Buying a Practice vs Starting One: When the Shortcut Is Real

Transcript YouTube English auto-captions. Hey guys, welcome again to another episode of Bootstrap MD. This is the podcast for physician and healthc care entrepreneurs. These are for doctors who want to build their ideal lifestyle and they want to take control of their time, their income, and their future. My name is Dr. Mike Wuang. I'm a two decade physician entrepreneur. And this episode is for the physicians out there who don't necessarily want to start from scratch. Maybe you've already got your hands full. you're seeing patients, you're too busy, but you want to get involved in entrepreneurship, but you just don't have the time to start one on your own. Is there a faster, more leverage way to get into business? So, my answer to that is buying a business. Whether it be an offline business or an online business, this could be your shortcut to freedom. But not all acquisitions are created equal. I'm going to walk you through the pros and the cons of both routes. How do you evaluate these business deal acquisitions and help you decide which path might be right for you and your goals? So, let's get into it. So, why would you want to buy a business instead of starting one? Now, I know a lot of doctors are interested in real estate investing and rightly so. They interested in the cash flow and eventually selling that property and that makes total sense. But what's interesting is that not a lot of doctors thinking about buying a company even though it can offer similar cash flow benefits with some pretty unique advantages. So let's think about it. Both real estate and business acquisitions, they can give you monthly cash flow. It doesn't depend on your clinical hours. It can appreciate over time. As you grow that asset, it's going to grow in value. And there's definitely tax advantages through depreciation, through business expenses. But there's also benefits of owning a business or buying a business that real estate doesn't have is you can have active control for the most part. You can directly improve operations. You could add more services. You can work on their marketing and optimize it. There's definitely faster scaling potential. You can grow revenue much quicker than relying on rent increases. And there's multiple exit strategies. You can sell the business. You can franchise the business. or some you may want to take it public eventually. Now, I know for physicians, your most limited resource is your time. So, buying an existing business can give you instant cash flow. You're not spending months or years in the red. You're burning through your savings, not burning through your savings trying to find your first customer. The business already has established systems and staff. So, somebody's already figured out the processes. They've gone through the same mistakes and obstacles and they may have already built a team that you can acquire and the existing business already has an audience. It already has a customer base already in place. So day one you have people who already know about your business and are already willing to pay for the services. You don't have to figure it out all on your own. As physicians, we've already proven we can learn complex systems quickly. But we also learned that time is our most valuable assets. Now, don't get me wrong, there are risks. There's bad deals. There's inflated numbers. There's underperforming businesses. But when you do it right, acquisition can truly be your fast track to entrepreneurial success. So, I know this from personal experience. I bought a medical clinic that was instantly profitable from day one. I had immediate cash flow. I already had an established patient database. The systems and even the staff were already in place. But I'm not going to tell you it's all roses. I definitely made some mistakes. I bought a online clinical trials medical marketing company that never really got off the ground. Despite me doing my due diligence, it looked good in paper. And what I realized is the difference was the first one, it was an established area that I understood how that business worked and I understood what I was buying. And the other one, I didn't really understand what I was buying. and I I don't think I could have done my due diligence as good as I could have. So, I work with physicians who help them buy businesses and I really think that buying a business can lead to faster ROI and significantly less startup stress when you do it right. And that's what we're going to cover. So, let's talk about buying an offline business or a brickandmortar business first, you know. So for doctors, this could be buying an urgent care or med spas or IV clinics or dental practices, physical therapy practices or even related businesses like medical equipment suppliers or pharmacy services. But don't feel like you're limited to just healthcare. I know successful doctors who bought everything from restaurants to retail stores to vending machine businesses to car washes. So what are the pros? You got physical assets when you're buying a brick-and-mortar business. You got equipment. You've got furniture. You've got signage. I think there's something really reassuring about being able to walk through and call something your own. And you can physically inspect what you're buying. Often times the pros is there's brand recognition. They're already established in the local community if you do it right. If you're buying a med spot that's been servicing that area for 5 years, the customers who already know who you are before you even take it over. You can walk in, you can see the business in action. You can observe the patient flow. You can see how the staff interact with customers. You can get the sight of the culture of the business. You can get a real feel for the dynamics. So, what are some cons of brickandmortar businesses? Well, overhead can be high. Rent, staff salaries, those are going to be your biggest. You're going to have utilities. So, these fixed costs hit every month regardless of how busy you are. Cons is you're geographically tied to location. Your customer base is essentially whoever can physically get to you. And like any other things, regulations involve. You're going to have licenses. You're going to have inspections. You're going to have HIPPA compliance. You know, obviously it depends on the type of business, but especially in healthcare related businesses. Compliance requirements are going to require ongoing attention. So, what are to look out for when you're buying a brickandmortar business? Obviously, you need to check the last two or three years of financials, not just tax returns. You want to look at profit and loss statements. You want to look at balance sheets, cash flow statements, even bank statements for the full picture. If you're renting, you want to understand what are the lease terms, especially if you're tied to commercial