In Part 1 of this post (Selling a Chiropractic Business – What Chiropractic Buyers Are Looking For in the Current Marketplace Right Now), we discussed what the typical buyers look like in the current chiropractic marketplace in order to better understand WHO your Buyers are.
In this segment, we’ll be talking about WHAT those Buyers are looking for in a chiropractic practice sale – and its impact on you and selling a chiropractic business.
Necessities for Selling a Chiropractic Business: What Chiropractic Buyers Are Looking For!
There are numerous factors that are at work in every successful sale and attractive qualities that most buyers desire when looking for a practice to purchase. But over the years, these six features show themselves repeatedly as “ necessary” items you should have when selling a chiropractic business – if you want to maximize your practice sale value (or be able to sell at all).
Profits – the bottom line is that your bottom line needs to help a buyer do better than whatever their current situation is. Here, we can boil every sale down to the profits that would appeal to a buyer. Certainly if you are running a multi-million dollar practice that produces 7 figures of profit, it’s easy to have enough to satisfy most chiropractic buyers. But that situation only applies to the top few percent of chiropractic businesses. For everyone else, having “enough” profitability to be attractive is going to be dependent on the price you are asking and what the buyer is looking for.
For example, if you have $100k of profit each year (after all expenses are paid) and you’re asking only $25k for your practice, that’s certainly a great deal that even the most inexperienced buyer can spot. On the other hand if you’re asking $1,000,000 for that same practice, most buyers will run away and tag your business as being incredibly overpriced. Obviously, this is an oversimplification to prove the point that your price has to be attractive relative to the profit your business generates – or it won’t sell.
Similarly, if the buyer is making $75k a year as an associate, purchasing a practice that will enable them to make $250k annually after the practice expenses AND their loan payments are made will be attractive. After all, they’ve more than doubled their salary and the practice profits are able to support the loan payments to purchase itself as well.
Contrast that with the same buyer who’s currently making $75k per year, but looking at a practice that is only producing $50k of profit per year. Even if this practice is appropriately priced, it will not be attractive to this buyer because they are not likely to want to decrease their income. Worse, they will likely need a loan to purchase, so the $50k profit your practice is currently making will be even less appealing to them because after loan payments, that $50k profit margin will be even lower.
With these very simple examples, you can hopefully see that selling a chiropractic practice first requires you to price the practice properly in order to make it attractive to the buyer in terms of the profits they can anticipate that will make their situation better. The single best way to do this (and often the biggest mistake of owners who try to sell the practice on their own) is to get a proper chiropractic practice valuation that will enable you to accurately assess the fair market value of your business.
Performance – the reason that buying an existing chiropractic practice is so attractive to buyers looking to do better in their next move is that an established chiropractic business has a performance history and track record that has been demonstrated over time whereas a buyer starting a practice from scratch has absolutely no idea what that business will do – other than hope and pray it does well. A buyer (and banks) can look at your recent practice stats, financials, tax returns and other documents to determine the performance of your practice and assess whether this is a good buy.
One mistake sellers often make is to emphasize the “ancient” past vs “recent” past performance. While it’s great that your business has been around for 35 years, the income it made in 1989 is completely irrelevant to its present value. Most banks only look at the last three years of practice performance when assessing the business in connection with a purchase loan and most buyers will follow the same line of thinking.
Since the bank is likely the one helping the buyer finance the purchase of your practice, you should do the same and focus on recent performance. In order to maximize the value of your practice sale, that means an upward trend of profits is best. Stable income is still good. But a downward trend of declining revenues likely means your practice will have to sell for less than its peak value of your best recent year. Owners that understand this simple principle can time their sale in order to coordinate aiming for peak value. If you’ve obviously missed that mark or are too tired to bring the practice back up to what it was doing a couple of years ago – and you anticipate further decline – then the “best” timing may be selling sooner in order to avoid your practice dwindling down to the point where it won’t sell at all based on its recent performance.
Potential – while profits may be the single biggest factor that creates an attractive situation for selling a chiropractic business, most owners seem believe that the value is in the “untapped potential” of their practice. Unfortunately, this is not the case.
The fact that you are only working 20 hours a week, do no marketing for new patients, have been slack in your recall procedures or any other areas that obviously could be easily improved in your practice certainly does point to the potential for someone else growing your practice and making more money than you do.
However, your practice value is largely based on PROFITS and PERFORMANCE (the first two criteria listed above). When comparing apples to apples with another practice of a similar price, it’s possible that the potential of your practice can make it more attractive. But it doesn’t work the other way around. Potential does not increase value because banks are lending and buyers are buying based on the track record and history of your business performance.
This is certainly the most misunderstood factor in successfully selling a chiropractic business because when I speak to many practice owners, I repeatedly hear how much “potential” there business can have — especially for a young, hungry buyer willing to work hard. While some buyers are certainly going to work hard to grow your practice, many are also looking to avoid practices that sound like a “fixer upper” which is high on potential, but low on performance or profits.
NEXT STEPS
These factors are the BIG THREE necessities for selling a chiropractic business and owners who choose to ignore them will likely not sell their practice at all – or not for much.
In the next segment, we’ll discuss 3 Additional Factors that help you “Seal the Deal” and will make your practice super attractive to most buyers.
You won’t want to miss that segment – so stay tuned!
MORE QUESTIONS – NEED MORE HELP? Check out our FREE webinars on the topics of your chiropractic practice sale. Or shoot us an email — info [at] strategicddc.com and we’d be happy to help you take the next step!
