buy chiropractic practice

Can You Afford To Buy a $500,000 Chiropractic Practice?

Many chiropractors looking to make the next move in their career wonder if they can afford to buy a chiropractic practice.  Whether the price point of the practice is $500,000, $50,000 or anywhere above or below that mark, most docs don’t have a clue about what they can actually afford.

Of course, you’ve heard the old adage, “You’ve got to spend money to make money.” Perhaps you’ve even debated that when it comes to the decision of whether to buy a chiropractic practice or start your own from scratch.

Unfortunately, in our profession, that advice is tempered by the reality of chiropractic school debt, which often exceeds $150,000.  It is understandable, then, that young, responsible, and prudent chiropractic professionals are conflicted over assuming additional debt to move toward goals they set while in chiropractic school.  In other words, you may dream about owning a thriving, million dollar practice “someday.” But the burden of student loans, mortgages and everyday living expenses may cause you to doubt your ability to reach that dream, at least anytime soon.

On the other side of the debate, the enormous benefits of acquiring an established, high-grossing, high-profit chiropractic practice will certainly outweigh the financial risks, if the buying opportunity is good, and the value of the practice is accurate. Other factors, such as attractively low-interest rates or extremely favorable seller terms are additional considerations.

The Million Dollar Chiropractic Practice Dream

Let me give you an example of the foresight you need to make this happen successfully:

Several years ago, a young associate who graduated from chiropractic school several years prior, began to pursue his dream of owning a million-dollar practice. He left chiropractic school with $157,000 in education debt. He worked for several years as an associate doctor producing $35,000 a month, which gave him confidence in his clinical abilities, some basic business skills and a good income history. He found a practice that was perfect for his needs which grossed one million dollars annually and was for sale at $600,000.

Despite the fact that he did not own a home, and his wife was expecting their first child, the young associate purchased the practice by borrowing the money from a lending institution. As part of the sale, the former owner remained in the practice for a period of time to help the young doctor transition.

Today, the practice is thriving. His investment in the practice, and in his future, is paying off.  The young doctor went from making an associate salary in the low 5 figures to a healthy 6-figure income — and this enabled him to not only pay his practice loan, but also his student loans. Not only did his income increase, he probably shaved 10 years off the learning and income curve to do it in less time.

Can you see the big picture?

Ultimately, being a successful entrepreneur means seeing the ‘big picture” – which includes where you are and where you want to be. Considering only today’s circumstances puts you at a disadvantage when planning for the future.  In that respect, Viewing the purchase of a high-grossing chiropractic practice as a financial burden instead of a golden opportunity is a common misperception in building professional wealth. While it is true that assuming a large amount of debt seems imprudent when one already has substantial outstanding obligations, when it comes to investing in your professional future, this shortsighted thinking may not necessarily apply.

If you can maintain the levels of service which exist in a thriving practice, the purchase of a high grossing practice is essentially ensuring a larger income stream for you now and in the future. Of course, increased income from a busy and established practice will greatly enhance your ability to generate and accumulate wealth.

Entrepreneur (or Buyer) Beware!

To be fair, we must also mention the other obvious option when considering a practice purchase: starting a practice from scratch. However, entrepreneur beware! Even though the initial investment for a startup may appear to cost less than buying a high producing practice, the fact is that you will lose out on the instant cash flow that purchasing an existing practice offers; as a consequence, you will need to acquire additional start-up capital to make up for that fact.  In addition, you must also consider what happens to the marketplace in each purchase.  When you buy an existing practice, with it you are purchasing the existing patient base and you are essentially replacing the “space” in the market that the former owner-occupied with yourself.  When you start from scratch, there is no patient base yet and you are adding another competitor to the marketplace – which happens to be you.

Finally, before deciding on a “start-up” option instead of purchasing a high grossing existing practice, one must consider the cumulative potential for wealth. To illustrate this point, assume that you purchase a $500,000 practice, which realizes annual profits of 40 percent—or $200,000 a year, before debt service. Over a 20-year period, without ever considering any increases in income, the accumulated income would translate into $4 million in earnings.

Let’s assume that you paid $300,000 for this investment and the payments were made over seven years at an interest rate of 7%. That would translate into monthly payments of $4,528 over the course of the loan, with total principal and interest rates of $380,335. Does borrowing $300,000 for a practice that can produce at least $4 million in career earnings seem to be a worthwhile investment? The answer, of course, is “yes.”

Since many startup costs range from $150,000 t $200,000, the cost may initially seem more attractive, for a comparable payoff. However, if there are no patients, there is no income, and it will take a considerable number of years to approach the earning stream offered by an existing practice. In fact, it takes the average chiropractic practice approximately 5 years to become profitable at all (if they survive that long). And while the startup practice makes its gradual slope upward toward profitability, the purchased practice has been chugging along all the while quietly earning $200,000 a year.  In the end, the startup may be just as profitable as the purchased practice, but it did not start out that way and therefore, you may end up with significantly less earnings for your initial investment.

GOOD News on the Horizon for Buyers

I’ve got even more good news for those who are looking to buy a chiropractic practice.  Starting in 2018, the Small Business Administration (SBA) changed their lending requirements…in your favor!  It is now possible to buy a chiropractic practice with a lower downpayment than ever before, which really tips the scales in favor of buying an established chiropractic practice vs starting one from scratch. This is yet another reason why it is a great time to buy a chiropractic practice!

Advice…Before You Leap

Before you leap into a startup or a purchase, here are a few quick suggestions:

  • Consider your financial position and the opportunities that you currently have.
  • Assess the risks of each entry point – and see how well you can tolerate the extremes.
  • Review your ultimate goals as a chiropractor and the timeframe in which you want to achieve them.
  • Do the math with respect to all the above so that you will reach a conclusion you can live happily with, now and in the future.

NEXT STEPS

There is certainly much more that goes into your decision to buy a chiropractic practice than we have time or space to discuss here.  That’s why you should consider attending our FREE Webinar: Buy, Build or Break Up: How to Make Your Next Best Chiropractic Career Move to Purchase a Chiropractic Practice, Start One From Scratch or Get a New Chiropractic Job.  On this webinar, we’ll show you the strategies you need to know to make the best decision for your next step — including how to quickly estimate exactly how much practice you can afford.  I hope you’ll join us!

In the meantime, if you are interested in hearing about opportunities to buy a chiropractic practice, get a new chiropractic job or discover ownership opportunities, we offer a FREE PRACTICE MATCH service where we will notify you of openings of chiropractic practices for sale & chiropractic associate employment & ownership opportunities in your desired area and that fit your interests!

 

adminCan You Afford To Buy a $500,000 Chiropractic Practice?

Leave a Reply