Ferncroft Business Loans, a small-business funding service in Sheboygan, Wisconsin, wrote this guide for physicians in Sheboygan County who have been offered a share of a practice. It covers what a buy-in can purchase, how practices value it, the agreement terms to read, how a physician practice buy-in loan can be structured, and how practices themselves fund the transition.
Where This Comes Up
Sheboygan County had 67 physician office employers in 2023, with 1,377 employees, and 56.7% had fewer than five employees (County Business Patterns 2023). Forty-one had a ZIP 53081 address. In practices of that size, a new partner's buy-in can be a significant part of the practice's ownership, and both sides have reasons to get the terms right.
What a Buy-In Purchases
A buy-in can buy a share of the practice entity: its equipment, furniture and technology, sometimes a share of receivables, and goodwill, the value of the patient base and reputation. Real estate may be held in a separate entity and bought separately, if at all. Ask for a written list of what is included, and whether receivables earned before you joined belong to the existing partners.
How Practices Value a Share
Practices value a share in different ways. Some use an asset-based approach, totaling equipment and receivables; others add goodwill based on earnings; some agree on a formula written into the partnership agreement years ago. There is no single correct method, and we do not quote typical values. What matters for financing is that the method is written down and the numbers behind it are available.
Reading the Buy-In Agreement
- The price, the valuation method and when it is paid
- Whether part of the price is paid through reduced income over time rather than cash
- How income is split after you become a partner
- What happens if you leave, including any buy-back terms
- Non-compete and restrictive covenants
Have your own attorney and accountant review the agreement before you commit; a partner financing the buy-in will read it too.
How a Physician Practice Buy-In Loan Is Structured
When the buy-in is paid in cash, it can be financed with a term loan in the physician's name or through the practice, depending on how the agreement is set up. The payment can be repaid from the physician's distributions as a partner. Partners reviewing the request read the buy-in agreement, the practice's financial statements and tax returns, and the physician's income history and expected income as a partner.
Illustrative only. If a buy-in will raise a physician's annual income as a partner by $60,000 before tax, and the loan payment would be $2,500 a month, or $30,000 a year, the buy-in pays for itself on paper with room left over. If the income increase is uncertain, the payment should be tested against a lower figure.
Four Questions for the Senior Partners Before You Sign
- Can I see the financial statements and tax returns the price is based on?
- Is any part of the price paid through reduced income rather than cash, and over how long?
- Who owns the building, and will I be offered a share of it later?
- What did the last physician who bought in pay, and on what terms?
The answers shape how much needs to be financed and how the payment will be repaid.
When the Practice Funds the Transition
Adding a partner can coincide with other costs: a new exam room, equipment, or payroll for added support while the new partner's schedule fills. The practice may cover those with working capital or equipment financing, separate from the physician's own buy-in loan. Keeping the two clear lets a partner review each request separately.
More on practice funding is on medical practice loans. County figures are on the Sheboygan, WI page; more posts on the blog.
By Ferncroft Business Loans · Updated