The associate buyout: One path to chiropractic clinic ownership

How do I become the owner of a chiropractic practice? is one of the most common questions we get asked by young doctors of chiropractic.  

The freedom of how, when and where you practice, an excellent work/life balance and the opportunity to retain all profits you generate are all reasons young doctors choose to acquire clinics. This article highlights one path to clinic ownership: the associate buyout. While this model requires careful planning and management, associate buyouts can yield incredible results.  

Understand associate buyouts

Chiropractic school prepared you for patient care but was likely not as helpful in preparing you for practice ownership. The long-term nature of associate buyouts provides comprehensive business ownership training and access to the wellspring of experience fostered by the selling doctor. Moreover, patient attrition is especially rare in associate buyouts because patients and staff have a period of rapport-building with the buyer prior to the selling doctor’s exit.  

However, associate buyouts are deceptively complex. When unstructured, this sale model has a very high failure rate (while there are no formal statistics on associate buyouts, anecdotally they have the highest failure rate of all sale models) and could leave you in the undesirable position of working in a clinic you will never own, under the constraints of a non-compete that limits your other opportunities.  

In my experience, there are three main reasons why associate buyouts fail so frequently:  

1. Most doctors fail to establish a concrete buyout plan. 
2. The long sale cycle allows more time for things to go wrong and for either party to change their mind. 
3. Associate buyouts are often neglected or improperly managed.  

Poor communication is the root cause of each of these reasons for failure and lack of communication leads to unmet expectations on both sides. 

Find the right clinic

In your journey to find the perfect clinic, begin planning with your end goal in mind. Spend considerable time identifying and distinguishing between your wants and needs, and project out a few years; your needs today may be different from your needs in the future. Investing this time will help prevent you from hastily making the wrong decision.  

When looking for “the one,” keep in mind no clinic will be a perfect match. A great practice will meet at least 80% of your biggest priorities; more than that and you’ve found a rare gem. Don’t limit yourself. Consider unique practices with niche models and techniques to foster a competitive advantage. Finally, don’t base your decision solely on the associateship or the buyout. Instead, carefully consider and work to understand the terms of both before signing on. 

Prepare for a clinic purchase

Today, the market for buying chiropractic practices is highly competitive. Therefore, you must be prepared to make a move as soon as the right opportunity arises.  

Because all business decisions should be informed by professional input, begin your preparation by assembling a team of advisors. Your team should be assembled before searching for a practice and should include a CPA, an attorney and a practice transition specialist (such as a chiropractic practice broker). Practices are tough to find these days, and the doctors who are most prepared are the ones able to close deals.  

An experienced chiropractic practice broker will also help you understand your financing options, introduce you to lenders who will fund chiropractic acquisitions (most banks cannot) and help you compile the documentation necessary to obtain a lender prequalification.  

Identify the right clinic

Before finding a clinic that matches your preferences, you should prepare questions for the seller so you can have a clear understanding of the clinic and if it is a good fit.  

Here are a few questions we recommend asking the selling doctor:  

• What is your timeline for exiting the practice and is this timeline flexible? 
• Why do you want to hire an associate? 
• Why do you want to sell through an associate buyout? 
• What do you think has made your practice successful? 
• What have associates done in your clinic in the past and why has/hasn’t it worked? 

Ideally, choose a seller who has worked in advance to prepare for the buyout and has the sale structure, reasonable timelines for the major sale steps and an appraisal of the current clinic value. This preparation increases the likelihood of success as you can see the seller’s commitment and better understand the sale.   

The selling doctor will have questions for you as well, so be prepared to shine in your interview. The doctor seeking an associate for a buyout will be looking for exceptional patient care skills, people skills, management potential, a strong work ethic and inner motivation to follow through and complete projects. You should also communicate your history of responsible financial decisions and your genuine respect for the doctor and the clinic they’ve built.   

Once you have identified a match, you will first sign the employment agreement. This should contain a written option to purchase and list the terms of the acquisition.  

