Are you considering selling your practice? Do you wonder if you’re doing the right thing? What are you going to do after you sell your practice? What about your patients – will they be cared for with the same dedication you have given them for years? What is your practice worth?
These are just some of the questions chiropractors ask themselves when they begin to think about selling their practices. Often the reason for selling the practice greatly influences the answers to many of these questions. Retirement or permanent disability are two of the most dramatic reasons doctors consider selling their practices. Career changes, relocation and “burn out” can also prompt the decision to sell.
The value of a chiropractic practice when it is sold varies depending on the reason for selling. The practice is always worth more when the selling doctor is ready to relinquish his or her patients to a buyer under the most favorable financial conditions (the “adult” business stage). If the practice is in the “mature” business stage (declining financial condition by comparison to previous years), the question can become, “How quickly can we sell it?” If the practice is still in the “adolescent” business stage, the question becomes, “Is now the time to sell it, or should I wait a couple more years?”
The following cases are real practice sale examples of doctors in different parts of the country. The doctors’ names have not been used and some of the details have been modified to protect confidentiality.
The Decision to Sell
Obviously, the first step is the decision to sell. After talking to family members and colleagues, the decision to go forward with the sale is made or deferred to a later date. If you decide to sell, the process begins. What is the practice worth? What should you ask for it? How much financial information are you comfortable releasing to potential buyers? What loose ends must be taken care of? What will happen to your staff? What kind of buyer are you willing to consider? Will you sell the practice yourself or seek an independent consultant/broker to help you with this process? What is the minimum price you will accept?
These are all important questions you should ask when making the decision to sell. There are other, unexpected questions that may also become important in the selling process. They can help or hinder the process, delay the sale, or actually shut down any opportunity to sell. Some of these questions are addressed in the following four case studies.
- Accepting Closure of Your Career: The most traumatic and difficult practice sale situation can occur when a chiropractor becomes physically disabled because of an accident or illness. We are never ready to address issues that come up when disability occurs.
One doctor in the Midwest was confronted with this situation when involved in an auto accident that resulted in permanent injury, rendering him unable to practice. During the first few months after his injury, he felt he could recover, so he asked another chiropractor to see his patients during the rehabilitation period. That worked for awhile, but the practice office hours were shortened because the relief doctor was available to see the injured doctor’s patients only two days a week. The result? Patient visits and revenue began to drop while expenses stayed the same. The doctor had to change strategies, so he advertised for an associate.
There were several responses to the ads, mostly young graduates with little or no clinical experience in private practice. After several interviews, the doctor selected a young doctor who had been in practice for a short period of time. After a few months, this relationship began to fall apart. The practice owner’s priorities were focused on his health problems and his mind began to wander more toward his own financial needs rather than re-establishing the practice. Because his original objective of maintaining or rebuilding patient visits and cash flow was lost, the associate doctor became bored and frustrated.
The practice owner was afraid his associate might leave the practice, so he contacted a consultant who recommended that he sell the practice to the associate. The owner was watching his practice “go down the drain,” but did not know if he wanted to quit practicing. He was dealing with his injury and had not yet prepared himself to talk to his associate about buying the practice. He was now forced to admit his professional career had ended. The psychological process the practice owner went through in the next few weeks became more disabling than his physical injury. With the help of his spouse and the advice of his financial advisors, he got through the negotiation of a sale price and the actual closing process.
- Dealing With Burn-Out Anxiety: Similar to the situation just described, a chiropractor in the Southwest found himself dealing with the financial aspects of his practice, an unfamiliar territory, during both the selling process and after the sale. Although the sale process went reasonably well, it became apparent during the negotiating process that he really knew very little about the financial operations of his practice. Never being a “business person,” he had left all the financial dealings with his office manager, who basically ran the practice. The doctor often deferred financial decisions or their analysis to the office manager, because he didn’t want to get involved with those details.
As the sales process developed and the closing date was quickly arriving, the doctor be-came frustrated. He didn’t understand how part of the purchase price, the value of the ac-counts receivable, was so low. The office manager explained the accounts receivable in such a confusing manner that neither doctor understood their value. Write-offs, monthly payment schedules, and attorney liens were virtually indeterminable. As a result, the accounts receivable value was significantly discounted to 30% of the total estimated value.
