Purchasing a practice is an exciting time in every chiropractor’s career. The dream of owning your own business has massive attractiveness, especially when coupled with an instant patient base and cash flow. Undoubtedly, this is what makes buying an existing chiropractic practice such a compelling option.
But, as with any transition, things can go wrong. And generally when they do, it’s because the buyer became too emotional too soon and neglected to perform his due diligence.
In other words, instead of fully examining the inner workings of the practice, the buyer became enamored with how it looked, the location, the friendly staff and the potential rather than analyzing the “boring” details such as profit and loss statements, statistical records and financial performance. After all, the practice looks like it’s doing well. There are lots of patients, a big beautiful building and a ton of support staff to keep the big machine running. It’s a no-brainer, right?
Not so fast. In fact, the one thing never to forget when considering purchasing a high- grossing practice is to make sure that cash flow is healthy.
What You Need to Purchase a Practice
With interest rates attractively low, a super asking price, the right location and a good fit, many chiropractors may neglect to truly take the time to assess whether there is enough cash flow. After all, lower interest rates translate into more purchasing power for you. And the practice is rocking. What more do you need?
Unfortunately, the “appearance” of success are no more a tangible asset than an optimistic altitude. To seal the deal, you are going to need more than a good-looking doctor, nice vehicles, a high-end building or a fleet of staff.
For such a large-scale investment, major lenders will scrutinize many aspects of the practice – especially the cash flow — the purchase and sales agreement, the building lease and yes, your own personal financial capabilities. Let me show you a quick example of how important some of these factors can be:
Two Practices, One Winner
Both chiropractic practices collect $500,000 per year, which makes them above average in terms of yearly production. Clinic A is well-appointed in a new building. The doctor has 6 well-paid staff members and the latest equipment throughout the office. His website is brilliant as is his marketing budget which runs 5 figures per year. Clinic B on the other hand is not in the flashiest of buildings, but is professionally decorated. The doctor runs a “lean and mean” operation on only 2.5 staff and spends almost nothing on advertising.
As you might guess, Clinic A’s profitability and cash flow is significantly less than Clinic B. Yet, they both are collecting the same amounts of money. And on the surface, Clinic A probably looks a whole lot nicer than Clinic B.
In the end, the cash flow is the ultimate determiner of how much a bank will lend and the overall profitability of the practice. You can choose to ignore it in favor of looking at all those “bells and whistles” that Clinic A features, but if you forget to examine the cash flow, you will be leaving big profits behind! So don’t forget – cash (flow) is king!
If you are interested in hearing about opportunities to buy a chiropractic practice, become a partner or an associate, please complete our FREE Transitioning IN Form and we will notify you of openings in your desired area!