Renting Space can be a chiropractic practice sale mistake that some chiropractors will make during the course of their transition, but the Space for Rent scenario is a particularly deadly error you want to avoid — unless you want to permanently ruin your chances for an eventual office sale.
Since chiropractors who are looking to sell or transition their chiropractic office will often explore a few options to determine the best route to achieve their goals, the Space for Rent scenario looks like it may be a decent option to help them achieve their goals.
Looks can be deceiving — and perhaps even devastating to your sale.
Space For Rent Scenario 1: The Home Court Headache
As doctors advanced in practice (and physical) years, many become tired of the constant drain of overhead. They’d love to slow down, but the overhead of their practice keeps on steadily demanding income — even if the pace or production of the practice has declined.
Consequently, some chiropractors imagine that bringing in someone to share the overhead will solve their problems and allow them to gracefully slow down, with decreased responsibilities, until the day of their eventual sale arrives. In theory, the idea sounds attractive so the budget conscious doc looms forward to find someone who wants to share the space, the rent and help boost the bottom line of the business.
The well-intentioned owner agrees to let the new doctor rent space at some sort of fixed fee or perhaps a percentage split arrangement. In exchange, the owner provides the doc a viable office where they can practice and possibly staff support as well.
Of course, the new doc does not want to sign a non-compete agreement and he assures the owner he has ample patients of his own. He may consider buying the practice later on but for now, he is simply looking for space.
The older owner doctor seizes the opportunity to lower the overhead and in turn, unintentionally, decreases their ability to sell their practice now or in the future.
The Danger of the Independent Contractor
For the initial months or even years, the arrangement seems fine until the Owner decides to sell. At that point, they discover exactly why his renter has created a huge obstacle and a major chiropractic practice sale mistake. The owner’s sale ads attract interest but no bites. After repeatedly being unable to secure a solid buyer, the owner discovers a significant sale fact: buyers are very skeptical of a purchasing a practice when there is no contractual provision to protect the buyer from the patients simply migrating over into the renter’s practice.
After watching dozens of interested prospects disappear, the owner decides to offer the option to purchase practice to the space renter. Even though the doc had initially expressed a desire to potentially purchase the owner’s practice, the offer was immediately dismissed and the space renter was not interested.
As the owner’s practice continued to decline and he repeatedly lowered the asking price, the owner made one final and desperate attempt to sell the practice by reducing the price of the business to a fraction of what it was worth.
Interestingly enough, at that point, the space renter came back around expressing mild interest. But no one else emerged. The owner felt taken advantage of by the space renter and refused to sell it to him. Sadly, the business closed a month later – with no sale.
Space Renter Scenario #2: The Nice Neighbor Solution That Isn’t
There’s another variation on the same theme that can also be a major chiropractic practice sale mistake. It involves you, the owner, moving your practice to a friend or neighbors office. The intentions are essentially the same: you wish to save overhead. And your neighbor assures you that they have the extra space and that it would certainly help both of you lower overhead.
Unfortunately, the outcomes are similar as well.
If and when you move your practice, you first take a risk that patients will follow you. But even if they do, the bigger risks await you when you arrive.
Again, the neighboring DC will be unwilling to sign a non-compete with you and therefore, anytime you go on vacation, take a day off or make your patients a little unhappy, there’s a chance that your patients will wander into your neighbor’s practice which is now conveniently located in the same building.
Worse, when it comes time to retire, you will have little leverage to sell your practice to your neighbor. Don’t blame your neighbor. Why should they pay for something that they will likely get for free when you leave?
And if you attempt to sell the business to an outside buyer, you will likely face the same obstacles as above for the same reasons.
Slowly but surely, you will realize you have also made a major chiropractic practice sale mistake.
Is There Any Hope For Space Renting or Is it Always a Chiropractic Practice Sale Mistake?
The above scenarios happen more often than they should and certainly more than chiropractors will admit.
Each year, I hear a few sad stories from docs who ask for advice or a way out of their situation. My counsel was obtained too late in the game to turn around their chiropractic practice sale mistake and in some cases, will have too little impact to bring a positive ending to their problem.
Typically the only solution is to sell the practice at a deep discount– create a fire sale and hope someone bites at the opportunity of a big bargain.
It’s possible that you could craft a Space Rent situation BEFORE your sale that can potentially address these issues AND make a provision for a future sale with the person that you intend to share with. But that’s a difficult sale to navigate – as you are not looking to sell now, but in the future, and (presumably) you are looking to slow down. So, effectively, you’re asking a buyer if they are interested in the right to purchase a business that will decline over the next few years. And since you are not asking them to purchase it now, the sale is not secure for either one of you.
The Simplest Solution
After watching many sales never materialize because of similar chiropractic practice sale mistakes such as this, my advice on the matter is quite simple:
If you are looking to sell or transition your practice in the next several years, avoid the Space Rent scenario. There are too many risks and too little reward.
You would be way better off considering a different transition option that may better suit your needs and certainly would better suit your bottom line.
And if you do venture down the road of Space Rent, be sure that you have plenty of years left to practice. It’s not that the concept of renting space is bad; it’s just bad timing if you are trying to transition or sell your practice!
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