Buying an Existing GP Practice: Due Diligence Checklist
- GPHUB
- Jan 2
- 3 min read
Buying an established General Practice is often safer than starting from scratch, offering immediate cash flow and an existing patient base. However, you are not just buying a patient list; you are inheriting the clinic’s legal risks, staff liabilities, and operational culture.
This guide outlines the essential due diligence steps for GPs looking to acquire a practice in Australia.
1. Financial Due Diligence (The Numbers)
Before discussing price, verify the clinic's true profitability.
Valuation Benchmark: In Australia, mixed-billing GP practices typically sell for 3 to 4 times (3x–4x) EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation).
Service Fee Analysis: Verify the Service Fee percentage (e.g., 30–35%). If the current owner is charging 45% and doctors are unhappy, the "goodwill" you are buying is fragile.
"Normalised" Earnings: Ask for the last 3 years of financials. Look for one-off personal expenses (like the owner's car lease) that can be added back to profit, but also check for underpaid expenses (e.g., if the owner works as the Practice Manager for free, you will need to hire one).
2. Legal & Lease Checks
The Lease is Critical: The value of the practice is tied to the physical location. Ensure the lease has at least 5+5 years remaining. If the lease expires in 12 months, the "business" you are buying is at risk of eviction.
Restraint of Trade: Your sale contract must prevent the selling doctor from opening a new clinic nearby. A standard "cascading" clause (e.g., 5km / 3km for 3 years) is essential to protect your patient base.
Staff Liabilities: In a "Sale of Business," you inherit the staff’s service history. Be careful with Long Service Leave. If a receptionist has been there for 9 years, they are about to trigger a large payout. Ensure this liability is calculated and deducted from the purchase price.
3. Clinical & Operational Risks
Accreditation Status: Check the AGPAL/QPA certificate expiry. If it expires in 3 months, you will have to handle the reaccreditation immediately. Note that accreditation does not "auto-renew" upon sale; you must notify the agency.
Provider Numbers (Non-Transferable): You cannot "buy" the old provider numbers.
The Trap: Every doctor (including yourself) must apply for new provider numbers for the site.
The Solution: Schedule settlement for 6–8 weeks after signing to allow time for Medicare processing.
4. The "Red Flags" Checklist
Walk away or renegotiate if you see:
High Doctor Churn: If 3 doctors have left in the last 12 months, there is likely a cultural or billing problem.
Declining Patient Numbers: Check the "Active Patient Count" (patients seen 3+ times in 2 years). Is the trend line pointing down?
Outdated IT: If they are using paper files or servers from 2010, factor in an immediate $20k–$30k capital cost for a digital upgrade.
5. The Settlement Process
Heads of Agreement (HOA): A non-binding document outlining price and terms.
Due Diligence Period: You (and your accountant) have 14–30 days to inspect everything.
Contract of Sale: The binding legal agreement.
Medicare Applications: Apply for your new Provider Numbers and Transfer of HPI-O immediately after signing.
Disclaimer
This article is a general guide only and does not constitute legal or financial advice. Business valuations and legal obligations vary by state and circumstance. You must seek independent advice from a qualified medical accountant and commercial lawyer before signing any contracts.
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