space. How much time is left? What are renewal options? Get a sense of the staff. You know, are they staying post sale? Is their whole business dependent on because they like that nurse? This is really important in the men's spa of a business. Do they feel like they're burnt out? Does the business have SOPs? Do they have documented processes, standard operating procedures? You want to look at the customer concentration? This is critical. So, if 40% of the revenue are coming from one major client or contract, that's a significant risk you need to understand. I've seen this recently with a doctor who his business is mostly Medicaid and with the big changes, he's not sure what the business is going to happen. So, you need to take this into account. The location analysis matters, too. Look at the geographics. Is this a growing area or is it declining? This is where your real estate prowess can really come into a focus here. Are there new developments planned? Are there changes in the traffic patterns? What does the competitive landscape look like? you know, you got to go visit the site and don't just visit during business hours. Come by at different times. Talk to the customers if possible. Observe the competition. I think that's a really important part. You know, who's coming in, who's leaving. Many of my physician clients find that they really like getting into med spas and it's appealing. But if the clinic already has licensed staff, they've got consistent revenue, you can take it over and you can decide to add your own services, your own expertise or your branding. The medical credibility you bring as a physician can really increase the business value immediately. So let's talk about buying an online business, a digital business. Now I think this is really gets interesting for busy physicians. So there's tons of examples. I'm sure you may know or someone who runs an Amazon store or a e-commerce store, Shopify or Amazon FBA. Even buying existing coaching businesses or online courses. I've even seen people buy Facebook groups that can be considered a business. Content site blogs, YouTube channels, newsletters, SAS companies, also known as software as a service, info project businesses. So, what are the pros of being an online business? Well, you're going to have a lower overhead. There's no physical space required. You're not spending money on leases. Most online businesses can be run with the laptop and some software subscriptions. The location is independent. You can run it from anywhere. You know, let's say you're purchasing a tele medicine practice. You can run your business investment without being tied to a specific location. The great thing about online business too, it's often scalable with the right automations, with the right marketing in place. You can grow from a 100 customers to a,000 customers and it doesn't require proportionally more resources. What are some cons? And this is what I learned. It can be tough to verify numbers. You know, you want to look at traffic. You want to look at conversions. What is the percentage of a lead becoming a prospect becoming a client? What's the customer data? And to be honest with you, sellers can manipulate screenshots and typically you don't get full access until you've already been committed. Another thing, well, many rely on algorithms. If their business is dependent on Google or Facebook or Instagram, those companies can change the algorithm quickly. I've seen businesses lose 70% of their traffic due to a Google algorithm update or it's a Facebook group that's no longer getting spotlighted. And as in anything, these are skills you need to learn. You need to learn about digital marketing. You need necessarily understand the technical aspect. I'm not telling you you need to become a software program, but you need to hire someone who does. So although many businesses can now be run without coding knowledge, you need to understand the basic concepts of what's working and what's not working. There are some key metrics that you need to have to understand when you're looking at an online business. You need to look at website traffic. How many unique visitors are getting a month? But I think more importantly is like where is that coming from? Is that pay-per-click ads? Is it organic traffic? Where is exactly going? Conversion rates. What percentage of visitors are actually buying? Do they have an email list? What are the open rates of that email list? You know, often times an engaged list of 5,000 people can be more valuable than 50,000 subscribers who never open emails. Look at the refund rates. High refund rates are obviously a red flag. Are there chargebacks? Monthly recurring revenue or MR if it's applicable. Is this a subscription site? What is it? Is it increasing or is it decreasing? There's a word we use called churn. You know, how many people are sticking around? Recurring revenue can be fundamentally different from one-time purchases. So, for e-commerce businesses, especially, look at inventory turnover rates. Are there seasonal fluctuations? Do they only sell during Christmas or Halloween? What are the risks of product concentration? If 60% of sales are coming from one product, what's going to happen if that product gets discontinued? These are things to think about. Look at content businesses. What are the content creation requirements? How often does new content need to be published? Is this a topic or niche that is evergreened? Is this something that you can outsource effectively? If it's software businesses, is it customer look at the customer acquisition costs? How much does this acquire to acquire a customer? What is the lifetime value? Where are they making the money? Is it on the front end or on the back end? You know, as I mentioned, turn rates. These really tell the real story of business health. So bottom line, you got to do your due diligence. It's essential. You need to be able to look at their Stripe account, their Google Analytics, ask for screen shares, trust, but verify everything. Don't accept screenshots. Insist on live screen sharing if you can. Get them on a webinar and say, "Hey, let's look at your stats." You want to be able to see them log into platforms in real time. All right, question I always get. Where do you find their businesses? Offline businesses. One of my favorites is Bisby by sell. There's another one called Transworld. These are traditional business booker platforms. But the way that I make business is direct outreach. Basically, I had a vendor who knew that I was interested in purchasing another clinic. So, ask your network. They'll know the pharmaceutical representatives, the accountants, they're going to know if a physician is retiring. This is where being a physician can give you unique advantage. There's conversations that have at medical conferences at local medical society meetings. They want to know that Dr. Smith is retiring and he wants to