How Do Columbia, MD Buyers Finance the Purchase of a Practice, Agency or Shop?

Buying a going concern is different from starting one, because the business already has revenue a partner can study. The price, though, is rarely paid with one check. Three pieces can appear, in different proportions: the buyer's own cash, a term loan, and a seller note, where the departing owner is paid part of the price over time. An earn-out ties a slice of the price to how the business performs after the sale.

Illustration only, invented figures: a buyer agrees to $660,000 for a Columbia, MD practice, plus an earn-out capped at $60,000 paid only if first-year collections hold up. The acquisition example assigns 10% ($66,000) to buyer cash, 20% ($132,000) to a 60-month seller note at 6%, and 70% ($462,000) to a 120-month term loan at 10%.

The earn-out does not need financing at closing, which is part of its appeal; it is paid later from the business's own results.

A partner looks at what the buyer is paying for, and much of a professional practice's value is not on a shelf. For a medical or dental office it is the active patient base and the schedule; for an insurance agency or accounting firm it is the book of clients and how many renew; for a salon it is the chairs, the staff who stay, and the lease. Equipment has a value of its own, but used chairs, imaging units or computers are worth far less than the practice built around them.

• Active patients or clients, counted by last visit or last billing date, not total records.
• Revenue and collections for the last three years, by provider or by service line.
• Which staff and providers have agreed to stay, and on what terms.
• An equipment list with ages, service records and any existing liens.
• The lease: how many years are left, and whether the landlord consents to the assignment.

Small practices are numerous in Howard County, MD. The county's 314 offices of physicians with paid staff in 2023 included 202 with fewer than five employees, and 87 of its 214 dental offices were that small (County Business Patterns). Accounting, tax preparation, bookkeeping and payroll services counted 168 employer establishments in 2023, 75.0% of them with fewer than five employees (County Business Patterns, NAICS 5412). The medical practices page and the dental practices page set out the payroll figures behind those counts.

The first months after the sale are where buyers get squeezed. Patients and clients test the new owner, some staff leave, and if the business has to enroll with insurance plans or vendors under a new entity, payments can pause while that paperwork moves. Debt payments start on schedule regardless.

Illustration only, invented figures, continuing the purchase above: the practice collected $110,000 a month before the sale and spends $95,000 a month to operate. If collections run at 70%, 80% and 90% of that level in the first three months, the practice takes in $77,000, $88,000 and $99,000. Add the $8,657.29 of monthly debt, and the shortfalls come to $26,657, $15,657 and $4,657: about $46,972 over the quarter once the cents are kept.

That $46,972 is the figure to put in front of a partner as working capital, requested alongside the purchase rather than after the bank balance runs low. Folding it into the main term loan is one route; a separate line of credit is another, and the partner decides which it will offer.

The lender reads the purchase agreement to see what it is financing, but it is not the buyer's adviser. A buyer in Columbia, MD generally wants several other people to read the deal before signing, each for a different reason.

• A business attorney, for the purchase agreement, the seller note, any non-compete and the lease assignment.
• A CPA, for the price allocation between equipment, goodwill and other assets, which affects taxes for years.
• An independent practice appraiser, when the price rests on goodwill.
• The landlord, whose written consent the lease may require before it moves to the buyer.
• For a medical or dental practice, a health care attorney who can review payer contracts and licensing steps.

With the price split, the working capital line sized and the advisers lined up, the request form is the next step. Related reading is on the blog.