We get lots of questions about factors that impact chiropractic practice value - before, during and after a chiropractor considers selling their chiropractic business.
DCs often ask how reputation, location, a building and other features play a role in determining the value of their chiropractic practice -- and ultimately, the asking price of their business.
ATTRACTIVENESS vs VALUE
While things like your location, reputation, collections, profitability, the building, equipment and a host of other factors can make a difference in how the value of your practice is determined, it is perhaps most helpful to speak about the distinction between Attractiveness and Value.
By Attractiveness, we are talking about the interest a particular practice may generate based on its features. Here, being in a great location in town or being in a popular city can add interest, whereas being in a remote location (in town, or nationally) can reduce the appeal of a business. Similarly, a practice that's fully equipped with digital x-ray, EHR and the latest equipment may be more attractive than a business with a 50 year old x-ray, dated equipment and paper notes.
Value, on the other hand, is directly related to the profitability of the practice which are factor of its income (collections), expenses and the amount of profit or compensation an owner is deriving from the business.
While the two components of Attractiveness and Value can intersect at points, they each drive a practice sale differently. For example, while Attractiveness can affect the amount of interest Buyers may show in the practice; Value plays a bigger impact on the price.
IMPORTANT DISTINCTIONS TO UNDERSTAND
Many Sellers fail to see the difference between how Attractiveness and Value play a role in their practice.
Some Sellers mistakenly believe because there practice is in a good location or a very popular city, that it should be worth more than a business for sale in a remote location. Theoretically, if all other factors were equal - this would be true. In other words, if the two practices had exactly the same collections, profits, equipment and all other tangible factors the same, then the one in the better location may be worth more.
But the reality is that it is very difficult to compare apples-to-apples in practice sales because there are multiple factors that impact chiropractic practice value. So it rarely boils down to all factors being equal - except one like location.
THE PREFERENCE OF PROFITS
On the other hand, some Sellers have a hard time understanding that a beautiful practice with a brand new building, in a great location in town, the latest equipment but LITTLE in the way of profits...may be worth much less than a business that might be plain (or even ugly) on the outside, but a cash-cow on the inside.
Here, it's important for Sellers (and Buyers) to understand that the preference goes to PROFITS when establishing a business value -- especially in the eye of the banks. While the pleasing-looking practice may be easy on the eyes, the bottom line is what makes it easy to finance and purchase.
The fact of the matter is that most banks understand very little of what makes a chiropractic practice unique -- but they do understand profits. In the eyes of the bank, they really don't grasp the usefulness of a certain piece of equipment, an EHR system or pretty much all of the tools we use. To put it bluntly, if you dance around your patients with a feather and collect $500k per year, they don't really see the difference between the doc across the street who has all the bells and whistles in their practice that they use to collect the same $500k per year. Likely, the feather practice is more profitable and as crazy as it seems, would probably be preferred by the bank! But in the end, it's the PROFITS that matter.
WHY YOUR GOOD REPUTATION MAY BE RELATIVELY MEANINGLESS
Perhaps the most challenging topic for Sellers to understand in terms of factors that impact chiropractic practice value is the concept of your Reputation.
Virtually all of the Sellers I speak to with respect to their practice sale will tell me that they have an "excellent reputation in the community."Â In fact, I don't recall any chiropractor ever admitting to having a less than stellar reputation, being relatively unknown in their community or absolutely anything negative.
Obviously, it is logically impossible that every chiropractor on the planet has a great reputation. A quick glance at online reviews can reveal that certainly not all chiropractors are as well known or loved as others. While online reviews may not always be a valid measuring tool, they are commonly used by Buyers to gauge your practice's reputation. So the fact that a doc says that they have "excellent reputation" in the community but online 2 positive online reviews seems a little inconsistent.
Beyond online reviews, SEO or web rankings, the three biggest problems with reputation is that it is (a) not meaningfully measurable, (b) is claimed positively by everyone and (c) does not significantly impact the value.
When we get to the bottom line, your reputation, online popularity, number of reviews, local "word of mouth" or any other factor related to reputation may or may not be related to your profits. In other words, it's possible for you to enjoy great popularity AND little profits. Even more, the reverse may be true as well - you could be relatively unknown and have a small reputation but enjoy big profits. And, you guessed it, the profitable practice would be more valuable.
THE VALUE RANKING
If you want to rank factors that impact chiropractic practice value, it's a very simple system.
The weight is heavy on the profitability of the practice -- by a longshot.
For example, if 90% of the practice value is determined by one factor - it's profits. And if you have 9 other factors, they would make up a percent or so each.
That's how powerfully your profits contribute to your value.
THE BEST COMBINATION
If you're looking to maximize the value of your chiropractic practice sale, then you really need a combination of factors that impact chiropractic practice value. You need BOTH profits AND attractive features. Practices that are profitable and enjoy excellent locations are equipped and have an abundance of online reviews or excellent SEO --- these are the practices that can both be very attractive to buyers AND feature a bigger price tag.
Unfortunately, your practice may not have all these pieces in place. For smaller practices, maybe the profits just aren't there. For others, your location is a little challenging. Here's the good news for those of you who think that it may not be possible for you to have the best of both worlds:
- Not all buyers are looking for big price tag practices and so your smaller practice may be more affordable.
- Not all buyers need a fully-equipped office with all the bells and whistles
- Some buyers prefer a practice that needs a little elbow grease
- Other buyers want to see potential in areas that are less than perfect
In other words, it is still possible to sell a "less than perfect" practice!
NEXT STEPS
If you’d like to learn what it takes to successfully sell your chiropractic practice, check out our FREE webinars – where we will discuss the factors that affect the value of your chiropractic practice sale and help you do it right!
