Buying Into a Medical Practice: Financial Planning Guide for Physicians

For many physicians, the opportunity to buy into a medical practice represents one of the most significant financial decisions of their careers. While partnership offers the promise of greater professional autonomy, higher earning potential, and a meaningful voice in practice management, it also requires careful financial planning and thorough due diligence.

This decision becomes particularly complex for early-career physicians who may still be managing substantial student loan debt while simultaneously trying to build long-term wealth. The financial stakes are high, and making the wrong decision can have lasting consequences for your financial future.

For many doctors, the idea of ownership is both exciting and intimidating. It’s natural to feel uncertain, especially with student debt and complex contracts in play. Understanding the key financial considerations before entering into partnership negotiations is essential for making an informed decision that aligns with your career goals and financial objectives.

Understanding Practice Valuation and What You're Buying

When evaluating a practice buy-in opportunity, understanding how medical practices are valued is crucial. The most common approach in 2025 uses EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) multiples, typically ranging from 3 to 8 times EBITDA. However, the specific multiple depends on several factors:

• Specialty Impact: High-demand specialties like dermatology or cardiology may command higher multiples than primary care practices due to higher profit margins and patient demand.
• Practice Size: Larger practices with multiple physicians often receive higher multiples due to economies of scale and reduced execution risk for buyers.
• Geographic Location: Practices in growing suburban markets or areas with limited competition may be valued more favorably than those in saturated markets.
• Payer Mix: Practices with a higher percentage of commercial insurance patients typically command premium valuations compared to those heavily dependent on Medicare or Medicaid reimbursements.

While some practices use book value or asset-based approaches, EBITDA multiples have become the dominant method. When you buy into a practice, you're typically acquiring a percentage ownership of several components: physical assets (equipment, furniture, technology), intangible assets (patient relationships, goodwill, referral networks), accounts receivable, and the practice's operational systems and staff.

Financial and Legal Due Diligence

Before committing to any buy-in, conduct thorough due diligence by reviewing at least three to five years of financial statements and tax returns. This historical analysis helps you understand revenue trends, identify seasonal patterns, and assess the practice's financial stability. If you’re considering buying into a medical practice and are unsure where to start with the due diligence process, reach out to Revonary for advice. 

While conducting this analysis, pay particular attention to patient volume trends and collection rates. A practice experiencing declining patient visits or deteriorating collection percentages may signal underlying operational issues that could affect your future returns.

Evaluate the practice's payer mix carefully. Commercial insurance typically reimburses at rates significantly higher than Medicare. With Medicare reimbursement rates expected to reduce after the passage of the One Beautiful Big Bill (OBBB), a practice heavily dependent on government programs may face ongoing reimbursement pressures that could impact profitability.

Don't overlook the practice's existing debt and liabilities. Understanding what financial obligations you'll be assuming as a partner is critical for accurate cash flow projections.

Review the practice's audited financial statements, tax compliance history, and existing payer contracts. Examine malpractice insurance coverage and claims history. High claim frequency or inadequate coverage could signal potential future liabilities or increased insurance costs.

Staff stability deserves attention since high turnover can indicate management issues or cultural problems that could affect patient care and practice profitability. Review employment agreements and compensation structures to understand your future obligations as a partner.

Evaluate the practice's technology systems, including electronic medical records functionality and billing systems. Outdated technology may require significant capital investment to maintain competitiveness.

Don't overlook lease terms for office space and equipment. Unfavorable lease agreements can significantly impact cash flow and may limit future operational flexibility.

Key Takeaway: Proper valuation requires understanding multiple methodologies and conducting thorough due diligence, as the purchase price directly impacts your return on investment.

Financing Your Buy-In

Most practice buy-ins can be structured in several ways, each with different cash flow implications. A lump sum payment provides immediate full ownership but requires significant upfront capital. Alternatively, installment plans spread the cost over time, though they may include interest charges.

Some practices offer salary reduction arrangements, where your buy-in payments are deducted from your compensation over a predetermined period. This approach can be tax-efficient but requires careful cash flow planning to ensure you can meet your personal financial obligations.

Some arrangements combine multiple approaches: perhaps a smaller down payment followed by installment payments or salary reductions.

Financing Sources for Physicians

If you don't have sufficient cash for a lump sum payment, several financing options are available. Small Business Administration (SBA) loans often provide favorable terms for practice acquisitions, including longer repayment periods and competitive interest rates. However, these loans require extensive documentation and can take months to process.

Traditional bank loans may offer faster approval, especially if you have an existing relationship with the lender. Many major banks now offer physician-specific lending programs that recognize the unique financial profiles of medical professionals.

