Buying or selling a practice is something an average chiropractor does rarely, perhaps once or twice in a professional lifetime. Yet, it is a crucial, life-pathway transition. It is by nature a complex and multi-factorial event, and one that requires planning and execution on both sides of the transaction. It’s not possible to outline all of the contingencies in a brief article, but I have outlined several key points for both the buyer and seller to consider:
On the seller side:
What is my practice worth?
There are several “back of the envelope” methods of valuing a practice, but there are actual, bank-accepted methods of doing this. This can be accomplished by certified professionals for a modest fee. This is worth going through so you know with good confidence that your subjective appreciation of the practice, for better or worse, is not entering into the pricing. You would also be less subjective to post-sale negotiating of the price if the buyer later claims that the price was inflated.
When is it time to sell?
Ideally, you would be selling when you choose to, not when you have to. A forced sale due to illness, injury, or any personal factors narrows the pool of buyers, makes the sale more stressful, and pushes the price down. This requires you to take a dispassionate assessment of your financial status, your passion and engagement level in the practice, and your ability to move onto a new chapter in life. Ideally, this exercise would give you a reasonable timeline and would allow you to plan for a large-scale life transition. For senior doctors just entering this process, 9-12 months is fast, even if a buyer is on the horizon. For planning purposes, a 3-5-year time horizon is reasonable, but a buyer will typically not stay on hold for that long.
Is my practice ready to sell?
There are many pitfalls to be able to sell a practice for a reasonable price within a reasonable timeline. There are not necessarily impediments to operating the practice in an ongoing basis, but should be considered differently in light of the fact that the buyer will be taking over the reins once the sale is complete. Features to consider:
- Is my practice driven mostly by personality or mostly by policies and procedures? Many DC’s do not have basic infrastructure pieces such as an employee policy handbook, procedural manuals for the front desk, the back desk, and any care delivery department, etc. These can and should be either constructed or updated so they can be used as training and procedural manuals. Standards make it more likely that the practice can be successfully sold, and that the buyer will be able to maintain the same standards (or better!) than you have put in place.
- Do I have a good grasp of my financials over the past few years? Most DC’s do not have a good operating grasp of the economics of the practice, and defer this to someone else, such as an accountant, a spouse, or another individual. Outsourcing setting things up properly is fine, and it’s also fine to delegate the population of the financials to another person, but you are asking for problems if you are completely divorced from this part of the practice. You should at barest minimum know your annual, quarterly, and monthly average collections, fixed overhead, variable overhead, pretax net to you. You should also know your average cost of proving a routine office visit to your chiropractic patients, and your average ending bank balance in the company checking account.
- Do I have a good grasp of my patient handling skills, referral sources, case averages, and what my growth potentials are? Most DC’s do have a general grasp of these items, but it’s important to keep the longer time frames in mind as well. If there are associates in the practice, how consistent are we with case management and clinical approaches?
Where does the money come from?
With rare exception, the ideal thing is for the buyer to obtain financing from a commercial bank. This can be ordinary business financing or through the SBA. Generally, smaller, regional banks are easier to deal with than the bigger, more diverse banks are, but as long as the financing is available, we are not going to be picky about this.
Banks look at essentially the same information we use to obtain the valuation to come up with an amount they feel the practice is worth, and what they will lend on it. Use of a certified evaluator will usually give a value within a few percentage points as the bank. The lendable amount will depend on several factors, such as local banking market conditions, the credit-worthy-ness of your buyer, and their own internal portfolio distributions. Use of the SBA will raise the credit-worthiness of the buyer, as there is now a guarantor of the loan.
If the buyer and seller both determine that the seller should be the “bank”, this is certainly feasible. There is less hoop-jumping and the conditions can be more flexible. As the seller, you do have default risk on the part of the buyer, so you have to maintain your license and your engagement with your practice in general and the chiropractic landscape in general.
There are hybrid versions of these pathways, which is beyond the space available in this article.
On the buyer side:
Am I mentally, emotionally and financially ready to buy a practice?
If you have been a treating chiropractor only, you will have a fast and wide exposure to what you didn’t know or had no direct experience with. If the practice is stable regarding procedures, documentation, and personnel, you will not have to re-invent the wheel. These features are necessary to find out about on the front end. You will need to obtain assistance from an outside source, such as a focused consultant service, and also be willing to learn outside your field. This knowledge includes HR, personnel, finances, marketing, etc.
You also have to be ready to be in charge of the entire enterprise, which means operating in areas that you are not as well trained in or as familiar with as your role as the doctor.
How do I know if this practice is right for me?
If you are new to the practice, you should trail the selling doctor for as much time as it takes to understand the clinical pieces, and how the office works. This would come after you sign a letter of intent and you are most of the way down the purchasing pathway, in order to protect the privacy of the selling doctor. How compatible is the patient population and the technical pieces of the practice with what you intend to deliver or have already been delivering?
Who is in charge of billing? Who manages the accounts receivables? How is the schedule managed? Is the selling doctor’s family directly involved in running the practice?
How do I know if the price is fair?
You go through essentially the same exercise as outlined above for pricing of the practice. This should be done for a flat fee or just by your lender, so the evaluator is not incentivized to inflate or deflate the price of the practice.
Please contact me directly if you are interested in either side of this transaction. More mature practices frequently need to go through an adaptation to get the practice ready to sell, and that service is a separate pre-amble to the listing and marketing of the practice. Steinberg Consulting Services Inc. can assist you with getting your practice ready to sell and to addressing any operational or personnel problems that may exist. Omni Practice Group is the brokerage that shepherds the purchase and sale of the practice, either as an agent of the buyer or seller.