The Chiropractic Associate Buy-in or Buy-out is a common practice transition strategy for chiropractors looking to solidify the sale of their chiropractic practice in advance of heading off to retirement. In that respect, it’s a smart move and certainly can be a win-win situation for both sides.
From the owner’s angle, there’s great peace of mind that comes from knowing you have your buyer set up and that you can avoid the anxiety of searching for someone, wondering if you will find a good fit and worrying about the price you will get for your practice.
From the associate’s perspective, a buy-in or buy-out often can be a far better opportunity than you can find on the “open” market because you essentially are an inside buyer that gets to know the practice and eliminate the risk of the patients walking out the door when you walk in. With a timed sale like a buy-in or buy-out, you also have the advantage of planning your purchase date in advance and making financial (and mental) preparations for your future. This is a huge difference from the typical associateship where the owner makes a vague promise that “someday all this will be yours” despite the fact that they have not defined when someday will come, what “all this” really means and how much it will cost.
Reducing the Risks of Buy-Ins and Buy-Outs
Despite this obvious upsides, these timed sales are not without risk and unfortunately, there is an abundance of examples in our profession of associateships gone wrong and buy-in or buy-out deals that never happened.
In speaking to chiropractors and guiding clients through these transitions over the years, I have had the opportunity to observe an interesting common thread that runs through many of these failed sales.
If these owners and buyers had these perspectives in mind and/or sought some guidance, their transition would have turned out differently; namely, their deal would have been successful. With that as the goal, here are a few “best practices” to keep in mind:
- Establish the Baseline at the Beginning: When designing your buy-in or buy-out transition plan, it is wise to establish a baseline practice value from the start. Certainly, you can have a “honeymoon period” where you and the buyer get to know each other. But at some point (generally within the first year) you need to put a valuation in place to establish what the practice is worth now, if you plan for the relationship to move forward. As an owner, I understand you have many years invested in practice and that you may spend significant time investing in the associate to ensure their success. But if you don’t put a tangible value on what the practice is worth now (without the associate’s contribution), you will run into problems later as you attempt to value something that you are both contributing to – because your associate will want credit for their part, however small or large it may be.
- Lock It In or Fix the Formula. Once you’ve established a baseline that your practice is worth, you should either lock in the purchase price or establish a fair formula for how you will value the practice in the future. Put simply, Associates donot like paying for something that they help grow. If you have untapped potential in your practice, your associate will be able to thrive and revenues can increase 15 to 25% or more per year in the first few years of your relationship. If you have established a baseline value ahead of time and have locked in the practice price, your associate will work as hard as possible to “buy into a bargain.” In other words, if the practice purchase price is set from the start and the practice grows, the associate is buying a more valuable practice at a lower pre-determined price. And it’s a good deal for the owner too, who has profited from the growth along the way. Another alternative is to “Fix the Formula” and determine how you will value the practice in the future. This way, the Associate will not be penalized for growing the practice; and you will not lose out by risking your sale value until the last minute.
- Put It In Writing: One of the biggest and most common mistakes chiropractors make with timed sales is that they are all talk, no agreement in writing. If you are serious about your buy-in or buy-out, you must take the time to put your agreement in writing. Yes, that requires you to iron out all the details in advance and you could potentially have to negotiate, compromise or even watch the associateship never get off the ground. All issues relating to your professional relationship need to be addressed now by both parties. Some of the major issues include: income splitting, tax allocation issues, rules of business conduct, retirement age, and early partnership or shareholder withdrawal, employment agreements may all be required. This may seem like a lot to go through with a young associate. However, if you are planning on transitioning in the next few years and your goal is to sell your practice in time to your associate, why would you even want to employ someone who doesn’t share that goal? So if the idea of a contract or some paperwork scares them away, there’s a good chance they are not serious enough to buy and you should look elsewhere.
- Get Expert Help: As you may imagine, there are many moving parts to such transitions. And frankly, associate buy-in and buy-out deals are not typically what I would consider a “do-it-yourself” project that you can quickly learn on YouTube or by doing a little online research. This is your life’s work, your business, your future at stake and it makes sense to get guidance so you don’t make unnecessary mistakes, as you may not have the opportunity to recover from errors you make.
Need More? If you’re looking to transition or sell your chiropractic practice, you should consider our upcoming FREE WEBINAR Sell, Switch or Slow Down – Maximizing the Value of Your Chiropractic Practice Sale or Transition and Minimizing Costly Mistakes.