Are you planning to sell, transition or retire from chiropractic this year? Or next? Or even in the next 2-3 years?
Today we’ll discuss some of the latest facts, trends and rumors about chiropractic practice sales, transitions and exit strategies that will affect your business this year and beyond.
Myths About Chiropractic Practice Sales and Transitions
I often hear misinformed statements from potential sellers and buyers that don’t always coincide with current market trends. From our experience helping chiropractors transition, here are a few of these rumors that you can put to rest:
Chiropractic students are potential buyers for your practice. In general, this not going to be the case unless they (or their family) has a boat load of cash to buy a business OR you are willing to finance the sale 100%. Due to the fact that the entire chiropractic education amounts to approximately 1 week of “real world” experience in a typical chiropractic practice, the vast majority of new grads are not ready to take on the challenge of business ownership and banks know this. If you have some MAJOR reason to lend where the bank won’t, perhaps you can consider this student a rare exception. But for most, you would do well to get this option out of your head.
“Banks are not lending to practice buyers.” Yes, the recent recession clouded the capital markets a bit and lenders are more cautious and demanding in their document requests. But I can assure you that money is available for practice acquisitions. In fact, last year I met with a VP of Wells Fargo Practice Finance who informed me that they have now revised their former policy of lending to chiropractors. In the past, the answer was pretty straightforward – NO! However, they now have conditions present that they will lend on and we have seen them put forth competitive lending packages on practice sales as result. Furthermore, over the last year or so, the tides have really started to change and we now have lenders in this industry who are contacting us in search of quality practices and qualified buyers they would love to finance.
Donald Trump will position chiropractic for massive growth. The reality is that there are experts hoping for this, but there are an equal number on the other side of the fence that are crying about our new president as well. Truth be told, the same thing happened when Obama took office and the Affordable Care Act rolled in. Those in favor of the ACA decided it would cause chiropractic to boom, while opponents saw the ACA as potential to kill chiropractic. Chiropractic practices thrive despite the economy and some practices suffer because of it. Your best move is to position your practice for its sale or transition regardless of what is happening in the political or economic spheres.
My New Associate Will Buy My Practice. The notion that a retiring doctor will find a new grad to join his practice as an associate, accept his mentoring, and buy the practice at a later date seems to happen just often enough to perpetuate the myth of this unlikely exit strategy. Anecdotal evidence seems to put the success rate of those scenarios at around 5%. The reasons for failure are too numerous for this conversation. Common sense dictates that, unless you perform your due diligence very well, intentionally structure this arrangement better than most chiropractors and have an above average Associate, this situation fails way more than it succeeds.
Realities of Selling Your Chiropractic Practice This Year (And Every Year)
Your practice does not have unlimited potential for a buyer “willing to put in a little effort.” Often times, when a seller advertises that the practice has “unlimited potential” for the buyer willing to put in a little effort (or sweat equity), this translates to the fact that you have let the practice deteriorate over the last several years. While I’m sure the practice has the potential to be profitable again, there are two facts standing in the way of your sale: buyers rarely purchase a practice solely on potential and lenders do not finance “potential.” Buyers need to be able to move in and take over the seller’s cash flow immediately. And they need to pay their student loan debt which may be in the $150-200K range. Oh, yes – and your practice needs to have enough revenue for the buyer to pay the overhead, taxes, financing loan and still have money left over for living expenses. Practices that consistently have been in decline make that tough to accomplish and even tougher to sell at a price that includes the “potential” of what could happen on a sunny day if everything lines up as you say it will.
Your lease may play a bigger role in your success than you think. You may be surprised to find that your nice friendly landlord of your building suddenly transforms into a miniature Donald Trump once you have a potential buyer in the deal. This issue frequently becomes a major problem in a transition. If space costs go up, cash flow goes down and your sales price may need to be adjusted accordingly. While you are a proven tenant, the buyer is not and there is no value to removing you from the lease. If you have a “no assignment clause” (which you probably do), you may be in for some tough negotiations. Plan ahead so this doesn’t sink your ship.
Many Sellers (But Not All) may be at a disadvantage soon. Unfortunately, numbers are shifting towards a Buyer’s market. The number of Baby Boomer chiropractors is increasing and the number of chiropractic graduates has been declining for the last few years. That equates to more practices for sale and fewer buyers. For many sellers, this will be a major disadvantage for the market value of their practice. However, all is not lost. Since most practices sell on the decline, Seller’s who have a thriving practice may find themselves in a stronger position because of the comparatively weak market. After all, if a Buyer faces the choice of 99 bargain priced practices that are going to take a lot of effort to turn around, the 1 practice that is thriving may suddenly have added appeal, despite the bigger price tag.
Chiropractic Practice Transition Options to Consider Now
Despite these myths and realities, there are a number of additional options that many chiropractors fail to consider but are increasingly attractive, given our present marketplace. For example, a traditional practice sale may not be your best transition option. Here are a few other exit strategies that you should consider:
- Sell & Switch – Owner sells to Buyer and stays on as Employee
- Partnership – two existing docs merge their practice to slow down, enjoy lower overhead and sustainable profitability
- Associate Buy In – a full sale may not be possible but a well structured buy-in can still achieve goals.
- Hybrid Partnership – for larger practices and/or for owners not ready to fully retire, this may be a great option to sell a portion of the practice and actually gain more for your total sale when all is said and done!
One Final Reality – Now and in the Future
No one would take golf lessons from someone who has been on the links once, and yet I am surprised by chiropractors who will take transition advice from friends who have never sold a chiropractic practice or who did it once 20 years ago. There are certainly way too many landmines that can show up during the sale process that are not addressed by your well-intentioned friend’s advice. Issues such as insurance contracts, associate doctor agreements, equipment breakdowns, lender requirements, and even the tax consequences of a transition can all serve to make things interesting.
Equally dangerous is the approach that some practice brokers take in convincing you to sell. A traditional sale may be the best route to your retirement – or it can be a costly one. Unfortunately, if their compensation is strictly based on commission from your sale, that’s the recommendation you are going to get.
Instead, a competent chiropractic transition consultant may better serve your needs. A transition consultant is one who understands the entire transaction, the various types of transitions, contractual matters, the operational issues of running a chiropractic practice, and the need to have the relationships of the buyer, seller, staff, and patients intact after the deal is done.
The transition consultant will help the chiropractor identify various aspects of his/her transition. Questions needing answers include the doctor’s financial ability to retire and their personal transition goals. For example, how long do they wish to stay on as an associate and/or remain available to aid in the transition process? What is the chiropractor’s preferred timetable? Are there any preliminary steps required to enhance the value of your chiropractic practice? Which method of transition has the greatest chance of successful completion?
Our Strategic Chiropractor Transitions services are designed to do exactly that. Over the years, our consulting clients have aged and needed an exit strategy. Rather, than take the traditional broker route, we have no interest in selling practices, unless that’s your goal. We can help you best plan for your transition based on your current situation and we’d love to assist you in reaching your goals in this stage of your chiropractic career.
Hopefully, you have found this small dose of reality helpful in considering your own exit strategy. If you are just getting started thinking about transitioning your practice, you may want to check out our upcoming FREE WEBINAR — Sell, Switch or Slow Down: How to Maximize the Value of Your Chiropractic Sale or Transition and Minimize Costly Mistakes!