Today, a record number of doctors of chiropractic are considering selling their practices. When practice sales are managed carefully, planned strategically and priced correctly, they can be an excellent way to ensure the well-being of your staff and patients after your departure.
Moreover, a successful sale can safeguard your legacy and capture significant value from your initial investment in building your practice. However, just listing your practice for sale does not guarantee a successful practice sale. Unfortunately, business sales generally suffer from a low success rate. Forbes magazine reports a mere 20% sale rate. Yet, you can flip these odds in your favor with intentional sale preparation and strategy.
Because most DCs are healers who see the business side of their practice as more of an afterthought, they are often woefully underprepared when it comes time to sell their practice. Many DCs are floored by the complexity of these financial transactions. Tragically, this often leads them to eventually close their doors and move on without preserving the legacy of the practice they’ve built or capturing its true value.
One of the primary reasons a practice folds is lack of understanding of what a practice sale involves. You cannot prepare for what you don’t understand, and when you fail to prepare, you prepare to fail.
Doctors consistently tell us they wish they’d learned about practice sales much earlier in their careers, as they would have built their practices differently and done much more sale preparation along the way.
What are you actually selling?
To understand if your practice will sell, it’s vital you understand what you’re actually selling. When buyers consider purchasing any clinic, their main concern is that the clinic’s profits can be easily replicated post-sale. To replicate the profits, the buyer will ask themselves these questions:
- Tangible assets: Does this sale include the infrastructure and equipment required to replicate the seller’s profits?
- Intangible assets: Does this sale include the community reputation, web traffic, marketing, practice management systems, trained staff and exclusive rights to the patient list so I can easily replicate the seller’s profits?
- Revenue: Is any of this clinic’s revenue not transferable (closed insurance panels, indirect medical education (IME) income, revenue from specialized treatment modalities the buyer can’t perform, etc.)? If so, what profit will I be able to achieve?
- Transferability: Is the clinic success due to unique treatment methods or the charismatic personality of the selling DC? If so, how can I replicate the seller’s success?
When any of these elements are missing or profits aren’t easily transferrable, the salability of your practice can decrease, as buyers will see the practice as a riskier investment.
Practice sales are not like real estate sales
A commonly held misconception for many DCs is that a practice sale will be comparable to their prior experiences in real estate transactions. While business sales and real estate sales share similar terminology, the differences are extensive. Some of the key differences include:
Value: While real estate can maintain a degree of intrinsic, unlosable value, businesses are valued based on their recent profitability. When a practice’s profit drops below a certain level, the practice value can rapidly decline to just the value of the equipment.
Timeline: Because the marketplace of chiropractic clinic buyers is much smaller than the market for real estate sales, chiropractic practice sales typically take much longer.
Buyer’s decision-making process: When buying real estate, the decision-making process is based on physical attributes of the property. However, in practice sales, the value is based mostly on intangible value and historical practice data. This means there are thousands of data points for the buyer and lender to analyze. This also means potential buyers need a high degree of trust in the seller, as all of the practice’s value hinges on the seller providing accurate and honest practice data.
Successful practice sales take a lot of time
Practice sales are not passive endeavors. It takes hundreds of hours to properly value the practice, prepare the practice for sale, actively promote the sale, keep the listing updated, manage all prospective buyer activity and successfully guide a sale to completion. Many DCs seriously underestimate this time requirement and optimistically try to sell the practice on their own. This model typically leads to a drop in practice value; the doctor is focused on their new job of learning to sell a practice, inevitably causing the practice profit, and thus value, to go down. Additionally, the “for sale by owner” clinic sale model is often unsuccessful and is a big part of the 80% failure rate for business sales. This is because, while you are an expert about your practice, it would take participating in hundreds of practice sales to make you an expert on selling your practice.
