Buying a Medical Practice vs. Starting From Scratch: What the 5-Year Numbers Actually Show
Compare the true 5-year financial outcomes, startup capital requirements, and hidden costs of buying an existing medical practice versus starting from scratch.
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Every physician who considers practice ownership eventually faces the same fork: buy an existing practice or build one from zero. The conventional wisdom says buying is faster and starting is cheaper. Like most conventional wisdom in physician finance, it is partially right and mostly incomplete.
By our planning estimates, starting a medical practice from scratch in 2026 takes roughly $450,000 to $900,000 in total capital — including the build-out, equipment, technology, staffing, and the working capital to survive the 6 to 12 months before consistent revenue arrives. Buying an existing small to mid-sized practice might mean a purchase price of $400,000 to $1,500,000, driven mostly by its earnings — with revenue that begins on day one from a patient panel that already exists.
The total capital required is similar. The risk profile is different. The cash flow trajectory is dramatically different. And the 5-year wealth outcome — the number that actually determines whether either path was worth taking — depends almost entirely on variables that have nothing to do with which path you chose. They have to do with how well you executed it.
This article models both paths with worked numbers, covers the hidden costs that derail each one, shows the 5-year financial comparison for a realistic family medicine practice scenario, and gives you the decision framework that determines which path makes sense for your specific situation.
The Cost Structure of Starting From Scratch
The most common financial planning error in de novo practice startups is underestimating the working capital requirement — not the build-out, not the equipment, not the technology. The working capital.
Here is why: a practice that opens its doors can go months with little cash coming in. Credentialing with commercial insurers often takes months, and each payer sets its own effective date. Medicare is more forgiving: once your enrollment is approved, billing privileges start on the date you filed (or the date you began seeing patients at the new location, if later), and you can bill for up to 30 days before that if circumstances kept you from enrolling in advance. Payment also lags the visit: Medicare can't pay a clean electronic claim until a 13-day waiting period has passed, and must pay or deny clean claims within 30 days, while commercial payers pay on their own contract terms. Even after payments begin arriving, patient volume ramps gradually over 12 to 24 months before reaching a sustainable level.
Plan for 6 to 12 months of full operating expense coverage before consistent cash flow begins. A practice with $40,000 per month in operating costs needs $240,000 to $480,000 in startup working capital. That working capital requirement is the silent expense that most startup cost articles minimize — and it is often the variable that determines whether a startup practice survives its first year or closes before reaching full productivity.
The Complete Startup Cost Breakdown
The ranges below are our planning estimates for a small practice, not figures from a published survey. Vendor quotes, your lease, and your lender's underwriting will set the real numbers.
Facility costs: $50,000 to $350,000
The range reflects the lease-versus-build decision. Leasing an existing medical office shell — a space already built for clinical use — costs $0 to $50,000 in tenant improvements. Leasing a raw commercial space and building it out to medical code requirements costs $100,000 to $350,000 depending on specialty. Clinical space usually needs plumbing and electrical work that a plain office lacks, such as a sink in each exam room, and the build-out has to pass local building permits and inspections.
The lease terms matter as much as the build-out cost. For example, a landlord who offers $50 per square foot in tenant improvement allowance (TIA) on 1,000 to 3,000 square feet subsidizes $50,000 to $150,000 of your build-out cost, usually in exchange for a longer lease commitment.
Medical equipment: $50,000 to $300,000
The range is entirely specialty-driven. A psychiatry practice needs a laptop, a few chairs, and a HIPAA-compliant video platform. A gastroenterology practice starting from scratch needs endoscopy equipment that costs $150,000 to $300,000 before seeing its first colonoscopy patient.
The 2026 tax treatment makes equipment purchase significantly more favorable than leasing for well-capitalized startups: Section 179 allows immediate deduction of up to $2.56 million of qualifying equipment for tax years beginning in 2026, a limit that shrinks dollar for dollar once the year's purchases pass $4.09 million. Bonus depreciation is now a permanent 100 percent deduction, with no dollar limit, for qualifying property acquired after January 19, 2025. One catch for a startup: the Section 179 deduction can't exceed your taxable business income for the year; the unused amount carries forward, which matters in a loss year.
