Before accepting any offer, physicians should conduct their own due diligence, with the assistance of their legal and financial advisers. If your potential practice will not disclose financial statements and tax returns for the past few years, it could mean that the practice does not intend to be entirely open. If you are buying into a practice, you need to know its assets and liabilities to obtain a full picture of its financial health. Look to see that the practice does not have considerable liabilities, like large lines of credit and debt. For instance, a practice may have been funding the existing partners’ distributions with draws on a line of credit. A review of the financials may also disclose unfunded pension obligations, another indication that maybe the practice is not as financially sound as the partners have led you to believe.
Many practices will require the new partner to sign on as a personal guarantor of the practice’s debt obligations and may have the new partner sign onto the real estate lease of the practice. Becoming a personal guarantor of the practice and signing onto leases, in and of themselves, is not an indication of financial distress. On the contrary, if a physician enjoys the benefits of partnership, he or she also should share in the risks of ownership.
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Finally, if the numbers provided by the practice reveal that the new partner still will make a substantial amount in distributions, even after funding his or her buy-in obligation, it may be that a larger buy-in amount is reasonable. However, if a physician finds that the financials do not support the buy-in amount or if the physician will be changing positions in the near future, partnership may not be the right option.