There’s one common question that goes through a lot of doctor’s minds as they prepare their transition — regardless of whether you are planning to transition sooner or later, sell, hire an associate, whatever it may be.
The question I get often is this:
Should I sell my building with my practice?
There is no definitive answer that applies across the board except this: it depends on your situation. I know that sounds like a non-answer but there are definite advantages on both sides of the fence.
Let’s explore these to help you make the best decision for you:
Reasons to NOT Sell Your Building as a Part of Your Chiropractic Practice Sale
A. Passive Income: one challenge you will face with selling your business is tax issues on capital gains, particularly if you have a large payout. Keeping the building gives you ongoing passive income that you can better plan for in terms of tax consequences (not to mention the income stream).
B. Retain Control in a Timed Sale: if you are selling to your Associate with a buy-in, buy-out timed sale whereby they are purchasing your practice over time, you may want to keep control of your building while they are still paying off your business. Similarly, if you are doing an Owner Financed sale, keeping control of the building may make sense so that if something goes wrong, you will have the leverage of the building against your buyer who owes you money.
3. Sticker Shock: Most young chiropractors have huge student loans. Add to that a loan to purchase your practice and it’s a big step for them. Add on top of that a building purchase and you’ve got Mt. Everest. Sometimes, bringing the building sale into the picture creates sticker shock, especially if your building is worth in the upper six or even seven figures.
Advantages of Selling Your Building AND Your Chiropractic Practice
There are typically more situations where the combination of a practice and a building sale DOES make sense. Here are a few examples:
A. Increased Financing Opportunities: one of the biggest advantages to selling both the business and the building is certainly in the eyes of the bank that is doing the lending. Since the bulk of what you are selling with your chiropractic business is goodwill, when real estate comes into the picture, lenders generally love it. Your buyer will likely find more banks willing to lend and in most cases, the bank will offer longer repayment terms (sometimes resulting in a lower monthly payment to buy both, even though the total loan amount is higher). It’s also possible that a sale that includes the real estate could result in your buyer needing a smaller downpayment as well.
2024 update – in fact, we now have lenders who, in certain circumstances, can finance a combination of a business + building with ZERO Buyer Downpayment and 100% financing — which is very tough to beat!! This situation doesn’t apply to everyone, but when it does, it doesn’t really get any easier for your buyer to purchase than $0 down!
2.Tax Advantages – because the selling of the building (real estate) is taxed differently than the tax basis for your business (= typically there is better tax rates on the building) and because you have 1031 Exchange possibilities with a building, there can be significant opportunities for tax savings with the combined sale of your business and building!
3. The Home-Office Combo: if your practice is located is a home-office combo, you may find that the building’s use is a great fit for your practice and the right kind of buyer. Not everyone wants to work where they live. But, in these cases, the use of the building as a practice may actually increase the appeal of the practice to the potential buyer. Simultaneously, the sale of your building on the open market may potentially decrease its value because the new owner (a non-chiropractor) would have to do a lot of remodeling to make the building work for another purpose. Of course, this isn’t the case with all home offices. But we’ve seen many where the building and the practice are tied tightly together and where it actually makes sense to sell both.
4. Done With It All – it’s a simple, but powerful reason. You want to be done with practice, done with being a building owner, landlord – everything. Perhaps you want to completely “cash out” because you are moving across the country and don’t want to be involved in a long-distance relationship with the buyer who is now your tenant. Or because you don’t want the hassles involved with building management or ownership.
5. The Most Appealing Option — another way a building + practice sale combo generally makes sense is when it is the most appealing option. Many times, this is because the sale of the practice alone is not appealing enough to the buyer or the bank. Or frankly, not appealing at all. But the practice and the real estate combined makes sense.
6. Save on Commissions With a Combination Sale – finally, if it does make sense for you to consider selling both your business and building, we need to talk because we have an additional incentive that will help you save on real estate commissions for your building. With this bonus, some of our clients have put as much as an additional $70k in their pocket upon their sale!
Conclusion & Next Steps
As I mentioned at the start of this post, there is no one-size-fits-all answer and the best decision is going to be based on your individual circumstances.
But there is ONE step that makes sense for you — regardless of whether you are considering selling your practice and your building as a “package” or individually.
That step is simply this: the sooner you plan, the more options you will have!
If you’re ready to get that started, we’ll be happy to help you to take the next step to selling your practice (and possibly your building too)! [Click here for more details]
Or…
Need More guidance on your chiropractic practice sale or transition? Check out our upcoming FREE CHIROPRACTIC PRACTICE SALE & TRANSITION WEBINARS