Personal guarantees are common in practice acquisition financing, meaning you'll be personally responsible for loan repayment even if the practice experiences financial difficulties.

Key Takeaway: Multiple financing options exist, but physicians should carefully evaluate terms to ensure the financing structure aligns with their cash flow projections and personal financial goals.

Tax Implications and Planning Opportunities

Once financing is in place, the next challenge is understanding how your role—and your tax obligations—will change as a partner. As an employee, you received a W-2 and had taxes withheld from your paycheck. As a partner, you may remain an employee, but you'll also receive a K-1 form reporting your share of the practice's income, deductions, and credits.

This transition means you'll likely need to make estimated quarterly tax payments rather than relying on payroll withholding. The practice's income flows through to your personal tax return, potentially pushing you into higher tax brackets.

Self-employment taxes become a consideration, as your distributive share of practice income may be subject to Medicare and Social Security taxes, depending on how the partnership is structured.

However, you may now qualify for the Qualified Business Income (QBI) deduction, which can provide up to a 20% deduction on qualified business income and has now been made permanent as a result of the passage of the OBBB. 

Strategic Tax Planning

Partnership creates several strategic tax planning opportunities that weren't available as an employee. As a practice owner, you can typically contribute significantly more to retirement plans. Options like SEP-IRAs or defined benefit plans may allow annual contributions well in excess of traditional 401(k) limits.

Equipment purchases can provide immediate tax benefits through Section 179 expensing or bonus depreciation, allowing you to deduct the full cost of qualifying equipment in the year it's purchased rather than depreciating it over several years.

The timing of your buy-in can also have tax implications. Completing the transaction early in the year may provide more time to implement tax strategies, while a late-year buy-in might help with current-year tax planning.

Key Takeaway: Partnership creates complex tax implications but also opportunities for tax optimization that weren't available as an employee.

Building Your Professional Team

Navigating a practice buy-in requires specialized expertise. Engage an attorney who specializes in physician transactions to review partnership agreements, employment contracts, and purchase documents. Generic business attorneys may miss healthcare-specific regulations and industry standards.

Work with a CPA who has extensive experience with medical practices. They can help you understand tax implications, review financial statements, and develop tax strategies for your new role as a partner.

Consider hiring a qualified medical practice appraiser if the practice's valuation seems questionable. An independent appraisal can provide objective validation of the asking price and strengthen your negotiating position.

Key Takeaway: Thorough due diligence and professional support help identify potential risks and ensure you're making an informed decision about the practice's financial and operational health.

Integrating the Buy-In with Your Financial Plan

A practice buy-in will significantly impact your personal cash flow and financial planning. The combination of buy-in payments, potential changes in compensation structure, and new tax obligations requires careful budgeting and cash flow management. If you're using salary reduction to fund the buy-in, ensure you can maintain your current lifestyle and meet other financial obligations with the reduced take-home pay. 

Evaluate your insurance needs as a practice owner. You may need additional disability insurance coverage since your income potential has likely increased, and you now have a business interest to protect. Professional liability insurance requirements may also change.

Long-Term Wealth Building

Practice ownership can be an excellent wealth-building strategy, but it shouldn't be your only one. As a partner, you'll have access to more sophisticated retirement planning options, including the ability to make larger tax-deductible contributions to qualified plans.

However, don't let your practice investment become your only significant asset. Diversifying beyond the practice through other investments helps manage risk and provides financial flexibility.

Consider the long-term implications of practice ownership, including succession planning and exit strategies. Understanding how you'll eventually monetize your ownership interest is crucial for retirement planning.

Key Takeaway: Buying into a practice should be part of a comprehensive financial plan that balances the investment with your other financial goals and risk management needs.

How Revonary Can Help

Buying into a medical practice requires careful analysis, proper financing, and thorough due diligence. While the process can be complex, the potential benefits of practice ownership make it worthwhile when approached strategically.

At Revonary, we understand the unique financial challenges facing healthcare professionals. Our team has extensive experience working with physicians throughout the New York area, helping them navigate complex financial decisions from practice buy-ins to retirement planning. We don’t just help you buy into a practice: we help you build a strategy that protects your investment, minimizes taxes, and accelerates wealth.

We recognize that physicians face distinct financial circumstances and our comprehensive approach addresses not just the immediate buy-in transaction, but also the long-term tax planning and wealth management strategies that will help you maximize the benefits of practice ownership.

Whether you're evaluating a new opportunity or looking to optimize your existing partnership arrangement, our team can provide the specialized guidance you need to make informed decisions that align with your financial goals.

Ready to explore how practice ownership fits into your financial future? Contact Revonary today to schedule a consultation and discuss your specific situation with our team of financial professionals.