This article introduces the absentee-owner model and explains how it works, what it takes to be successful and whether it’s the right approach for you and your practice.
This article introduces the absentee-owner model and explains how it works, what it takes to be successful and whether it’s the right approach for you and your practice.Many DCs hesitate to sell because they aren’t quite ready to retire, or they’re not ready to walk away from the income their practice provides. In those cases, the owner’s goal isn’t a full exit, but instead a shift into a lighter role allowing them to step back from the day-to-day. However, turning a practice into a passive income stream isn’t as simple as hiring an associate and cutting owner hours. Thats where the absentee-owner model helps.
How does the absentee-owner model impact practice value?
When done well, converting a practice into an absentee-owner model (where the owner works in or on the practice 10 hours a week or less) often increases its value. Practices with strong systems, a solid team and a proven history of success without full-time management by the owner are attractive to a wide pool of buyers. Because the profit is more passive for the owner, these practices can often command higher valuation multiples.
However, in many cases the conversion to absentee-owner model doesn’t go as smoothly as planned. And when an owner steps back too quickly, clinic performance suffers. Associates may struggle with converting new patients, as well as retaining and reactivating existing patients. Declining trends in these vital areas lead to lower revenue and reduced profitability. And because valuations are based on the past three years’ profit, even a short-term dip in profit can impact the practice’s value for years to come.
How will I be compensated?
In this model, the owner continues to earn profit from the practice rather than receiving a lump-sum payout from a sale. While this can provide a steady long-term income stream, it’s important to plan realistically. An absentee-owned practice typically generates less profit than it did when the owner was more involved, due to lower clinic productivity as well as increased payroll; most absentee-owned practices need higher performance bonuses to retain and incentivize key staff, as well as at least one additional employee in a dedicated management role. It’s risky to assume that growth will offset these added costs, as most absentee-run clinics don’t experience significant expansion after the owner moves to part-time involvement.
When do I need to start to be successful in this model?
Building an absentee-run practice isn’t quick; most doctors need two to five years to fully implement and test this model before they can confidently and fully step back from full-time management. It’s best to implement a gradual transition in which the owner trains and supports the team, then slowly steps out of clinical and management duties while staying physically present to monitor performance and key metrics.
What professional help could I need?
To make this model work, you could need expert help building the right team, systems and oversight structure. A great employment attorney and human resources consultant could help you design contracts and compensation packages that motivate performance without creating unsustainable overhead. A consultant who specializes in scalable practice models could help optimize workflows and track key performance metrics. And a chiropractic practice broker could help you build your absentee-run clinic model so it is optimally positioned to capture maximum value in a future sale.
What does ongoing involvement look like?
Contrary to popular belief, this is not a set-it-and-forget-it model. While you may no longer be in the practice full-time, you’ll still need to monitor clinic stats, oversee financials, manage high-level decisions and ensure key staff are supported and retained. If the practice experiences turnover, patient loss or financial issues, you’ll often need to step in quickly to stabilize operations. So, until the practice demonstrates consistent strength without your presence, it’s best to remain in the local area and maintain a flexible schedule so you can be as involved as necessary to preserve value.
When is this model a good fit?
This model can be a great fit for DCs who enjoy the business side of practice ownership and have strong leadership skills. It works best in practices with reliable, cross-trained staff and well-established systems. A key element of success is the owner’s willingness to remain involved during the transition to absentee ownership; and to step back in as needed. For that reason, it’s often ideal for DCs who aren’t ready to retire but want more freedom or see the practice as a long-term income-producing asset. The owner should have a high tolerance for risk, be able to pivot quickly if needed and ideally remain local for ongoing oversight.
While this model has appeal for a wide audience of DCs, it isn’t right for everyone. If managing and mentoring employees sounds unappealing, if tracking and systematizing performance feels tedious or if you need to move out of the area and you don’t already have a strong team and systems in place, this approach is high-risk for losing practice value, and is likely to bring more stress than reward. In those cases, selling the practice may be a better way to protect your hard-earned value and make a clean, confident transition into your next chapter.
What are some key recommendations to optimize my practice and build value for this model?
With a well-thought-out strategy, strong processes and systems in place and consistent oversight, you can create a practice that can thrive without your daily involvement. Start by ensuring your software tracks all key stats accurately, especially in common problem areas, such as accounts receivable and prepaid package balances. Establish a reporting and meeting rhythm where your team tracks key metrics weekly and meets regularly with you to review progress. The practice will still need a hands-on leadership approach, so you’ll need to appoint or hire a strong on-site leader. This can be an associate doctor, a lead CA or a clinic manager; the key is they need to think like an owner and relish being a go-to resource for problem-solving and team support. Train them well, create an incentive structure based on clinic (not individual) performance and empower them with clear authority and accountability.
Crystal Misenhiemer, a leading expert in chiropractic practice sales, is the first and only chiropractic broker to earn the coveted Certified Business Intermediary (CBI) designation from the International Business Brokers Association (IBBA) and sets the gold standard in expertise, quality and service. A former clinic owner, she is uniquely qualified to provide comprehensive support on the complexities of clinic valuations and practice sales. Contact Misenheimer and her team at 888-508-9197, marketplace@progressivepracticesales.com or online at progressivepracticesales.com.