sell his urgent care clinic. So, these conversations happen all the time. And it's going to get even more so as this baby boomer generation they're retiring or retired. They're going to want to go their children may not be doctors and they want to be able to sell their business. And often times you can find some really good bargains out there. There'll be industry specific Facebook groups, masterminds. Let people know you're interested in acquiring businesses. For online, there are like two big ones. Flippa, F L I PPA. This is best for small sites or early early stage ecom. You got to do your due diligence. They're often times are businesses that are not really businesses on there. Quality can vary widely. Uh another one is Empire Flippers. Uh this one does a lot better vetting, much more highquality businesses. These are usually businesses that you know you're going to have to spend at least 50k or more. Microacquire and acquire.com are great for startup businesses. because these are mostly those SAS businesses that I mentioned to you as well. The thing is that many deals really never hit the public marketplaces. I really found out on this is just plugging into a community. People talk there are some newsletters. There's some substack that focuses on acquisitions give you an edge. So you can look up business acquisition newsletter on Google or perplexity Reddit and Facebook groups. There are businesses that are dedicated to online buying businesses and selling. These can be excellent sources and you build make sure you build relationships. You can build relationships through them. Start following these platforms now. Even if you're not ready to buy it yet, you know, I think one of the best businesses, especially when you're trying to get into different industries, is to go and say you're an investor and you get a better understanding of what you're getting into. One pro tip that I can give you guys is to just do direct outreach to business owners whose operations you admire. Many online business owners are open to selling even if approached respectfully even if they haven't formally listed. So an important timing note, you know, offline online businesses, they typically take 3 to 6 months from initial contact to closing. Don't expect to find business and close next week, but it can be fun, but they're real good opportunities. We require patience. So give you a little bonus, guys. A due diligence checklist. Then this is where often, including myself, get burnt not doing your due diligence. Don't try to remember everything in your head. Be very systematic when you're doing this. So, checklist of what you want to verify. Look at tax returns, P&L statements for the last two years. Tax returns, you know, can be manipulated. You want to look at the full financial picture. You want to look at website traffic sources of looking at online businesses. How much is organic? How much is being paid traffic? Understand where your customers are coming from and how stable those sources are. Look at customer retention rates. Look at refund rates. Be wary of high churn, high refunds. Those are major red flags. Look at legal liabilities, contracts, IPS. Are there any open lawsuits? You don't want to inherit someone else's legal problem. See how much the owner is currently involved? How much hour per week is the current owner working? Can this actually run without them? This is important. Is it important for them to stay on? The seller interview is going to be crucial. You understand what you're selling. What is it? You know, is it I just want to retire or I see challenges in this industry and I'm getting out. Transition planning matters. How long will the seller be available to help? Are there key processes documented? Is there a training period built into the sales agreement? You want to use for online businesses Google Analytics. You want to look at Stripe. You want to look at PayPal accounts. You want to look at SEO and competitive analysis. You can use something called AHFs. A RFS I think is how you print on SEM Rush Profit Well and Fathom can be used to looking at SAS to looking at MR or churn analysis. And don't forget, talk to an attorney, talk to a CPA before sending anything, even for smaller deals. It's important to have a professional review. It's really money well spent. They're going to catch things that you're going to miss. Now, one red flag. If the seller is rushing you or they're not allowing you adequate time, walk away from that. good businesses with nothing to hide can withstand doing due diligence. So to sum up, what is better for you? Is it offline or online? The answer is there's nothing that is one better than the other. It really aligns to what are your goals, what are your lifestyle, what are your strengths. I would choose offline is if you want to be hands-on, you want to be involved clinically, you thrive on face-to-face rel relationships, you want to stay connected to healthcare delivery, you enjoy team building, you enjoy medical managing staff, uh these benefits can benefit from your medical expertise and your credibility offline businesses. If you want something tangible, it's much easier to understand. Choose online. If you want location freedom, you understand digital marketing, you prefer systems over staff, you're looking for more passive or more semi-passive income, you're invested or interested in scaling beyond traditional time and money. And you could have hybrid models, you can have a tele medicine business that also operates like a clinic, too. So, here's what I recommend. Consider where you are currently in your life. If you're early career with young kids, maybe an online business you can manage during off hours. If you're more established, maybe you're looking for an offline business. There's no right or wrong answer here. So, I've helped physicians sort go through both paths. So, some takeaways. Buying a business is often faster than starting one, but it comes with its own risk. Know what your goals are in life. Do you want location freedom? Are you looking for hands-on operation? Do your due diligence. Ask the hard questions. Get help from experts. So, hope you enjoyed this. If this was beneficial to you, you're interested in acquiring business and maybe want some help, reach out to me at bootstrapmd.com. Happy to chat with physician on entrepreneurs who looking to acquire business. If this podcast was interested to you, please share it with others. And if you have the time to take a couple minutes to give a fivestar or whatever star review you want, this podcast only gets shared by the fine folks like yourself sharing with other physician entrepreneurs when we want our more physicians through entrepreneurship. We've got to do it together, guys. As always, you're going to have your ups and your downs as a physician entrepreneur. Do something a little each day to get you closer to your goals and keep moving forward.