Key questions to ask before the sale
Key questions to ask before the saleSelling to an investor is an exciting opportunity—but it is not for everyone.
These investors can be established clinic owners, private equity groups or even wealthy families investing in businesses. Investors are drawn to chiropractic because it’s a growing industry with strong potential for increased profitability. While some specialize in chiropractic, most have backgrounds in other specialties, such as physical therapy and dentistry. They acquire clinics, improve profits through growth and cost cutting and eventually sell the group to a larger investor at a premium.
How does this model impact practice value?
This can seem like a great way to maximize the sale price, but higher valuations depend on clinic size and the seller’s eagerness to stay involved post-sale. Investors also value clinics differently; while owner-operators value practices based on SDE (profit that includes the owner’s salary and benefits), investors value clinics based on EBITDA (profit after paying the owner’s salary and benefits). EBITDA-based sales favor larger clinics; smaller clinics may lose value because most of the profit comes from owner pay. Additionally, investors typically only offer premium pricing when the seller retains partial ownership and works in the practice for one to five or more years after the sale. When doctors want a clean break, investors usually pay market rates (or less).
How will I be compensated for the sale?
When selling to an investor, the investor purchases a majority share—usually 60-70%—while the seller retains minority ownership. This is designed to keep the selling doctor engaged in advancing clinic growth. The seller is paid a salary and receives their share of clinic profit. The second payout comes when the doctor sells their remaining ownership. If the clinic grew as planned, this final payout can equal or exceed the first. So, any premium depends on the investor’s ability to scale the practice and the work the selling doctor does to support that growth.
When do I need to start to be successful in this model?
Investors have the highest expectations of any buyer; so for the best valuation, start preparing three years in advance by optimizing operations and streamlining financials. While investors often point to their ability to pay cash and close quickly; in reality, the sale often takes 6-12 (or more) months because of complexity from exhaustive due diligence, continuous board approvals and complex contracts.
Where will I find the successor?
DCs meet investors through brokers, other business owners or a call or letter from the investor. While investor interest is exciting, be cautious. While there are many legitimate investor buyers, there are also unscrupulous buyers who make big promises but ultimately waste your time (and potentially a lot of your money through fees to your CPA and attorney). And vetting investors is more challenging than vetting individual buyers. To protect yourself, work with investors from trusted connections or with an established footprint in chiropractic.
What professional help do I need?
Selling to an investor may seem simple; they present a process that seems easy to follow with help from your CPA and attorney. But beware. Investors are professional buyers, skilled negotiators who know how to structure deals in their favor. Without an experienced sale advisor, doctors are vulnerable to leaving money on the table or agreeing to unfavorable sale terms. Level the playing field by engaging a high-performing broker with chiropractic expertise. A skilled broker identifies synergies to build value in the buyer’s eyes, connects doctors to the right investors and guides DCs through the intricate details of these unique sales—something you don’t want to learn on the job. They also advocate for you in negotiations and manage the complex, emotionally draining sale conversation where every word matters. An experienced attorney is essential to handle the extensive legal documents, which are far more intricate than those in a typical DC-to-DC sale, and your CPA plays a key role in the rigorous due diligence investors conduct.
When is this model a good fit?
This can be a great fit for DCs who want to sell at a premium (understanding the full payout comes over time as the practice grows) and wish to continue working in their practice post-sale. The doctor should be passionate about growth; investors seek eagerness, not just willingness, to grow together. Doctors should also have a long-term mindset, a high tolerance for the risk that comes with the deferred second payment and be ready to let go of control and adapt to the new owner’s vision while staying actively involved in the practice.
When is this model a bad fit?
Selling to an investor is a poor fit for DCs who need all the sale funds upfront or need to retire due to burnout or health conditions. It’s not a fit for doctors who dislike change. And DCs with philosophy-centered or niche practices may find the corporate approach, i.e., the focus on measuring and improving operating metrics, maximizing profitability and often incorporating medical services, conflicts with their vision and values.
What are some key recommendations to optimize my practice and build value for this model?
Start with an exit-strategy-focused valuation to get realistic expectations for negotiations and insight into opportunities to boost value. Establish a relationship with an industry-specific broker; investors form partnerships with these brokers for efficient deal flow, so this allows doctors to stay informed about market conditions and opportunities. If you have a longer timeline, put efforts into scalable growth; for example, multiple locations and clinics with room to grow are attractive to investors. However, manage growth carefully; overexpansion and expensive upgrades can strain cash flow (the number one reason practices fail), reduce profitability and lower value. Lastly, investor sales are multi-year partnerships, so keep other future plans flexible so there are no obstacles to moving forward.
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.
