Not all practices are sold under the normal public listing model. Here are some other unique circumstances you may encounter if you're considering selling your practice.
Posted in Planning on Tuesday, June 28, 2022
The typical chiropractic clinic gets listed publicly and is sold to another chiropractor who will take over business operations. Most rely on SBA funding and spend around 12-18 months on the market.
But not all clinics do — or should — sell this way. Some practices are built around a unique technique or treatment model, and others may lend themselves to an alternative sales structure. I’ll go over two alternative sales approaches as well as a few important factors for sellers with unique practices.
Selling to Investors
Selling to investors is more common than many think. Equity groups, individual investors, and franchises are well aware of the potential in the chiropractic industry.
- Inside knowledge. Investors understand the industry and know exactly what they’re looking for. They have the capital to do transactions in cash, and they have reserves to weather the ups and downs of clinic performance.
- They may be less picky. Because investors buy many clinics and will typically not be working in the clinic, they are often less picky than an owner-operator buyer about finding the “perfect fit” practice. But they still have important sale criteria: to attract investor interest, a clinic typically needs:
- Strong profit
- A desirable location
- Multiple practitioners (not required, but a bonus)
- Faster offers. Investors can typically make an offer faster than an owner-operator, and in some cases their offers may be higher than an owner-operator. Dealing with investors making a cash acquisition also sidesteps the rigorous lending process that is typically involved in an individual sale.
- Due Diligence process. While the offer may have come in quickly, the due diligence process with an investor is often prolonged and feels outsized to the selling doctor.
- Time lag. This is also common with investors, as all contracts and many sale steps will require corporate approval.
- Less personal. The investors typically won’t be in the clinic caring for your patients, and in many cases, they’ll hire new doctors who don’t have ownership in the clinic. This can be uncomfortable during the post-sale transition, as the selling doctor may not feel as comfortable endorsing the employee doctor to the patients. And some sellers may not be comfortable with the direction their clinic is taken.
Another important aspect to keep in mind is that many investors will require the seller to stay on for a year or more after closing to manage the clinic, provide patient care or both. Again, this can be good or bad. Sellers are generally compensated well for the time they stay and often for any practice growth during that time, but it prevents them from stepping away from the practice. It can also create some challenges for the staff and patients in that the seller was the owner, but no longer “owns” the clinic. This can create some identity challenges for the former owner.
In a best-case scenario, associate buyouts can work out well for both parties involved.
- The associate gets to build relationships with patients while receiving long-term training
- The selling doctor gets to transition out of their practice gradually.
- Associates may feel as though they’re doing the lion’s share of the work while the seller retains all the profits.
- Sellers may feel that the associate is unreasonable in their expectations. Both sides often think the other persons opinion of value of the practice is illegitimate.
- Associate buyouts typically occur over an extended timeline (usually 1-2 years). That provides lots of room for life circumstances to change, unspoken expectations to go unmet, and frustrations to grow. If the relationship between buyer and seller sours, the transaction is often terminated before the sale is finalized and valuable time is lost in finding a new clinic owner.
It’s especially important to structure the sales agreement carefully in associate buyouts, and for best outcomes this should be done before the associate is ever in the clinic. To avoid missteps, set the transition for success, and provide a buffer between the parties, professional support is highly recommended.
Many practices build their reputation around niche techniques and care models.
- Stand out from the competition. During your period of practice ownership, this is a wise move — unique treatments help you stand out from the competition and develop a loyal customer base.
- Harder to sell. Specialization often makes selling more difficult. Unusual techniques limit the pool of buyers who feel professionally qualified to take over the clinic, even if the seller is willing to provide extensive training. Even qualified buyers tend to be risk averse, which means they must be educated on the benefits of owning a unique clinic.
- Longer timeline. These sales usually require a longer sales timeline to find the right fit. Sellers may also need to stay on for an extended transition to provide training and peace of mind for the buyer.
Marketing the opportunity properly and carefully packaging the clinic information are critically important factors in these sales, so working with a qualified broker is key. In many cases their network of established buyers can substantially reduce the time spent on the market, and in some cases their ability to present the practice in the right light can be the difference in being able to sell at all.
All these sales structures and approaches can work well for the right clinic. If you’re unsure about the best way to sell, seek out a professional opinion. The key is to understand the options, know yourself, know your clinic, and choose wisely.
About Crystal Misenheimer
Crystal Misenheimer received her BBA from Baylor University in International Management Information Systems. She worked in database management in the non-profit sector prior to taking over the management and marketing aspects of three of Kevin's chiropractic clinics. As the Lead Broker for Progressive Practice Sales, Crystal has helped hundreds of chiropractors to successfully transition into the next stage of their careers. With an in-depth understanding of the intricacies of practice valuations, the constantly changing challenges of the current marketplace and the many complexities of practice sales, Crystal is the leading expert in the chiropractic practice sales space. You can find her regularly featured in industry podcasts, blogs and periodicals. She lives in Chattanooga, TN, and enjoys spending her free time hiking, practicing yoga, and spending time with her husband Kevin and their four children.