If you are wondering if buying or selling a chiropractic practice during COVID19 (or similar times of economic uncertainty) is a good move or even possible, you are certainly not alone. In fact, in most chiropractic practice sale situations, there are three people in this equation who are all curious about how Coronavirus has impacted a business – the Seller, the Buyer and the Bank.
As a Seller, you are obviously curious as to how COVID19 will affect the value of your business. Buyers are equally concerned about purchasing a chiropractic practice during these times and they want to make sure that the business will sustain their needs. Since most Buyers will seek a loan to buy a chiropractic practice, naturally banks want to know the scoop and want to minimize their risk too.
That said, buying or selling a chiropractic practice during COVID19 is not only a possibility, but it can definitely be a good move for all parties involved – if the circumstances are right. And the good news, is that history is on your side to do so – as Great Depression Business Success Stories and many businesses that started during hard times are still here to prove this point!
Big Reasons Why Practice Transitions Still Make Sense
· You are Buying More Than a Moment In Time – the first and biggest reason practice sales still make sense is that the sale is more than just a brief moment in time. In many (if not, most) cases, a business being sold has decades worth of performance and revenue history that will continue well beyond our current crisis. Likely, the practice has even weathered similar economic slumps in the past and came out of those too. Certainly, I do not want to minimize the reality of the financial impact that COVID19 is putting on some chiropractic businesses or even the severity of the damage some practices are facing. But to put it plainly, a practice that has been in successful existence for 30 years amounts to more than a few months of challenging times.
· Not All Practices Are Impacted Equally – as unfair as it sounds, the experience of buying or selling a chiropractic practice during COVID19 may vary a lot depending on the circumstances of each individual business. The truth of the matter is not every chiropractic business is facing the same level of challenges due to the COVID19 matter. Some states forced shutdowns, but most declared that chiropractic practices were among the “essential” services allowed to stay open. Beyond that, some practices partially closed and saw some significant reduction in volume or revenues of 50% or more; others barely saw a 15% decline. To generalize and think that it’s a bad time to buy or sell any practice is an erroneous assumption.
· The Future Is Still Present – even if a practice has struggled in the present, buying or selling a chiropractic practice during COVID19 may still make sense because the future is still around the corner. It’s unlikely that Coronavirus is going to make a permanent dent in a healthy, solid practice. Sure, for some, it will make a visible impact on 2020 figures. But others the impact will be minimal and still others, the damage will be barely perceptible because the business was on a heavy growth curve, the practice is positioned to sustain such challenges or due to other factors which are unique to each business. And with each practice, business and life will recover and go on and we will get past this – as has been done with similar and past crises.
3 Key Questions To Determining If Buying or Selling A Chiropractic Practice During COVID19 is Right For You
If you can agree that it is possible that a purchase or sale can still make sense even in these situations, your next question is likely this:
What are the key questions to determine a healthy practice right now?
Logically, if the practice looks healthy, then it can be one that is bought or sold. Unhealthy practices will either not sell or will do so at a deep discount. In this respect, Buyers and Banks are asking (or should ask) three things:
1) How much did COVID impact the business? Obviously, if the business was closed for a month or more, as that takes more recovery time and a bigger toll on revenues.
2) How is the business recovering to date? Perhaps the more important factor is to look at more than how long a practice was closed, but to focus on how quickly and well the business is bouncing back. A practice that was fully closed for 2 weeks but bounces back quickly and well is in better shape than a practice that was partially closed for two weeks, but takes two months to fully recover. The key here is to look at year to date comparisons between this year and last year – and not just take a snapshot of one particular month. For example, it could be that March is a historically slow month for the business (for whatever reason) and so shutting down for a bit in March didn’t really make much of a difference compared to the same period of time in 2019. Or, it could be that the practice was ahead of pace at the start of the year – and even a slight slow down due to COVID19, the revenues are still on track compared to last year.
3) What is future prediction of full recovery? While it is certainly impossible to predict the future of any business at any time (during Coronavirus or otherwise), it is reasonable to look at projections based on the current position of the practice. Here, it’s important to focus on the trends of practice collections, patient visits and perhaps even office hours. To illustrate this, let me show you an example from one of our current chiropractic practices for sale.
The business shut down for 2 weeks completely in March and saw a patient visit decline and revenue drop of approximately 40% as a result (so they still produced 60% of normal, historical revenues). In April, the office was open on a reduced schedule, which also meant fewer patients, but the revenues were now at only a 20% decline (80% of normal, historical revenues). By May, the office resumed a mostly normal schedule with one-half day less than pre-COVID hours. Patient visits were back up to 95% of normal and revenues were 95% of normal. By mid-June, the practice had not only matched the same level of patient visits as they did last year, but saw a slight increase from previous years. In addition, revenues increased to the degree where half of the month of June equaled the same amount of revenue than the full month of June 2019 — and the practice remained at a reduced schedule by one half-day.
In this example, the trend is clear in that the practice has basically recovered from the sting of COVID19 in terms of patient visits. The revenues have picked back up and the future looks bright for the business even recovering the lost income from March through May. Even better, with 1/2 day less work, a Buyer could potentially say that the practice could be ahead of last year’s pace if they resumed the same schedule as last year. This would be an example of a healthy practice to sell or buy.
What About Practices in Slow Recovery Mode?
While it is tough to generalize advice for practices that are in a slower recovery mode compared to the example above, there are a few considerations that come to mind:
Practice Recovery and Practice Value Are Not Directly Proportional – there are some Sellers that fear that their practice will sell at a deep discount due to its recent performance. And there are certainly some Buyers who may be hoping for that. Again, the value of the business is more than the recent performance. Sure, that is important. But it is not in direct proportion to any or every value to the degree where you can simply assume that a practice down 20% will sell for 20% less.
Buyers: Consider the Big Picture – it’s also important to keep the “big picture” mind. If you are on the Buying side, this means that you need to also factor into your equation the fact that we have near historically low interest rates, the absolute lowest downpayment requirements in purchase history and SBA incentives in place whereby if you purchase a practice by the end of September, the SBA will pay the first 6 months of your loan payments! These conditions make this a great time to buy and need to be considered with the full picture of the practice purchase.
Sellers: YOU are a BIG Factor Too – those looking to Sell at this time also need to remember that beyond the numbers, you are a factor in your sale too. If you’ve been looking to get out for a while because you are ready to retire, COVID19 probably has not affected your desire to slow down. To focus on the possibility that your sale may fetch less right now is to lose sight of the fact that if you are tired, burnt out, injured or just ready to move on, YOU may slow your practice down anyway and decrease revenues and its value in the process – with or without Coronavirus! So, to stay on and hold out really won’t get you anywhere. Similarly, there are other important factors in your life such as your spouse, your family and your plans for “life after chiropractic.” To hang on in hopes of getting an extra $10k through your recovery efforts may be a small prize compared to the price you and your family have to pay while waiting for you to make them a priority. Sadly, I’ve seen far too many DC’s who can’t let go because they are waiting for everything to be the “perfect time” while their spouse, family, hobbies, trips or dreams are put on hold – and the perfect time never comes. Worse, there are some who will die or grow old trying to time everything perfectly. Don’t be one of these docs.
If you’re wondering if this is a time to look to buy a practice, consider our FREE Practice Match, where we can help you find a perfect fit for you. If you are unsure about whether you can afford a practice purchase, check out our FREE Practice Financing 101 webinar to get more details and insight into the process of making it possible.
If you’re on the other side of the fence, wondering if this is the time to sell, check out our FREE Exit Essentials webinar where you can learn the basics ingredients for selling or transitioning your practice well.