Many chiropractors wonder if they are entrepreneurial enough or whether they have “what it takes” to run their own business. There are many factors that are affiliated with chiropractic business success such as motivation, business savvy and clinical skills – among others.
Specifically, financial lending institutions will consider many “tangible” factors beyond those mentioned above. Here’s a quick list of the most important things that the banks will be looking at.
Good Credit — In most cases, to obtain a chiropractic practice purchase loan, your credit rating will need to be very good (600+). For this reason, it is critical that you stay current on all of your financial obligations. For those who have less than perfect credit, all is not lost. There are some lenders who are willing to lend outside the “typical” credit parameters, but these are simply harder to find and fewer in number.
Debt service. Are you $20,000 or $200,000 in debt? Obviously, there will be a difference in lending depending on your personal situation. One of the biggest myths, however, is that chiropractors cannot get financing for practice purchases because they have huge student loans. This is simply not true. All healthcare practitioners are in the same boat in respect to student loans. In the eyes of experienced lenders, all debt is not equal. For example, student loan debt is not the same as careless credit card debt. Similarly, lenders who are experienced in healthcare practice acquisitions (which is who we work with here at Strategic Chiropractor) understand that virtually all younger doctors are going to have high student loan debt; they also understand the high-income potential offered by the chiropractic profession – which is why they are willing to lend.
Practice Cash Flow. The cash flow of a chiropractic practice is a critical component of loan acceptance. For example, if the practice you are considering has an overhead of 35 percent versus an overhead of 70 percent, the profitability is very different on those two practices. Ultimately, this is a significant portion of what you are purchasing when you buy a practice: the ability for continued cash flow based on the history of the business. So, it’s important to look a level deeper at not only the collections, but the cash flow and profitability of what the owner puts in his or her pocket.
Clinical Production. Most lenders will not provide acquisition financing until you are at least out of chiropractic school for two years. The reason is obvious. They would like you to gain efficiency as a producer. If the practice that you are practicing is a solo practice and if the seller will not remain for a transition period, the lenders will take a very critical look at your personal clinical production. They may require you to present production reports from your current employer, if you are working as an associate, so they may ascertain the level of chiropractic that you can perform. For example, if you are looking to purchase a $1,000,000 practice and if you’ve never produced more than $10,000 in a month, your production will not be considered an asset to your lending portfolio. If, on the other hand, there are ample patients in the practice and the seller will be remaining for a period of time, funding may be granted. This is one of the big reasons that many of the transitions we do here at Strategic Chiropractor fall into the category of “non-traditional,” “sell & switch” or associate buy-in/out transitions. In each of these options, the owner/seller stays on after the sale and/or the buyer has ample time to learn the business before the owner leaves. This is a big contrast to the typical “traditional” sale whereby the owner is out of the door in 30 days or less.
Downpayment: Many chiropractors don’t know what they can afford in terms of a practice purchase. Admittedly, it’s not the same as purchasing a house because the bulk of a bank’s decision to lend is actually based on the business — and not the buyer. That said, most sales will require some form of downpayment and most buyers can figure out the price range they can shop in based on their access to downpayment funds.
For example, with SBA (Small Business Administration) loans for practice purchases, the buyer is required to have a minimum 5% downpayment. So, on a practice sale of $300,000 that equates to the buyer needing approximately $15,000 in funds to shop in that ballpark. If you don’t have those kind of funds (and there are no family members, rich uncles or any generous individuals willing to donate them to you), then the most simple route is to shop in a ballpark where you can afford a 5% downpayment.
Stuck on the fence? If you are interested in learning more about whether buying a practice is the right move for you, check out our FREE WEBINAR Buy, Build or Break Up: How to Make Your Next & Best Career Move to Purchase a Chiropractic Practice, Start One from Scratch or Get a New Associate Job.
If you want help finding opportunities to buy a chiropractic practice, become a partner or an associate, please complete our FREE PRACTICE MATCH and we will notify you of openings in your desired area!