As of the end of 2020, the job market is beginning to improve post-covid. And, for those of you considering your first job nowadays, you may receive offers from multiple practices. And, some of those offers may seem enticing. Perhaps, you hear that the partners make 600,00o, 700,000, or 800,000 dollars or more. And when you interview, the President of the private practice tells you that you will have to pay a large sum of money into the business. This sum of cash called a buy-in can range from zero to as high as into the millions. So, here are the questions you need to answer. Is a high buy-in ever worth your while? In fact, should you even entertain the possibility of starting at one of these practices that come with an enormous buy-in? Well, I am here to help you to answer these questions today!
The Hope
OK, all things considered, paying into a practice a large sum of money doesn’t sound so bad if the practice guarantees that you will bring in gobs of money each year, right? If you are paying a million to own a radiology practice’s technical shares, you can potentially receive outsized benefits in return. For one, your salary can become much higher. That initial sum of money that you add to the practice equity can significantly increase in value if the practice does well. You can also diversify your income a bit by collecting the professional fees and the technical component. These hopes can all come true.
But Then…
OK. There is always more to the story. Practices can dash hopes in an instant. Let’s say you don’t receive a share of the partnership during your partnership track. Where does that leave you? A lot poorer!
Or, perhaps, the practice equity declines as you finally earn the golden ring of partnership. Can a practice’s equity decline that much? Sure, can! Assets can not only decline to zero but can become a debt burden as well. Think about it. Equipment depreciates. And physical properties can decrease in value. The money you put in can no longer exist after you put all that equity into the business. And some!
Besides, you may overpay for the practice more than it’s worth. Who is to say that you have paid a fair price to become a partner? The practice partners? How do you know if they know how to value the practice. Or, maybe, they are trying to defraud you. You never know.
Weighing The Risks Versus Benefits Of A Large Buy-in
So, let’s see. The potential for large rewards versus the possibility of paying into something that is not worth it. What should you do? As always, this comes back to a trust and numbers game. Only by vetting the practice’s balance sheet and getting detailed information about the practice owners can you make the decision. So, how do you go about making this weighty decision?
Of course, you need to assess the people that run the practice. But how? Track record becomes very important. Have they strung along with multiple employees on partnership track to never make them a partner in the business? Are these physicians respected members of the radiology community? Do your residency and fellowship directors know something about the practice?
To get at the matter of trust, you must research the practice well. Check for lawsuits and hiring indiscretions. These can all become red flags that the imaging business may not be what you think.
And then get to the bottom of the balance sheet. Be wary of any practice that does not let you know what the partners have made in the past. Think twice if the practice does not allow you to talk to the business manager about the finances and the assets the practice owns. I know of several radiologists who had been through an extended partnership track to find out that they became partners in only the professional component, not the technical component/equipment and real estate. They were sorely disappointed when the time came to make “partner.” So, make sure to find out what you are really “buying-into”!
Finally, you need to consider the current environment of the practice. Are private equity firms or large hospitals in the area taking control of practices? Is the area economically growing or contracting? These factors may influence the risk of entering a partnership track that you may not be able to complete.
A High Buy-in And Your Final Decision
Depending on the situation and the practice, a high buy-in may or may not be worth the risk. Take into account not just the great potential of the business. Instead, you also need to consider the risks you need to take to earn that potential outcome. It might turn out well, but it might not. So, maximize your probabilities of success. Do your due diligence!
