Tips for constructing an exit plan for one of the 5 types of buyers when selling your practice
Too many business owners fail to properly plan their exit from day one, inhibiting them from creating the underlying foundation, systems and structure needed to build a business that will attract one of the five types of buyers. Unfortunately, chiropractors are no exception when selling your practice.
Oftentimes, when building their company, chiropractors end up building a job instead of a business. When this is the case, it inhibits the owner from working on their business, forcing them to work in it. Without the owner, there would be no business. Not only does this take away from the time the owner could be spending on building up and scaling their business, it also affects the salability of the company.
Selling your practice: the 5 types of buyers
Each type of buyer (first-time, sophisticated, strategic, private equity groups and turnaround specialists) is looking to purchase a business, not a job. They want a full return on their investment as quickly as possible.
If the owner of the business is involved in the day-to-day operations of the company, then a buyer would be purchasing a job. The buyer will have to work harder to recoup their investment and spend hours building the business to the point where it is sustainable. This significantly lowers the attractiveness of the company, lowering its potential selling price. In order to ensure their company commands the highest possible price on the closing table, chiropractors need to ensure they build a business that is sustainable, scalable and sellable before selling your practice.
Your exit strategy
I have always believed that small business owners and entrepreneurs, regardless of which industry they operate in, should be thinking of their exit strategy from day one, whereas a lot of doctors don’t think about their exit strategy until a catastrophic internal or external event occurs — and by that time it is too late.
However, my reasoning for that has changed slightly over the years. Back in 2013, when I wrote my first book, “Sell Your Business for More Than It’s Worth,” I researched small businesses extensively and found that 85-95% of all start-ups were at risk of going out of business within the first five years of operation.
When I did the same research to write my newest book, I realized that the business landscape had changed substantially over the years. Now, only 30% of start-ups are at risk of going out of business in the first five years, but an astounding 70% out of 27.6 million businesses that have been in operation for 10 years or more will fail.
You hear about the public companies all the time, such as the big box stores like Toys ‘R’ Us, Kmart, Stein Mart and Pier 1. But you do not hear about the small businesses on every street corner, in every town, and in every state that are dropping like flies.
This is where my exit model comes in. It is a step-by-step blueprint that guides you in building your business from day one. It helps you understand your desired endgame so you can create the framework for building, scaling and selling your company. This allows you to build a business that will attract strategic buyers who will pay top dollar for your business. The exit model is broken into five different steps. I have also included an example for further explanation:
- Determine Your Destination — Desired Sales Price: $20 million
- Know Your Current Location — Current Business Value: $5 million
- Know Your Time Frame — Time Frame: 10 years
- Identify Who Your Buyers Will Be — Which type of buyers will be willing to pay the most for your business?
- Determine Your WHY — Why do you want to sell for $20 million?
Each step builds off the previous one, beginning with understanding your desired sales price and ending with determining your reason for selling your business. Following the exit model will help chiropractors plan their exit strategy from day one when selling your practice, understand which one of the five types of buyers will be interested in their business, and help them develop a “why” that is powerful enough to weather any financial storms they encounter.
Run your business on all 6 cylinders
The next step chiropractors should take to build a sustainable, scalable and sellable business is to ensure their business is operating on all six cylinders, which is crucial to building a business that is both profitable and efficient. Buyers will pay top dollar for a company that is operating on all six “P’s” or cylinders:
People — For a buyer to consider a business to be sustainable, it must have the right people in place, so they do not have to invest time and money into hiring and training employees to run the company. With that being said, owners should analyze their current team to ensure they have the correct people in the appropriate seats. Once they have done this, they can then ask the “who” question. Who deals with accounting, legal, customer service, logistics, etc.? The objective here is to ensure that the owner is not next to the “who” because the business needs to be able to run without the owner. Especially in the chiropractic space, owners need to have other doctors in the practice. This way, when it comes time for the owner to sell, the patients don’t disappear with the owner. I am currently selling a chiropractic clinic that is having this exact issue. When buyers find out both of the chiropractors are leaving, they become uninterested and pass.
Product — It is pertinent to ask yourself if your product/industry is thriving or dying. It is also important to make sure your company services a niche with staying power. For example, a chiropractor could choose to specialize in servicing local athletes. Once the practice builds up a reputation for servicing this niche, athletes would choose this practice, since they specialize in their field, instead of a generalized practice. Also, clinics should structure their business so they have multiple congruent revenue streams. For example, they could sell supplements and offer MD, orthopedic, neurosurgeon, physical therapy, and massage therapy services along with chiropractic services. Finally, just like any other business model, chiropractors need to AIM: “Always Innovate and Market.” Innovating is key to ensuring your products or services never become obsolete and keep up with changing customer demand. One way chiropractors can innovate is by implementing new technologies as advancements are made, such as scanning or laser therapy.
Process — This “P” is often overlooked but should never be ignored. In the eyes of buyers, processes could make or break a company. Processes are essential to a business and to building profits. Your company should not have to continuously reinvent the wheel. It should have a standard system for running both day-to-day and long-term operations. Processes should be efficient, productive and well-documented, and should be designed with the customer experience in mind. If you can nail this part, your business will grow exponentially.
Proprietary — Proprietary assets, or intellectual property, make your company unique and help to tremendously drive up your business’s value. Intellectual property includes assets such as brands, trademarks, patents, databases, contracts in place, real estate, etc. When selling your practice realize that all buyers are looking for an edge when purchasing a company, or a competitive advantage.
Patrons — A sustainable business has the ability to pivot when necessary due to adverse market conditions or changing customer demand. A diversified client base makes this possible and significantly minimizes operational risks. For example, you could service major medical, personal injury, workers comp., and alternatives cases. There is an 80/20 rule that states that 80% of your revenue comes from 20% of your customers. If that 20% all comes from the same sector, however, and something happens to that sector, then 80% of your revenue is at stake. You should develop a diversified, loyal customer base that is willing to go out of their way to purchase your products and services.
Profits — Profits are one of the most profound “P’s,” because without profits, your clinic will not be sustainable. You should ask yourself if you have multiple congruent revenue streams and recurring income. Also, is your business generating over or under $1 million in EBITDA (earnings before interest, taxes, depreciation and amortization). Other than turnaround specialists (which will not allow you to maximize value), a buyer will not be interested in a business that is not making any money. Remember, however, that profits are never a problem, but a symptom of not operating on the other five “P’s.”
Don’t leave money on the table
According to Steve Forbes, “It’s stunning that so many business owners end up leaving so much equity on the table when they want to cash out.”
I have been in the chiropractic/multidisciplinary industry for over 20 years, and have built, operated and sold many practices. That is why I firmly believe that chiropractors who follow this advice are putting themselves in the best position possible to sell their practice for top dollar.
MICHELLE SEILER TUCKER, M&AMI, CM&AP, CSBA, is the founder and CEO of Seiler Tucker Incorporated. She owns multiple businesses in several different industries, and as a 20-year veteran in the M&A industry is regarded as one of the leading authorities on buying, selling, fixing and growing businesses. She and her firm have sold over a thousand businesses in almost every vertical and have a remarkable track record of success. Learn more at exitrichbook.com.