Technology infrastructure
$15,000 to $60,000
EHR implementation, billing software, practice management system, patient portal, cybersecurity compliance. Most EHR vendors require implementation fees of $5,000 to $25,000 for small practices, plus ongoing monthly subscription costs.
Staffing costs pre-revenue
$60,000 to $240,000
You need staff before the first patient arrives. At $20,000 to $40,000 per month in staff payroll, the 3 to 6-month pre-revenue period represents $60,000 to $240,000 in compensation paid before a single dollar of collections arrives.
Credentialing and licensing: $5,000 to $20,000
Beyond the physician license, the practice entity needs its own credentialing with Medicare, Medicaid, and each commercial payer — a process that can take months per payer and should start well before opening.
Marketing and patient acquisition: $10,000 to $50,000 in year one
A de novo practice starts with zero patients. Attracting patients requires website development, Google Business Profile optimization, physician directory listings, and referral relationship development.
The complete startup capital requirement:
| Cost Category | Low End | High End |
|---|---|---|
| Facility / build-out | $50,000 | $350,000 |
| Medical equipment | $50,000 | $300,000 |
| Technology / EHR | $15,000 | $60,000 |
| Pre-revenue staffing (3 to 6 months) | $60,000 | $240,000 |
| Working capital reserves | $120,000 | $300,000 |
| Credentialing and licensing | $5,000 | $20,000 |
| Marketing and launch | $10,000 | $50,000 |
| Legal / entity setup | $5,000 | $20,000 |
| Total | $315,000 | $1,340,000 |
- Low End
- $50,000
- High End
- $350,000
- Low End
- $50,000
- High End
- $300,000
- Low End
- $15,000
- High End
- $60,000
- Low End
- $60,000
- High End
- $240,000
- Low End
- $120,000
- High End
- $300,000
- Low End
- $5,000
- High End
- $20,000
- Low End
- $10,000
- High End
- $50,000
- Low End
- $5,000
- High End
- $20,000
- Low End
- $315,000
- High End
- $1,340,000
By these estimates, a solo primary care practice in a moderate cost-of-living market lands in the $450,000 to $700,000 range. For a complete deep-dive, see our Guide to Medical Practice Startup Costs.
The Cost Structure of Buying an Existing Practice
Buying an existing practice replaces the build-out, equipment procurement, and patient acquisition problems with one transaction: a purchase price that reflects the practice's established value.
How medical practices are valued:
Buyers and appraisers usually price a practice as a multiple of its EBITDA — Earnings Before Interest, Taxes, Depreciation, and Amortization — after adjusting the owner's pay to market. No free, published survey reports sale multiples for small practices, and quoted figures vary widely. As an illustration, at 2.5 to 4 times EBITDA, a medical practice with $300,000 EBITDA would sell for $750,000 to $1,200,000. Valuation depends on location, patient demographics, payer mix, equipment condition, competition, and growth potential.
For a full explanation of how practice valuations are calculated, see our Medical Practice Partnership Buy-In Guide or run your numbers through our Practice Valuation Calculator.
What the purchase price buys:
- Patient panel: established patients booking from day one
- Payer contracts: existing credentialing (eliminates the 3-6 month gap)
- Staff: employees who know the workflows
- Equipment: functional medical equipment
- EHR and technology: an operational system
- Goodwill: reputation, brand, and community presence
What it does NOT buy:
- Patient loyalty: some attrition is inevitable
- Staff retention: key staff may leave during transition
- Clean liability: you inherit AR history and vendor relationships
The Attrition Risk — Quantified
The patient panel attrition following a physician transition is the most consistently underestimated risk in medical practice acquisitions. No reliable published benchmark says how many patients leave after a physician change; it depends heavily on how the transition is handled. The model below assumes 20 percent.
On a practice collecting $700,000 annually, a 20 percent patient attrition event reduces year-one collections to $560,000 — a $140,000 revenue gap that must be absorbed while the new owner simultaneously services acquisition debt.
