While it is not always easy, timing your chiropractic practice sale correctly so that you can maximize the value of your business is possible if you understand how to use the calendar to your advantage. The not-so-simple process is actually pretty straightforward and involves three steps.
In today's post, we will detail those three steps to that timing your chiropractic practice sale is something you can get right with some planning and not just hoping that all the stars magically align themselves! Here's what I mean:
Understanding How Chiropractic Practice Valuations Work - the first step to timing your chiropractic practice sale properly is to understand how the calendar is going to impact your value. Unfortunately, many chiropractors mistakenly believe that the solid 30 year track record of their business will make for a magnificient end to their career and add up to a prime price for the practice. While that may be true, the reality is that the business value is based mostly on how the business has performed over the last 3 years - not the 27 prior to that.
Knowing this simple concept can help you with the timing of your chiropractic practice sale by choosing a three year period that is going to work well for you and your value. For example, if you are getting towards the light at the end of your tunnel and feeling that you are ready to retire or sell, then you should have a serious look at the last three years of business performance and ask yourself one quick question: Is the performance of the practice over the last three years going to look good or bad for the sale of my business?Â
The answer to that question will then lead you to step 2 in terms of timing your chiropractic practice sale.
Riding the "Rolling" Formulas to Better Value -- if the last 3 years of your practice performance show a consistent increase in revenues or profits, then you have a situation where the value of your business is going to look favorable for selling towards peak value. Of course, it's possible that you did even greater numbers in the past but again, if the recent performance is trending upward, that's a good sign that if you were to sell soon, you'd be doing it at a positive point in the recent history of your practice. On the other hand, if your business has been declining, then you are in a place where getting peak value (at least presently) is not likely to happen.
Regardless of whether your business is going up, down or holding steady, the timing of your chiropractic practice sale may represent an opportunity to squeeze "a little extra" out of the sale of your practice or an opportunity to "soften the blow" of a few bad years by choosing a time interval properly if you understand that the 3 year time period is not set in stone and tied to calendar years. Instead, you can look at your business value more like a "rolling" formula that looks at the past 3 years with emphasis on both the last 18 months and with a wider lens that can be up to 42 months at times.
Here's what I mean: if you decide to list your practice at the start of 2023, then the value would be based on the performance of 2020, 2021 and 2022. But as time goes on, the impact of 2020 is going to be reduced by the present performance of the business in 2023. So in effect, you can anticipate that if you had a bad 2020 and are having a good 2023, by the half-year mark in 2023, you are going to get some positive impact on your value. (Of course, the reverse can be true as well if this year is worse than your prior).
Similarly, sellers should also understand that not all valuation formulas use a "straight average." By that, I mean the average that most people are used to in that if we're looking at three years, you simply add the numbers up, divide by three -- and then in the case of a formula, multiply by some number. Instead, some valuation formulas (and the banks that use them to lend), also look at things from the perspective of a "weighted" average which places most weight or emphasis on the most recent year of practice performance, a little less on the year prior and a little less on the year before that. In this way, the last 18 months of your business performance becomes more important and a bigger driver of value.
Fuel AND Forward Momentum -- perhaps the most challenging aspect of timing your sale to achieve maximum value is trying to combine the concepts of what I call "Fuel & Forward Momentum."Â Fuel is the idea that you have enough gas in your tank to get to your destination. Forward Momentum speaks to the idea that your business performance is trending upward or looking positive. To maximize your sale, BOTH are needed - which can admittedly be a challenge.
After all it's one thing to look at things from a math perspective and decide that the best time to sell would be in 2 years to capitalize on numbers trending upward (based on Forward Momentum). But you also need to consider that if you are eager to get out and only have enough gas in your emotional tank to get you down the road for another year, you may lack the Fuel to get you there. This is a dangerous situation because when doctors lack the Fuel due to an injury or just lack of desire, distractions or other things that force them to take their hands off the wheel or be physically unable to push the pedal on their practice, they don't often get to their desired destination.
On the other hand, you can have Fuel but lack Forward Momentum too. These docs seemingly have the energy to keep going, but the stats don't support any increase in value. If this is you, you may need to consider selling before you lack both Fuel and Forward Momentum!
Certainly, timing your chiropractic practice sale when you both have the Fuel to get to your desired destination AND the Forward Momentum of your practice performance to reflect positively on your numbers is not easy - but understanding how it impacts your present and future value is critical.
FINAL WORDS & NEXT STEPS
One final thought is that it is always easier to plan ahead so that you have options. Too many chiropractors start the planning process and begin to discover what their business is worth too late in the game. For example, if you would like to get out of practice in 6 months and start the process now, you don't have many options in respect to timing your sale. Basically, you need to value the practice now and get it on the market so you can hope to be out somewhere close to your timeframe.
Forward-thinking doctors who contact us well in advance of their desired timeframe typically have more options. For example, if you are 2 years from your target to sell, we can help you value the practice now. If you discover that the value of your business is better than you thought, then maybe you can start your exit plans sooner. Or perhaps the value isn't quite going to meet your goals. It's better to learn that now and work towards improving it -- while you still have time. Or maybe your practice value is a comfortable number that perfectly coincides with your exit plans. Now you have peace of mind that as long as you continue to work your plan, you will reach your goals and destination on time!
As you can see, timing your chiropractic practice sale to potentially achieve maximum value is a challenge all chiropractors will face, but not all are aware of the components and the ways that they can improve their outcome. Hopefully, this post helps you think about the timing of YOUR chiropractic practice sale - so you can get it right!
If you'd like to learn more about the components that go into a successful practice sale, consider checkin out one of our FREE, ON-DEMAND Webinars.
And when the time is right and you're ready, we're happy to help you take the next steps towards a chiropractic practice valuation and an eventual sale of your chiropractic practice. Contact us today to learn more and to steer your sale towards success!