Start your associateship

As you begin your associateship, remember this is the time to evaluate if this is the right opportunity for you. Pay close attention to how your evolving knowledge of the practice confirms or changes your opinion that the practice is a good fit and the seller is a comfortable long-term business partner for you. Regularly evaluate your long-term goals and whether they align with your current understanding of the long-term goals of the selling doctor.  

Navigate the decision-making process

The purchase option in your employment agreement will typically specify a “decision date,” which is the point when the buyer and seller decide whether to move forward with exercising the sale option. If you feel comfortable moving forward, it will be time to sign a letter of intent (LOI). This offer is non-binding, and once you put earnest money down, your position will be secured and your team of professionals can begin drafting the formal sale documents.  

Don’t rush this part of the sale process and remember even in times of stress or disagreement, you should communicate respectfully with the seller. You are taking ownership of their legacy, so it’s important to acknowledge and honor their hard work.  

Formalize the buyout

Once the LOI has been signed, your acquisition will be formalized in the buyout process. This process typically involves drafting purchase agreements and partnership agreements, updating practice valuations and obtaining financing. All of these processes are fraught with challenges and potential landmines with severe consequences, so if you reach this stage of the sale, you must lean heavily on your team for their expertise and professional guidance.  

Associate buyouts are unique in that they are incredibly complex and often require custom strategies that account for both buyer and seller goals and all of the complexities of the clinic itself. If your team of experts has significant chiropractic experience, you will likely save significant time and money over working with generalists.  

Joint ownership

Most associate buyouts will have a period of joint ownership where the buyer is working to gradually increase their ownership share either through payments to the seller, building “sweat equity” through working at a lower compensation rate or both. It is essential you have a comprehensive partnership agreement in place dictating all key aspects of how the practice will be co-run during the joint ownership period. This is critical if anything unexpected (death, illness, loss of license, etc.) happens to either owner.  

The partnership agreement should also lay out a plan for how ownership responsibilities will change over time. Unless the seller elects to maintain some ownership, it is a good target goal to have the joint ownership period wrapped up within three years.  

As you develop a strategy for this period of the buyout, remember to plan for the unique complexities of an employee becoming the employer and how to maintain a cohesive and effective clinic staff through this transition. Building rapport with your team and communicating with respect will go a long way in strengthening goodwill with your team. Additionally, you should strategize on how to maintain trust and continuity with established patients and notify them about the change in ownership.  

Take the last steps

The final stage in the buyout process occurs when the buyer takes full control of the clinic. This stage may come immediately after the associate period or after a longer period of joint ownership. As your income from the practice grows, try to maintain your existing cost of living. These efforts to conserve your profits will greatly increase your cash reserves, which is an important safety net for business owners to provide peace of mind, and to cover unexpected or unusual expenses. Watch your cashflow carefully and avoid making big changes and accruing more debt until later.  

Even if the sale has gone smoothly up to this point, there is still a chance the buyout may not be the right fit for you and the seller. If this is the case for you, don’t panic! Seek a professional opinion, analyze best- and worst-case scenarios and communicate your concerns with the seller before backing out of the sale. Emotions will likely run high around any sale hiccups at this stage, so be intentional when communicating about any sale issues. In most cases, you will greatly benefit from bringing in a neutral third party to help with mediation and keep you from burning bridges.  

Final thoughts

While associate buyouts come with risks, they can provide immense benefits to both buyer and seller. Not only does the buyer benefit from learning about all of the complexities of the clinic directly from the selling doctor, but the selling doctor benefits from training their successor and preserving their legacy.  

Adequate preparation and professional guidance are essential in mitigating the risk of associate buyouts. However, because this sale structure ultimately relies on the relationship between buyer and seller, it is vital that both feel in the loop and respected throughout the process.  

Use the insights provided in this article to guide you through this process and inform your decision-making. Despite the challenges, a well-managed associate buyout is well worth the effort!     

CRYSTAL MISENHEIMER, 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 herself, she is uniquely qualified to provide comprehensive support on the many complexities of clinic valuations and practice sales. You can contact Misenheimer and her team at 888-508-9197, marketplace@progressivepracticesales.com or online at progressivepracticesales.com.