The hidden costs of acquisition (our planning estimates):
- Professional due diligence: A healthcare CPA reviewing three years of financial statements. Cost: $3,000 to $8,000.
- Healthcare attorney review: Contract review, asset purchase agreement negotiation. Cost: $3,000 to $10,000.
- Independent practice valuation: Third-party appraisal from an ASA or ABV-certified healthcare valuator. Cost: $3,000 to $8,000.
- Transition overlap period: Paying both the selling physician and operating the practice simultaneously during the 30-90 day handoff.
Budget roughly $15,000 to $30,000 in professional fees above the purchase price for a well-executed acquisition, and get a written quote from each advisor.
How the price is split matters for taxes. If you buy the practice's assets rather than the owner's shares, buyer and seller each report the allocation of the price among asset classes on IRS Form 8594, with goodwill in the last class. Equipment can be depreciated or expensed as described above, while purchased goodwill is amortized over 15 years under Section 197. Settle the allocation in the purchase agreement.
The 5-Year Financial Model: Side by Side
This is the calculation that actually answers the question. Not which path costs less to start — but which path produces more wealth over the first 5 years of ownership.
The scenario: A family medicine physician purchasing or starting a solo practice in a mid-sized market. Target: 2,500 active patients, $800,000 in annual gross collections at maturity, 55 percent overhead ratio, $360,000 net physician income at steady state.
Path A: Starting From Scratch
Year 0 (pre-opening): $585,000 Capital deployed
Financed through a practice startup loan.
Year 1: The Credentialing Gap
Gross collections: ~$250,000. Operating loss: -$100,000.
Physician income: $0–$50,000
Year 2: Building the Panel
Gross collections: ~$480,000.
Physician income: ~$115,000
Year 3: Approaching Maturity
Gross collections: ~$640,000.
Physician income: ~$203,000
Year 4: Full Productivity
Gross collections: ~$800,000.
Physician income: ~$275,000
Year 5: Equity Building
Physician income: ~$290,000
Net practice equity: ~$470,000
Path B: Buying an Existing Practice
Year 0: Acquisition ($600k purchase)
Total capital deployed: $625,000, mostly borrowed. An SBA 7(a) loan would require at least a 10% equity injection on a full purchase.
Year 1: Immediate Revenue
Gross collections: ~$600,000 (20% attrition).
Physician income: ~$182,400
Year 2: Stability Established
Gross collections: ~$720,000.
Physician income: ~$236,400
Year 3: Growing
Gross collections: ~$800,000.
Physician income: ~$272,400
Year 4: Full Ownership Economics
Loan paydown meaningful.
Physician income: ~$285,000
Year 5: Established Ownership
Physician income: ~$295,000
Net practice equity: ~$435,000
The 5-Year Wealth Comparison
| Metric | Start From Scratch | Buy Existing |
|---|---|---|
| Year 1 income | $0–$50,000 | $182,400 |
| Year 2 income | $115,000 | $236,400 |
| Year 3 income | $203,000 | $272,400 |
| Year 4 income | $275,000 | $285,000 |
| Year 5 income | $290,000 | $295,000 |
| 5-year cumulative income | $933,000 | $1,271,200 |
| Net practice equity at year 5 | $470,000 | $435,000 |
| 5-year total wealth creation | $1,403,000 | $1,706,200 |
- Start From Scratch
- $0–$50,000
- Buy Existing
- $182,400
- Start From Scratch
- $115,000
- Buy Existing
- $236,400
- Start From Scratch
- $203,000
- Buy Existing
- $272,400
- Start From Scratch
- $275,000
- Buy Existing
- $285,000
- Start From Scratch
- $290,000
- Buy Existing
- $295,000
- Start From Scratch
- $933,000
- Buy Existing
- $1,271,200
- Start From Scratch
- $470,000
- Buy Existing
- $435,000
- Start From Scratch
- $1,403,000
- Buy Existing
- $1,706,200
The acquisition path produces approximately $303,000 more in total 5-year wealth — primarily because the income gap in years 1 through 3 for the startup path is substantial and does not fully close before year 5.
