The pros and cons of expanding from one clinic to two

As demand for chiropractic care grows, many DCs consider expanding from one clinic to two.

While this growth can lead to significant rewards, it also comes with increased risks and complexities. This article delves into the financial differences between operating one clinic and expanding to two, helping DCs better understand the tradeoffs so they can make informed decisions about their best business strategy.

Revenue, costs and profits of owning one clinic vs. two

In most cases, operating a single practice will result in lower overhead compared to two, often leading to a higher profit margin. This is because with one, the doctor can optimize every aspect of the practice, such as fine-tuning patient care protocols, managing staff efficiently and controlling expenses. Additionally, the simplicity of managing one location often means fewer administrative burdens and a more straightforward workflow. This direct involvement reduces costs and enhances the quality of patient care, resulting in stronger patient relationships and loyalty, which fosters growth over time.

When expanding from one clinic to two, you have the potential to double your revenue if you strategically position your second location so its patient-drawing radius doesn’t overlap that of your current practice, effectively doubling the number of people who might visit one of your practices. This geographical expansion may also attract new patient demographics, supporting additional growth. Having multiple locations often enhances your perceived reputation and positioning in the community, which can lead to more new patients at both locations.

While your overhead will increase with two clinics, you may have the opportunity to centralize operations like billing, marketing, practice management and other administrative duties. This can help keep overhead from doubling, leading to higher profit margins.

Some doctors achieve economies of scale when expanding from one clinic to two. Economies of scale come from purchasing supplies and services in larger amounts; by buying more, you may be able to negotiate better deals with vendors. This benefit is more common with large clinic groups, but even two-location groups can achieve savings in areas like local marketing and products purchased for resale.

Savings may be possible by expanding from one clinic to two, but only through discipline and intentionality.  Without this, the most likely outcome is your profit margin will actually go down. Even with excellent practice management, two practices always means more staff, more patients and more administrative work to support it all. The underlying business also gets more complicated. For example, your CPA might recommend structuring the clinics’ ownership under separate entities to protect your assets, which adds administrative burdens and costs. All of the additional complexity and busyness means that, without an intentional strategy, the easiest way will become the norm, and that rarely results in the highest profit.

Potential rewards of two clinics

The potential financial rewards that come from transitioning from one clinic to two don’t just stop at the increased profit possible with two clinics.

One big secondary advantage is future scalability. Expanding from one clinic to two can give you a great foundation for additional growth, because once you have successfully added the second clinic, replicating that success in further expansions becomes easier and more repeatable. If this is your goal, be intentional from the beginning by building expansion systems and infrastructure and documenting every step along the way; this type of repeatable system can fuel exponential growth.

If you leverage this scalability and expand beyond two clinics, do so in a way that builds your group’s reputation as a market leader.  This perception of expertise and authority drives growth to support more locations, allowing you to enjoy additional financial rewards and better serve your community.

Another potential reward: Owning multiple clinics significantly increases your attractiveness to investors with deep pockets, such as private equity groups. Groups of clinics are typically seen as more stable and profitable investment opportunities; if your group also generates a sizeable profit, you may achieve a more lucrative exit when you decide to sell.

Risk management

While expansion higher profit potential, growth also leads to additional risks.

These risks will be highest when you first open your second location. This is because the start-up phase of a new clinic is often the most challenging, expensive and risky.

Government statistics show only 50% of new practices are still open after five years, and only 30% will still be open at the 10-year point.  The two primary reasons so many start-up practices fail are running out of money before the clinic becomes profitable and offering services that aren’t a good fit for the patients.

Further, accounting experts say it takes a brand-new business an average of two to three years before it consistently generates enough revenue to produce a regular profit.

These risks can all be mitigated by purchasing an existing practice that already has a patient base, established systems and a proven track record. This approach greatly reduces risk as well as the time and effort required to get your second clinic up and running.

More risks to mitigate

Even after you overcome the high-risk start-up phase, having two clinics still carries risks.

To benefit from multiple clinic ownership, you have to be laser-focused on maintaining consistency and quality of care across locations. You need to build exceptional systems and protocols, delegate tasks and lead your team effectively; otherwise, it will be extremely difficult to ensure each clinic delivers the same high standard of care. This can impact patient satisfaction and retention, as well as your online presence if patients post negative reviews. All of this will quickly and dramatically affect your bottom line.

You must also learn to rely on your team to run things smoothly at reach location regardless of your presence. This shift in responsibilities can be a challenging transition for DCs, but it also presents professional growth and development opportunities.

For you, the DC, making the shift from one clinic to a multiple-clinic model usually involves transitioning from caring for patients to overseeing and guiding practice operations. This shift can be professionally fulfilling, as it allows you to develop new skills and take  a more strategic role in your business. The reduced physical demands of not being directly involved in all  patient care can also be a significant benefit.

Quality of life

While financial growth is a key driver of most expansions, remember that increased profit isn’t the only driver of career satisfaction. Weigh all expansion plans carefully to ensure the additional professional accomplishment warrants the changes you are likely to have to make in other areas, primarily your quality of life.

While a stronger business with steady profits can lead to a much higher quality of life, don’t expect those benefits immediately. Expanding from one clinic to two will come with some initial stress, and you may find yourself looking back nostalgically on your time owning only one practice, when life felt simpler and your workload felt more manageable.

However, with intentional efforts to build a sustainable business, this may be a short-lived transitional phase to a much higher quality of life.

Expansion best practices

If you think you’re mentally and financially ready to expand to a second location, let these best practices guide you:

Optimize your existing clinic first: Make sure your current clinic operates efficiently and profitably; it contains your building blocks for success at additional locations. Utilize all your space, refine patient care protocols and implement standardized systems for management, billing, marketing and other administrative functions. Fully leverage technology platforms, including EHR systems and practice management software.

Monitor performance metrics: Create a system to track key performance indicators (KPIs) and make it a habit to monitor and analyze them. These are  essential when you have multiple locations. Actively track patient visits, revenue, expenses and patient satisfaction to identify areas for improvement while ensuring all locations meet your standards.

Seek professional advice: Work with experienced professionals, such as CPAs, business consultants or practice brokers who specialize in exit strategy planning. Their expertise can help you make informed decisions, avoid pitfalls and maximize the financial potential of your clinics, now and in your future exit.

Final thoughts on expanding from one clinic to two

While a second clinic will present challenges, the potential for increased profit, professional growth and market leadership makes it a worthwhile consideration. With careful planning, purposeful execution and professional support, expanding from one clinic to two can be a highly rewarding venture.

CRYSTAL MISENHEIMER, 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.