When to buy an established clinic—and when to build one.
When life circumstances bring you the opportunity to own a new practice, which is the better option: buying an established clinic or starting one from scratch? Many doctors are surprised to learn that in most circumstances, the benefits of buying an established clinic far outweigh building from the ground up—sometimes in surprising ways.
Mitigate your risk
There are scary statistics on startup failure rates; some sources say as many as 95 percent of startups go out of business. The U.S. Bureau of Labor Statistics offers a more nuanced picture, estimating that about 80 percent of new businesses survive their first year, but only about half make it to their fifth. And only a third see their 10th birthday. Those are daunting odds.
The data further demonstrates that the longer a business has been in existence, the better its chances of survival. So while buying a practice introduces change into the picture (which inherently brings risk), acquiring an established clinic allows you to bypass that initial, highly precarious startup phase.
A big reason for the high rate of startup deaths (that’s the actual term) is that when you start a new clinic, you make a lot of decisions that are essentially guesses. Is the location good for this type of clinic? Will this treatment concept work for this area’s demographics? Will the marketing you want to conduct bring in enough new patients to pay the bills?
Another consideration is whether your new staff will be up to the challenge. But when you buy an existing clinic, you are buying a concept that has proven itself: It has an established level of success in this location, with this patient group, with these staff executing set procedures, etc.
Finally, an existing clinic brings with it historical data about trends in the business, prior marketing campaigns and their effectiveness, and the way practice collections and expenses have responded to changes in the past. The smart clinic buyer will be able to further reduce risk by using this data to forecast future performance, and make strategic decisions about how to be more profitable in the future.
Profit from day one
If you’ve started your own clinic before, you likely remember those first years of struggle, waiting for the patients (and profits) to start flooding in. Typically, a startup needs up to five years before turning profitable because of the high initial expenses and the hard work of building a client base. But a well-chosen existing practice offers immediate positive cash flow.
My husband and I started three chiropractic clinics, building them from the ground up. All three went on to be successful, but the struggle to get them to that point was not for the faint of heart: Each took $50,000 to get the doors open, and at least another $50,000 of working capital to cover expenses and bills while we struggled to get new patients.
We opened each clinic in a new market, so marketing a new clinic often didn’t work the way it had for the last one. There were significant headaches finding and training new staff—often with a lot of turnover until we found the right people. And we did lots of spinal screenings and health talks in the evenings and on weekends. Eventually, we figured out what worked for each client base, and went on to grow successful clinics.
But for the same $50,000 we put into buildout, equipment and initial marketing, we could have acquired a clinic that already had a net income of $200,000. Our lives would have been easier, and we would certainly be wealthier, had we gone that route.
Starting a clinic yourself involves a series of detailed tasks. It starts with locating office space and deciding on (and paying for) the buildout. Then you have to furnish, equip and staff it; fill it with office and medical supplies; interview, hire and train employees; and set up systems for office and patient management. That can take months of tedious work. And then you have to get to the work of finding patients.
Starting with an existing clinic means you already have the office built out, furnished and equipped with everything from adjusting tables to paperclips. The office systems are in place (often born from hard-won experience) and the employees are trained. Will you want to tweak some of these things? Of course you will. But by buying an already-profitable business with infrastructure in place, you’re freed to create additional growth by focusing on your areas of expertise and passion.
Think about buying a car. A new model has that new-car smell, and you definitely pay a premium for it. Then you look at a model that’s just a year older, and see you can save a bundle on one that’s nearly the same as new.
Buying a clinic can offer similar savings. The equipment has been depreciated. The buildout is in place, at no cost to you. All those office supplies, the computers, the inventory on the shelves—all of it is included, and often at a significant discount from its original value.
Also, financing is often easier to obtain for an existing business because of cash flow, and sometimes real-estate value. What’s more, financing for an existing business can have terms that wouldn’t be possible with a new-business loan.
Starting from scratch
So when does it make sense to start your own clinic? Usually when what you’re looking for isn’t available. For example, you might want to locate in an area where there are no clinics for sale. Or, if you are set on a particular vision that does not marry well with an existing clinic (e.g., converting an insurance-based clinic in a low-income area to an all-cash practice) then the attrition rate you would suffer might make it better to strike out on your own (depending on the value of the clinic location, buildout, staff, and similar considerations).
The key is in evaluating what you want. If you envision an impeccable new clinic, filled with the newest equipment and furnishings, and nothing you see for sale matches that image, it may be time to start a clinic instead of buying one. It depends on your appetite for financial risk and your ability to cover expenses while you build your practice.
How long can you afford to go on while you build up the patient base to pay for this practice? And what is its purpose? Is it because this is the only way that you can practice the type of chiropractic you believe in? Or is it to attract a solid base of loyal patients so you can have financial stability and afford a good lifestyle?
You can still consider buying a solid clinic with an established cash flow, because you will have the ability to turn that clinic into the clinic of your dreams, while having financial stability already in place.
Of course, the only way to reap the benefits of buying is to pick the right practice. Even if you have owned clinics in the past, wading through the data on someone else’s clinic can be confusing. This is where an experienced broker can help, assessing clinic data for inconsistencies, trends and potential pitfalls.
Crystal Misenheimer is the co-founder of Progressive Practice Sales. Their team harnesses the power of today’s technology to help doctors sell and acquire clinics, and save them time, money and effort along the way. She can be contacted at 512.523.9110, firstname.lastname@example.org, or through progressivepracticesales.com