The selling doctor had already gone through one major psychological change and was about to make another one. He began to avoid issues and had the attitude: “Don’t confuse me with the facts, I just want out of here.” Unfortunately, other surprises came up after the sale. The doctor buying the practice found “loose ends” that weren’t identified prior to the sale because the selling doctor wasn’t aware of them. Communications after the sale between the two doctors were difficult at best and very confusing. The new practice owner found herself dealing with both her own frustrations and those of her newly acquired patient base. Revenues and patient visits were down during the transition period, which increased the tension and pressure of the situation.
The selling doctor thought everything was going fine with the transition of his practice to the new doctor. Since there was little or no communication between the two, when a problem arose, the selling doctor was shocked. With the assistance of an independent consultant, some of the problems were cleared up while others had to be dealt with directly by the new doctor. Disillusioned, the new doctor established practice-building procedures to bring in new patients while attempting to salvage the patient base she had purchased.
- Seller’s Change of Mind: Sometimes a financially successful practice in its prime is put up for sale. You mean not all practices for sale are financially successful? You guessed it. Most of the time, a practice is sold because it is past its prime or never reached its prime. However, circumstances unrelated to the practice itself can result in a highly successful practice being put on the market.
Recently, a doctor in the Sun Belt decided he wanted to sell his practice and relocate back to the West Coast due to family needs. The practice was valued and advertised for sale, resulting in several inquiries by prospective buyers. One particular candidate with sterling credit could afford the down payment and had pre-qualified for financing for the remainder of the purchase price. He even offered almost the full asking price.
Suddenly the selling doctor found himself in a dilemma – someone had offered him what he wanted for the practice. That offer caused him to really address his personal family needs that originally prompted him to sell his practice. After much discussion with his family and a more intense effort to deal with his family’s concerns, he was not sure he could sell his practice. To re-locate now could create more problems than solutions. It was just too much to risk right now.
This decision took several weeks after the other doctor made his offer. Frustration was beginning to set in, and still no acceptance of the offer was forthcoming. Normally, there is a specific period of time identified in an offer for the recipient to respond. However, this was the practice of a lifetime and was in a Sun Belt state that the doctor making the offer had always wanted to live in. So he told the practice owner to take all the time he needed.
However, the psychology of waiting after a certain point can be frustrating for anyone. The doctor interested in buying the practice became impatient and asked the practice owner to make a decision concerning his offer. He knew that by pushing the doctor to a decision, the answer might not be what he wanted to hear. Either way, he wanted an answer so he could get into this practice or move on.
The owner of the practice decided, as you might expect, not to sell until his personal situation became more stable. The other doctor was actually relieved to finally get a decision concerning the sale of the practice – good or bad. He was then free to reconsider his strategies and look at other practices.
- Don’t Really Want to Sell Yet: Sometimes practices are put on the market just to find out what the seller could get for his or her practice and to see if there are any qualified buyers.
This was the situation with a practice on the East Coast. The owner put his practice on the market and priced it based on the best annual gross revenue of the past five years rather than having an independent valuator come in and determine an independent value for his practice.
After 18 months on the market, a qualified buyer contacted the seller. The interested doctor found the practice professionally and financially sound for the most part, but did not feel that it was worth the asking price. When she approached the seller with specific questions, the response was, “If you aren’t going to offer the full price I am asking, don’t make an offer at all.” The practice is still for sale.
The Dynamics of Selling
You may be wondering if the psychology of selling is a dominant, negative factor in every sale consideration. That is not the case. There are many practices that are sold in a “win-win” situation for both the seller and the buyer.
However, the examples in this article will help you understand the complicated and frustrating dynamics of deciding to sell a practice. As a result, it is important to talk with your family and financial advisors about your reasons for considering the sale of your practice. Are your reasons realistic? What kind of psychological impact will the process have on you and your family? When is a good time to sell the practice? Are there things you can do to make the practice more marketable? What are you giving up financially by stepping out of your professional career? Are you considering relocating to another city? Will you buy a practice or start from scratch? What financial obligations will you need to address when you sell? Will there be proceeds left to protect you financially after the sale is completed? What will you do with your time after you retire?
Once these questions have been addressed, the actual process of selling can be much more enjoyable and productive to both you, as a seller, and to a potential buyer.