As you might imagine, we’re getting lots of inquiries from chiropractors who are asking about the COVID impact on chiropractic practice sales. While selling your chiropractic is ALWAYS a big step, we understand that the current circumstances can add even more confusion and questions to your decision-making process.
To help you better understand the current marketplace and the COVID impact on chiropractic practice sales, here are some Frequently Asked Questions (and the answers) that may help you gain some additional clarity:
Q: Are chiropractic practices selling right now?
A: YES is the easy answer to probably the most popular question we are! Practices are selling, buyers are looking and banks are lending. Case in point, we received several loan approvals for practice purchases in one week here in July, whereas a few months ago the banks had slowed to a crawl in approving any new loans.
Q: Are chiropractic practice values down due to COVID?
A: The answer to this question varies widely depending on the practice performance, location and even sale structure. While some practices have already recovered from COVID, some have not fully bounced back and others are still struggling. Both buyers and banks are obviously concerned with that fact as it not only impacts the present value but their future as well, in terms of projected income. And certainly practices that are already recovered stand in a stronger position than those who have not.
Q: Will COVID force me to discount my price to get my practice sold?
A: Not necessarily – see the previous question. Also, you should also realize that a Buyer is purchasing much more than the past few months of practice performance. While this is important, it’s not the whole story. So for example, if you practice revenues temporarily declined 50% due to COVID, that doesn’t mean that you’ll have to discount your asking price proportionally by 50% – or even at all. While Buyers may like that and Banks are concerned about cash flow, the big picture can and does make sense to them too.
Q: Are there fewer Buyers on the market now because of COVID?
A: No! Or at least not here at Strategic Chiropractor!! We’ve actually seen a significant INCREASE in the number of Buyer entering the market this year and since March 2020. I think there are several factors at work here – and not all are COVID related. First, we’ve got historically low downpayment requirements, which allow more buyers to feasibly get a loan to purchase. Second, interest rates are at near historical lows, so that is obviously attractive to buyers as well. Third, the SBA has put incentive programs in place for its 7(a), 504 & MicroLoans for Buyers that make it very appealing to buy right now. Lastly, there are some Buyers who either lost their associate job or watched the impact of COVID affect their practice who are not looking to buy their own business for increased income, security and freedom. For additional discussion on this, see our post “Is it a good time to buy a chiropractic practice?”
Q: What are the least desirable aspects of the COVID Impact on Chiropractic Practice Sales?
A: Both buyers and banks are definitely a bit more cautious as compared to “normal” practice sale circumstances. They want to know what happened to the business during the peak of COVID. They both want to know how the recovery is working out.
Q: How can you best assure a Buyer that the COVID Impact on Chiropractic Practice Sales will be minimal?
A: That depends on your individual practice circumstances. In general, though, the purchase of an existing business in these times should be a far less risky route than starting a practice from scratch right now. So that is definitely one way. A Seller that is willing to stay on for a transition period (and perhaps even extend that period a little longer than normal, if needed) also assures a buyer that you want to see them succeed and are willing to take the steps to do so.
Q: Would you recommend Owner Financing the whole thing to get the practice sold during COVID?
A: Not necessarily. What many Sellers do not understand is the relationship between financing and price. If you have a properly priced practice with a weaker buyer who maybe doesn’t have the full downpayment necessary or other desirable criteria in place, then PARTIAL Owner Financing is a possible route to help strengthen that Buyer’s position. Unfortunately, the mistake many Sellers (and some practice Brokers) make is to use Owner Financing as a substitute for a qualified buyer. In other words, the Buyer is unable to get financing through a bank, so the Owner finances the sale. In my opinion, the current bank rates, lending parameters are generous enough that this move may be unnecessarily risky for the Seller. The other mistake is when Sellers use Owner Financing as a substitute for a properly valued practice. Instead of pricing it at Fair Market Value, they price it above and offer to Owner Finance it. That’s usually a bad deal for the Buyer, as they are really paying more for the practice than its worth.
Q: What are the best steps I can take to get my practice sold during COVID?
A: First, price the practice fairly. The best way to do this is a chiropractic practice valuation, not a guestimate or relying on the rumor mill. Second, advertise the practice aggressively. Our profession is so small that it is unrealistic to think that you can put up one ad in your state association classified and be flooded with offers. You need a more comprehensive plan to bring the right buyer to you. Lastly, be flexible. If the buyer wants you to stay for a short transition to help them feel more at ease, be willing. If the buyer wants you out sooner, be willing. Sellers with some flexibility in their schedule or expectations will see better results than those who have a rigid set of parameters that few buyers or timelines can meet. Incidentally, these three key ingredients to buying or selling a chiropractic practice are the same in ANY market. So while COVID has certainly changed some aspects of chiropractic practice sales, the “basics” of successful sales have remained the same – and that’s a good thing!