Here’s one unexpected benefit of preparing your taxes – it can help you get ready for your chiropractic practice sale!
While it’s true that no one loves paying taxes, the preparations you make each year can actually get you one step closer to organizing your business prior to a practice sale.
Whether you realize it or not, when it comes to selling your chiropractic practice, your numbers speak louder than your years in business, patient results, equipment you have, or even the location of your office. All of things are great and can help boost Buyer confidence, but the bottom line and big component of your practice value is still your bottom line!
Financially Frightening or Prepared?
If you are unprepared with well-organized financials, chances are high that you will either scare away your buyer or cause their confidence to decrease. On the other hand, organized, transparent, and accurate financials can not only boost buyer confidence but also streamline the due diligence and financing process.
So this year, use the work you are doing on your income and corporate taxes to help you better organize your financials for the purposes of selling your practice – regardless of whether you are planning to sell or transition your practice within the next three months or three years. The work you do now to prepare will help you down the road.
What Exactly Do Buyers Look For in Financials?
Here’s some good news, almost all Buyers want to see the same things when they consider a practice purchase. So you can use this list to get yourself ready, regardless of when you choose to sell.
Most commonly, Buyers will want to view a few financial documents for the past three (3) years, including:
- Profit & Loss Statements
- Tax Returns
- Balance Sheet (at least for the most recent year)
Necessary Practice Stats for Your Chiropractic Practice Sale
In terms of your practice stats, some metrics are more important to chiropractors who practice in one style of care, whereas other metrics matter more to those with a different style of practice. But in general, all Buyers want to see the following basic practice stats for the last three (3) years:
- New Patients
- Patient Visits
- Collections (by Provider)
For a deeper dive, some (but not all) buyers would also like to see practice stats that measure metrics like patient visit average, collections percentage (what percentage you collect vs what you bill) and/or accounts receivable (with aging).
Tips for Organizing To Build Buyer Confidence
Well-organized financial books and practice stats can easily boost buyer confidence so here are a few tips for how to best get ready.
Use an Accountant or CPA – financials that are prepared by your CPA or Accountant (or even standard software like Quickbooks) make a better impression than “homemade” or handwritten records that look can unofficial at the least and can be sometimes viewed with suspicion by Buyers.
Keep Timely Records Quarterly – being able to produce practice stats or financials in a timely manner is a key component to keep your sale moving forward. If a Buyer asks for final figures for the prior year and you don’t produce them until March of the next year, it can make you appear disorganized or cause delays in your sale. To prevent this, make sure your staff can promptly produce stats each quarter – and ask your accountant or bookkeeper to be able to do the same.
Clean Up Old AR Balances – while most chiropractors can understand that there is going to be accounts receivable built up in even the best practices, many banks have a poor understanding of chiropractic AR. So if your books show that you have $900,000 in AR but you have $750,000 of it is many years old and likely never to be repaid, it would be better to clean up your books and write off balances that are not collectible.
NEXT STEPS
- Start SOONER – if you wait to the last minute to start preparing for your sale, it’s tough to hear that your financials or your practice stats will prevent you from selling in a timely manner or cause problems for your practice sale. Instead, start planning to get your practice valued sooner so that you are better prepared for the process and ultimately, positioned well for your practice sale success.
- Understand That Your Business Value Changes – it’s also important to understand that your business value is not static. So because the practice is doing well now and would command a certain value today does not mean that value will remain the same for the next 5 or 10 years. Practice prices fluctuate with market changes and more importantly, with changes in your business collections or profitability. This is just another reason to stay prepared and organized so that you’re able to maximize your business value.
- Get Experienced Help – most chiropractors are excellent are taking care of their patients but they are a bit biased about the value of their business. Because they work so intimately IN the practice, it’s also tough to be objective and identify potential yellow or red flags that may negatively impact their practice sale. And it’s common for chiropractors to make serious errors (in either direction) about the value of their practice that can create costly mistakes when selling. All of this points to one clear instruction – get experienced help when preparing to sell your chiropractic practice. This may be your biggest asset and is certainly a representation of part of your life’s work and warrants a professional to help you exit well.
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