You’ve worked hard to build a business — and you deserve maximum value when selling a chiropractic practice
The path to selling a chiropractic practice can seem long and winding. Making the transition a successful one depends on many variables, only some of which are under your control.
A few key factors can mean the difference between getting maximum value or seeing six-figure losses — or even making a sale at all.
Seize the day
In 2018, 10,312 small businesses were sold, a record-setting year for the third year in a row. The economy remains strong, and indicators point to a robust sales cycle.
Approximately 95% of the sales through my brokerage are funded through bank loans, and the lending market is flourishing. Chiropractors and investors are flooding the market as interest rates hit a three-year low, with expectations for more drops in the future.
However, as any economic expert will tell you, these conditions won’t last forever. Uncertainty in domestic and international markets can have a direct influence on practice sales, which already average a 12- to 18-month sales cycle industry-wide. So if you’re considering selling a chiropractic practice, it’s best to strike while the iron is hot.
Stand out in the crowd
Sellers have noticed the favorable conditions. What’s more, demographic shifts are leading many DCs to retire, or prompting younger DCs to relocate.
Nationwide, two out of three business owners plan to sell in the next 10 years. Even so, chiropractors remain largely uninformed about preparation for the sales process. Seventy percent of businesses listed for sale will never transition ownership, and many DCs burn out along the way. As a result, it’s more important than ever to be prepared.
In a crowded market, sellers need to find ways to set their practice apart. Following the suggestions here will put you ahead from the start.
Keep an eye on the numbers
Financial figures can be a major help when finding a buyer, but they can also be among a seller’s biggest obstacles. Clinics with narrow profit margins are considered much riskier acquisitions, and both buyers and lenders will see declining numbers as a red flag.
Confusing financials muddy the water further. If a buyer can’t understand your numbers, they won’t buy. Examples include doctors who use their business bank account to pay all personal expenses and doctors who don’t categorize their expenses clearly. Working with a CPA can help clean up these issues, but it takes time that most sellers don’t plan on.
Choose a tax strategy
For doctors running a practice, tax strategy often means hiding money to minimize rates. But in a change of ownership, tax returns become the foundation of the sale.
The focus must shift to showing the money so that the practice can command an appropriate value on the market. Ideally, this would take place three years before the sale. The choice often comes down to paying now or paying later.
Strategize with your CPA to determine if you’d be better off decreasing your tax strategy for a higher sale price, or vice versa.
Price for savvy buyers
Unlike some sellers, most buyers do their homework. They’ll come into a sale informed and ready to comparison shop. That means your pricing needs to be comparable to current market offerings.
Your price cannot be based on your current needs — those aren’t relevant to the buyer or the bank. Pricing too high can easily backfire. Clinics with higher-than-expected price points tend to sell for less than their initial valuation after an extended period on the market. And keep in mind that while buyers come in looking for growth opportunities, and will often buy a clinic because of them, they only pay based on existing income streams. Banks will lend on the same basis. Price accordingly.
Minimize risk and overhead
Buyers aren’t like entrepreneurs, who are comfortable building businesses from scratch. Buyers have a lower tolerance for risk, and they get nervous around low profit margins and high overhead.
What’s more, buyers generally don’t want to buy a clinic that’s overstaffed. They don’t want to fire anyone, and banks don’t like to see upward of 30% of revenue going to payroll. As a result, it’s best to minimize reliance and streamline where possible when selling a chiropractic practice. Cross-training staff to take over for retirement-age employees can also help make a clinic more buyer-friendly.
Modern equipment and systems are among the primary factors that can sway a buyer in favor of your clinic. An up-to-date clinic will look far better on the marketplace. However, that doesn’t necessarily mean buying the latest and greatest equipment.
Systematize where possible — convert to an EHR system, script out financial consultations or create training manuals. If you don’t have a website, create one. Take pictures to see your clinic with fresh eyes. Fixing up outdated systems or equipment is just one more thing an overwhelmed buyer will have to worry about. Don’t give them another reason to say no.
Don’t wait until it’s too late
Moving on can be difficult, and that’s especially true when you love what you do. Foster that love, but don’t let it get in the way of your financial future.
Weigh your earnings against the selling value of your clinic — if your health or motivation decline, will your earnings offset the value your clinic will lose? Plan prudently; list your clinic before you have to sell, and don’t wait until you’re burned out. By that point, it’s already too late.
Move quickly, but stay for the long haul
If you want to maximize your stress levels and lose money during a sale, here’s how: Wait until you’re burned out and want the practice sold yesterday. Don’t prepare in advance. Expect your work to be done the moment you hire a broker, and count on your practice selling instantly.
If you’d prefer a less stressful sale, commit to the process early and be ready to put in the work. Finding a buyer for a practice is not like finding a buyer for a house. It’s more like dating — you and your practice are looking for a soul mate.
Prepare for a longer process. A sale might take two years from prepping data to closing. Make sure you’re ready to go the distance. But be ready to move fast when necessary. When a buyer shows up you want to be prepared, as time is the killer of all sales.
Brokers — yes or no?
A mediocre broker is mostly a drain on your sales proceeds, but a great broker is worth their weight in gold.
A great broker brings a host of resources to increase the likelihood of selling a chiropractic practice. Ideally, they’ll have a database of active buyers and a good reputation among those buyers. They can create attractive marketing, find pre-qualified buyers, and negotiate all aspects of the sale.
The path is yours to take
However, even a good broker is not a magician. No broker can read your mind to get required practice information, nor can they convince a bank to fund a deal if the financials don’t support the price. Often, however, a broker can make a substantial difference in the final sale price.
Ultimately, the path to selling a clinic is yours to walk. Regardless of which road you take, we suggest that you use a map and compass. Keep these factors in mind, and your transition is much more likely to go smoothly.
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.