Welcome to the Planning for Practice Success Newsletter

October 30, 2006

The three great essentials to achieving anything worthwhile are; first, hard work, second, stick-to-it-iveness, and
third, common sense. -- Thomas A. Edison

In this issue:
Business Startup Resource: SBDC's
Buying Tip: Buying a Failing Practice
Equipment Lease vs. Buy
What is your Entrepreneurial Risk Assessment?

SBDC Program: Funded through the SBA, each state in the US has a number of Small Business Development Centers that assist business owners with business startup and operations advice. The SBA contracts with colleges and universities to provide over 1000 of these centers. Find the closest SBDC at this map link:
http://www.sba.gov/sbdc/sbdcnear.html. Here is an excellent article from the Iowa SBDC website about providing information to your lender to get a loan:
http://www.iowasbdc.org/templates/articledisplay.cfm?ID=559

Buying Tip: Buying a Failing Practice. I often get asked 'What's the formula for valuing a practice purchase?' The problem is that every purchase is different, so it's impossible to set any kind of absolute value. For example, what if the practice is failing, with fewer and fewer patients each year? This can be a great situation for you, because the selling price should be based on the last year, not on previous years. The VALUE of the practice is only what is currently going on with patients and revenues, not what has happened in the past. Let's say the practice was at $250,000 in 2004, $200,000 in 2005, and 2006 looks like $150,000. The value of the practice is based on the current annual revenue of $150,000. One benchmark is 70% is the most recent year's collections, which in this case would be about $100,000. Don't let the owner try to tell you it is worth more, because it's not. The previous years' patients have left. They aren't coming back without a LOT of work. You have the advantage of being able to get many new patients, using this base and without having to pay a premium price. For more information about practice purchase, see my e-book Buying a Practice.

Equipment Buy vs. Lease Decision: If you can find used equipment and tables to buy, that would probably be cheapest in the long run. If you can't find anything at a reasonable price in your area, then leasing might be a possibility, particularly if you don't want to get your loan too high. Check the leasing documents carefully, for two things:
1. Check for hidden interest rates and charges in leases that are often higher than purchasing through a bank loan.
Different terms may be used to define these items, but they are still fees and will add to your total cost, making the lease more costly than a purchase.
2. See if you have the ability to depreciate the leased equipment, to save on taxes. If you have a 'capital' lease you get to own it at the end (often for a $1 buyout), and you can depreciate the lease payments as an asset. Pretty tricky - get an accountant involved if you have any questions. For more information on capital leases, check this article in Wikipedia:
http://en.wikipedia.org/wiki/Finance_lease

If you are worried that you have what it takes to be an entrepreneur, take this Risk Assessment:
http://www2.gsu.edu/~wwwsbp/entrepre.htm When you get your score, sit down with a trusted advisor and talk about what the score means. If you have a low score, it doesn't mean that you shouldn't be starting your own business; you just might need an 'attitude adjustment.'

Ask Dr. Jean Murray a question: email her at jean@dcpracticesuccess.com
Order Planning for Practice Success or one of our other
products or call our toll free number at any time (24/7): 1-866-940-7526

Best wishes for your continued success,

Jean Murray

Planning for Practice Success
Online at http://www.dcpracticesuccess.com

The most absurd and reckless aspirations
have sometimes led to extraordinary success.
-- Vauvenargues

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