When buying or selling a practice, getting to know the other party can prove beneficial

What is your practice worth to you? What do you think the value is to someone else? Selling a chiropractic practice is different than selling your car or any other item. It has emotional value and potential that you might not have begun to explore. If you have been in practice for many years, it is your blood, sweat, and tears and your link to your profession. Patients, employees, and friendships are made through any practice, and all of these have an impact on how you value your professional space.

If you are in the market to buy a practice, what are your goals and expectations? Why do you want to purchase someone else’s practice instead of starting your own? Can it be an advantage or a lead weight to your future? There are contracts and understandings that need to be determined, and protocol that needs to be followed, for you to have a successful transaction and a good transition to having a new doctor in the office.

The Buyer
Whether you are fresh out of chiropractic college, are relocating, or are combining your existing practice with another, buying a practice has many pitfalls that can cause financial difficulty and many emotional heartaches. It can also be a source of renewal for you if you have been unchallenged or you need a new burst of patients to get you back into the profession of healing that you have chosen. Either way, a practice purchase has many different approaches and steps that you must complete for the transaction to be a success.

1) Know your finances. The biggest mistake that most people make when purchasing is they spend more than they can pay back. You need to have enough funds to pay all your expenses for at least 3 months, even when purchasing an existing practice. You will need to have enough funding to keep you afloat during the transition period. Have a full accounting of all your monthly expenses as well as those you are going to be taking on. Working with your seller, you should be able to make a positive income within 6 months. If you cannot, you need to look elsewhere for something that is less expensive.

2) Get to know your seller. You don’t have to become best friends, but a few lunches together will go a long way toward each of you being happy with the transaction. You get a feel for how the seller feels about his practice and patients, while the seller learns to trust that you will take good care of it.

3) Have an emergency backup plan. If the finances go bad or the practice is not paying the bills, you should have a plan to at least supplement the income of the office. This may mean your spouse taking another job or replacing one of the paid employees in your office. You may need other sources to refinance your loan if necessary, or even additional ways to add to your loan amount. Talk with your lender and get a line of credit along with your loan.

4) Mimic your seller. Learn how the seller talks to his patients and what they expect from him. If possible, spend a few days in the office watching and learning which techniques are used and what suggestions are made to the patients. This will help you in retaining them once you take sole possession of the office.

5) Assess the staff. Whether one person works the office or 12, you need to know what the staff is thinking as you begin your purchase. Ask the selling doctor to call a meeting and introduce you. Get a feel for how staff members run the office and how they feel about the sale. Interview each of them individually and find out if they want to remain or move on when the seller leaves. Each one should understand your method of employer-employee contact and relations before you decide to keep them on.

6) Be prepared to work. An office in transition takes twice as much time for the doctor as an office in which you have worked for a time. Making small adjustments to work schedules, balancing finances, and making sure the patient paperwork is completed each day is an important step in assuring your success with the practice. Have regular staff meetings at least once per week for the first few months. Get feedback from the staff, because patients will say things to them they would not say to you.

7) Have an attorney and accountant review all the contracts and figures that are provided to you. Their information may become invaluable in negotiations or if problems occur later. The attorney should not be the one who draws up the contract, and the accountant should not be the one that produced the original accounting of the office.

8) Be prepared for losses. Some attrition of patients will take place with the transfer. Some patients see their doctor just because they like his or her personality, and would come regardless of the care provided. Patients will stop coming if you vary too far from the seller’s techniques, add too many different items, change too much around the office too quickly, or increase the fees too much. These losses are to be expected; but if you do things right, they should not exceed 10% to 20% of the patient base.

The Seller
You’ve worked hard for many years to build your practice into something you can be proud of and that makes a good living for you. But now you have chosen to sell your pride and joy and move on. What are your first steps in making sure that you get full value for your office?

1) Be reasonable. Buying equipment, acquiring patients, and maintaining an attractive office space all cost a lot of money, and we want to make sure we do not minimize the amount of work that has gone into the office over the years. However, don’t overvalue this work. A buyer has to deal with bankers and lenders, and as much as we don’t want to admit it, these past expenses are worth very little to a lender.

2) Look at the numbers. You need to realistically know the current value of your office production. What you did 10 years ago does not count today. You should know exactly the gross and net amounts your practice has done in the last 12, 6, and 3 months. These figures can be used to calculate the real value of your office when you sell. Are you selling your accounts receivable also? The accounts receivable value reduces by how long it is outstanding. Accounts receivable that are 3 to 6 months old are only worth 50%, and accounts receivable that are 6 to 9 months old are only worth 30%. Liens on outstanding personal-injury cases may be an exception to this, but only if the case is considered solid and you have guarantees to be paid in full.

3) Take inventory. Over the years, many items that you purchase are good for your practice. A buyer may not need any of this, and it may not be of much value in the sale. Take inventory of all equipment and supplies, and give them both a current value (determine how much they have depreciated over the years) and a replacement value. Remember that the buyer will only pay for current value, but the difference between the replacement and current values can be a negotiation point in the total cost of your office.

4) Seek professional help. Have a good attorney available that can review any bill of sale or contract that you negotiate. Get a professional assessment of your numbers from an accountant. This shows the buyer that you are not “massaging” any of the value of your practice. You may want to contact an office broker to do all your selling and negotiating. This makes things easier for you, but often causes the practice to be overpriced. Make sure that a reputable broker gives you honest figures and can accept a fee that does not overprice your office for the buyer.

 Buying and selling a chiropractic office is not easy, but it can be done logically and effectively if both parties work out all the details before any contracts are drawn up and signed. Both parties want to have a fair and honest transaction that will give each what they want—funds for the seller and an active practice for the buyer.

Kenneth Martin, DC, is in private practice in Temple City, Calif. He can be reached at bacdoc@earthlink.net.