WHY BUYING AND MERGING ANOTHER PRACTICE INTO AN EXISTING PRACTICE MAKES SENSE
The reason you would consider doing a merger is that you get all of the revenue and current clients from the new practice, but you don’t get all of the expenses. You don’t bring over the fixed expenses like rent, telephone, electricity, etc. You already have those in your practice and don’t need to incur them again when you bring over the practice you just acquired.
As an example, say you own a practice that collects $600,000 per year. You have overhead of $390,000 with 30% of the overhead in fixed expenses – rent, utilities, insurance, etc., Another practice comes on the market that collecting $500,000 with overhead of $325,000 with fixed expenses again at 30% or $150,000. You purchase the practice for $350,000 giving you a debt service payment of $3,500 per month. You work closely with the broker to ensure 100% of the clients transfer to your practice. Your practice now goes from $600,000 up to $1.1 million in revenue. You incur the variable expenses of the second practice, but you do not incur the 30% fixed expenses of $150,000 because you already have rent, utilities, insurance etc., at your current office. In essence, you just gave yourself a $150,000 raise, less $42,000 in debt service, and dropped your overhead to the neighborhood of 55%. It would take you much longer to do this if you just did marketing and advertising. By consolidating practices, you get instant growth and income. If you have a practice for sale near you, you should consider merging it into your practice in order to achieve quick growth.