A practice sale is a high-stakes transaction for both buyer and seller, and this creates a high-pressure environment where sales can easily fall apart. However, having a skilled and experienced chiropractic practice sale broker to guide and manage the transaction can dramatically increase your odds of success. You will benefit greatly from the broker’s knowledge in avoiding sale obstacles, identifying workarounds for challenges that arise and keeping your sale on track so your sale doesn’t fall prey to the biggest enemy of these transactions: inertia and loss of sale momentum.
Incorrect pricing is a huge problem
When a practice is priced above market value, it will get few to no buyer inquiries. However, this doesn’t mean they don’t see the listing. Chiropractic is a small world, and prospective buyers notice and remember clinics with above-market pricing. While a seller may feel they are open to negotiating and the listing price is just a starting place, most prospective buyers will say they feel the seller is “unreasonable” and decline to even engage in a conversation where that negotiation could take place.
Lack of preparation destroys sale opportunities
Most DCs enter the practice sale process with the assumption a sale will naturally fall into place. This often leads to a casual approach to the information they provide to prospective buyers and lenders. The seller knows it’s a great practice, and the practice record-keeping is just a formality anyway, right? Unfortunately, no. One of the most common reasons a buyer will walk away from a practice is unclear or conflicting practice data. So, failure to review and reconcile your practice data is a huge risk factor for your practice folding instead of selling.
Many DCs plan to sell through an associate buyout sale structure, and this sale model requires additional preparation. You need to clearly identify the sale structure and timeline and communicate with your associate so all the details are transparent and agreed-upon. While this can be uncomfortable and feel overwhelming, it is crucial; without this communication and intentional strategy, associate buyouts have the lowest success rate of any practice sale model. You can dramatically improve your odds of a successful associate buyout by involving a supportive chiropractic practice broker for professional sale management.
How to flip the odds
Fortunately, despite all the potential pitfalls in chiropractic practice sales, there are tested methods for facilitating a successful sale, such as:
Properly prepare for your sale: During sale preparation, you need to gather a great deal of historical information on your practice, including financial data, statistics, history and operational details. Then you need to go through it all with a fine-toothed comb to ensure the information all tells the same story about your practice and any anomalies are clearly explained. It can be very challenging to do this yourself, as you are typically too close to the information to see where it will be confusing or alarming to a buyer or lender. Your accountant can help, but they will only be looking at the financial data. A seasoned chiropractic practice broker will have the practiced eye to complete this pre-sale analysis for you on all your data, so your practice presents itself as a professional business and a safe investment.
Focus on profit and profitability: Higher profits will attract a greater number of potential buyers to your clinic, so make it a goal to maximize the profitability of your practice during your sale. Make sure to focus on increasing profits in a way that can be replicated by a new clinic owner to further increase the likelihood of drawing in buyers.
Keep your clinic turnkey: Work hard to keep your practice modern, clean and efficient so when a new owner steps in, everything is functioning like a well-oiled machine and ready for use. And most importantly, avoid reducing your hours. This almost always negatively affects clinic profits, consequently lowering your clinic’s value.
Hire a professional team: Finding the right professional team is vital for a successful practice sale. Beyond simply finding buyers, you need a team capable of managing the entire transaction process. Seek out a brokerage with experience in chiropractic practice sales and a multi-departmental team to help ensure no key details are overlooked. Additionally, having an attorney well-versed in chiropractic practice sales and Small Business Administration transactions is essential to avoid inappropriate contracts and excessive legal expenses, and enlisting a responsive bookkeeper who can provide regular financial updates and answer questions promptly is also crucial. If your team is not up to par, you risk losing the sale. However, selecting the right team can make your sale successful and often more profitable.
Final thoughts
Selling a chiropractic practice is a complex process requiring careful preparation and management. Many DCs underestimate the intricacies involved and end up with unsellable practices or low-value sales. However, by understanding what buyers are looking for, avoiding common pitfalls and enlisting the help of a professional team, you can ensure your hard work and dedication is properly valued and increase your chances of a successful and profitable practice sale.
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.
