. If you want to give this person money - the only things you should take into account are your cash flow and cost to start a new practice verse the value of continuing uninterrupted.
5. It gets worse though. You are currently to buy some sort of elevated past value. There will presumably be a negotiation with some past person who isn't there anymore. Then in the future you are to buy some sort of elevated future value from a departing partner. How many buy-outs must a young podiatrist purchase to be free these days? In 2-3 years you'll already have a full cohort of patients. What are you supposed to do with this guys patients?
6. I'm not even going to touch the fact that you will be stuck over the next 3 years with a partner who is already trying to walk out the door. And the whole "50% shares" thing leads to so much trouble. Before I bought in - I believed that doing some sort of equitable balanced overhead approach to a practice made sense ie. better to have lower overhead with 2 doctors, try to function harmoniously. Now I'm 100% a believer that everyone should be EAT WHAT YOU F&*(ing KILL. Last year I was up like more than $100K in collections on my partner. This year I'm already like $70K half way through the year on them. Every dollar of bonus money we split last year should have been mine. Guy was overpaid on what he got to keep through the year for how little he brought in. But my situation is still "better" than what someone could argue. Imagine a partner who believes profit should be split simply on ownership. You could have 2 doctors with unequal collections and the lower arguing at the end of the year that the "profit" should be split 50/50 because he owns 50%. Where I'm going with this is - you must have a plan for how profit is divided.
7. I also don't believe that you can buy a podiatry practice and not have a fixed value for your buy-out for total ownership. Whatever you buy this first buy out for - the second guy will think he deserves more because he was still there. There's a very real finite price to starting your own practice. The cost of funding old losers retirements is limited only by their imagination.
8. In the end a podiatrist can only make so much money. Historically some associate to partner tracts in other medical specialties result in people jumping from $300-400 up to $600-1000 ie. the partnership jump is enormous. I don't think most podiatrists undergo that sort of jump. Excess cash flow of hundreds of thousands of dollars can pay for exhorbitant partnerships. Jumping from $150K to $225K or something like that isn't worth $800K.
Just for your interest. I bought into a practice.
1. There was an original owner/founder. They had been slowing down - for years. They had a partner of 20-25 years, something like that.
2. The founder essentially retired during Covid. While they were in the process of retiring - they were handing off patients to me. They'd bring me into the room, introduce me, and then schedule the patient with me for the next visit. Yeah, they were c&cs. So there was some overlap as far as the original owner working part time, his partner working full time, and myself working full time.
3. I was presented with a total buy-in for the practice including all equipment etc but not the office. I was to buy 50% now and 50% when my partner retired, whenever that will be. His future buy-out is set in the current contract ie. his 50% of shares is already defined as $X.
4. At the time of my buy-in I had finally gotten to something in line with a full practice. I took home a bit over $200K the year I bought in. Pronation or some hospital person will be along in a little to laugh at the PP doctors and their garbage pay. I'm on track to do better this year.
5. When I consider my buy-in against values I've heard - its less than some, more than others. Total buy-in is less than I made last year. Airbud/dtrack have at times posted start-up costs for offices and they've argued that it costs way less to start an office than you'd think. My 50% buy-in was more than those offices cost. I obviously had the benefit of continuing my already established practice, not interrupting case flow / privs, theoretical unobtainable board certifications etc.
6. I'm torn at times. My partner has an attitude. When I'm being generous I think - we're sharing overhead, two is more efficient than one. Other times I just wish I had my own thing. I don't know when he will retire. Sometimes he says he wants to practice another 10 years. Othertimes he has a meltdown and I think - today is the day. If he quit before working with me for another 3-4 years then I overpaid ie. I won't get the benefit of lower overhead and I'll be digging into my wallet to write a check when I should be restocking my cash. My perfect world would likely be that he rapidly begins some sort of transition to part time c&c while we hire an associate. I strongly suspect the health of the stock market will be another factor in his level of interest in retiring.
Most of the above should probably make people think "I just need to start my own damn thing".