The important caveat: This model assumes 20 percent patient attrition in the acquisition and a normal credentialing ramp in the startup. Change either assumption and the comparison shifts.
The Decision Framework: When Each Path Wins
🏢 Buy an existing practice when:
- You want income from month one. A physician with student loan obligations and family commitments cannot typically absorb 2 years of below-market income.
- You are entering an established referral network. Building that network from zero can take years.
- The existing infrastructure has value you cannot easily replicate. A dermatology practice with an operating Mohs surgery suite represents massive sunk capital costs.
🌱 Start from scratch when:
- No suitable acquisition target exists. In some markets, there simply are no practices for sale that meet your criteria.
- You want to build it exactly your way. Adapting an existing practice with ingrained culture is often harder than building a new one correctly from day one.
- The acquisition price exceeds fundamental value. Startups become attractive when the acquisition alternative is overpriced.
- Your working capital is secured. You have adequate cash reserves to absorb the startup's income ramp period.
Frequently Asked Questions
Is it cheaper to buy or start a medical practice?
How long does it take for a startup medical practice to become profitable?
What is the biggest financial risk in buying a medical practice?
Can I get a loan to buy or start a medical practice?
What is the most underestimated cost in starting a medical practice?
Use our Practice Valuation Calculator to evaluate whether a specific acquisition price is fair relative to the practice's demonstrated earnings.
Related reading: SBA Loan vs. Conventional Loan for Medical Practices · How to Write a Medical Practice Business Plan
Sources
- 7(a) loans, U.S. Small Business Administration. Accessed September 27, 2026.
- SBA lender resources: Partnering with SBA loan programs (7(a) loan program comparison and maturities), U.S. Small Business Administration. Accessed September 27, 2026.
- SOP 50 10: Lender and Development Company Loan Programs (versions 8 and 8.1, equity injection requirements), U.S. Small Business Administration. Accessed September 27, 2026.
- Revenue Procedure 2025-32 (2026 inflation adjustments, including the Section 179 limit), Internal Revenue Service. Accessed September 27, 2026.
- Notice 2026-11, Interim Guidance on Additional First Year Depreciation Deduction under § 168(k), Internal Revenue Service. Accessed September 27, 2026.
- Publication 946 (2025), How To Depreciate Property, Internal Revenue Service. Accessed September 27, 2026.
- Instructions for Form 8594 (11/2021), Internal Revenue Service. Accessed September 27, 2026.
- 26 U.S.C. § 197, Amortization of goodwill and certain other intangibles, Office of the Law Revision Counsel, U.S. House of Representatives. Accessed September 27, 2026.
- 42 CFR 424.520, Effective date of Medicare billing privileges, Electronic Code of Federal Regulations. Accessed September 27, 2026.
- 42 CFR 424.521, Request for payment by certain provider and supplier types, Electronic Code of Federal Regulations. Accessed September 27, 2026.
- Medicare Claims Processing Manual, Chapter 1, General Billing Requirements (sections 80.2.1.1 and 80.2.1.2, payment ceiling and floor standards), Centers for Medicare & Medicaid Services. Accessed September 27, 2026.
- Healthcare Practice Financing & Loans, U.S. Bank. Accessed September 27, 2026.
About the Author
Joshua Dunigan, DO | Family Medicine Resident & Founder
I'm a family medicine resident physician at Broadlawns Medical Center in Des Moines, Iowa (class of 2027). I founded MedMoneyGuide to give physicians specialty-specific financial guidance, with sources you can check.
Disclaimer: Financial projections in this article are illustrative models built on the assumptions stated in the article, not on a published survey. Actual startup costs, acquisition prices, revenue trajectories, and physician income vary significantly based on specialty, geographic market, practice size, patient demographics, payer mix, and individual execution. This article is for educational purposes only and does not constitute financial, legal, or business advice. Always engage a healthcare CPA, healthcare attorney, and independent practice valuator before making any practice acquisition or startup decision. MedMoneyGuide has no affiliate or advertising relationships with the companies it covers.