How to Sell A Chiropractic Business

Prepare Your Chiropractic Business for Sale

Most owners of chiropractic businesses spend many years building up their patient base and improving the efficiencies of their practice without giving much thought to selling. Whether the practice is a single location or multiple locations employing other chiropractors, preparing for the sale is essential to getting a premium valuation. The most critical preparatory step is lowering the level of owner-dependency by delegating marketing and patient care responsibilities to staff members, and by offering the buyer a free training period after the sale in which to transfer patients to the new doctor. Additionally, a transparent set of financials (segmenting the owner’s salary and owner’s personal expenses not applicable to the buyer) and equipment list helps maximize value. The interior of the clinic and equipment should also be made more inviting and appealing when shown to qualified buyers.

Valuing Chiropractic Businesses

The value of a chiropractic business is determined as a multiple (2-4x) of the most recent annual adjusted owner benefit. The adjusted owner benefit should incorporate all economic benefits (including the owner’s salary) derived by a working owner. For multi-unit chiropractic locations, the owner’s salary is typically adjusted to reflect the cost of paying a replacement chiropractor to assume the role of the owner. In single locations, it is assumed that the buyer will be a chiropractor who can replace the working owner. Once the owner benefit is fairly derived, many factors affect the valuation multiple including the value and age of the physical equipment, the growth trajectory of the practice over the last three years, the margins and efficiencies of the practice, and the transferability of the staff and patient base. Practices with multiple locations frequently obtain premium valuation multiples because of their scale and reduced level of owner-dependency.

Confidentially Target Strategic Buyers

  • The sale of a chiropractic business must be handled in a confidential manner by a professional business broker in order to minimize staff or patient defections during the sales process.
  • Every potential buyer should sign a Non-Disclosure Agreement (NDA) which prohibits the buyer from disclosing the fact that that the business is for sale to any third party and prohibits unauthorized contact with patients or staff.
  • Potential buyers should also show proof of funds prior to learning about the identity of the practice offered for sale.
  • Chiropractic businesses are invariably purchased by other chiropractors (often younger doctors looking to establish themselves) or by competitors looking to expand their patient base and geographic reach.
  • Practices with multiple locations are frequently purchased by national chains seeking to expand their existing operations or private equity groups seeking to acquire a high Return on Investment (ROI) on their invested capital.
  • A key way to target strategic buyers is advertising in groups or forums frequented by chiropractors.
  • An example is the Florida Chiropractic Association, which offers a classified advertising program where practices may be confidentially advertised for sale.
  • The business broker should tailor the confidential marketing strategy based on the optimal type of buyer for the particular practice.
  • Younger chiropractors often make great buyers for single practices that qualify for SBA-financing whereas regional or national chains often benefit from scale and cost synergies in acquiring multiple unit locations.

Transition Patient Base After Sale

The vast majority of chiropractic business owners offer prospective buyers 30-60 days of free training after the sale. During the training or transitional period, both the seller and buyer may work together in treating patients while delicately handing off the patients to the buyer. The free transitional period also tends to calm staff members anxious about the ownership change. After the free transition period, some buyers will want to retain the seller as a paid consultant on an as-needed basis or to continue treating patients in the practice. In addition to transferring the patient base, it is also critical to transfer the relationships with the patients’ referral sources to the buyer after the sale. Referral sources of chiropractic businesses are often personal injury attorneys, employers, or healthcare professionals. The best means of retaining referral sources often involves personal introductions by the seller on behalf of the buyer for purposes of ensuring the referral sources that the level of patient care will remain the same.

Structure of Acquisition

Many chiropractors accept various forms of insurance as payment for services rendered. It often can take many months or even years for a chiropractor to gain ‘in network’ status with an insurance carrier by virtue of contracted rates set forth in an insurance contract. When it comes time to sell, the buyer will want to keep the ‘in network’ status after the sale by maintaining the seller’s corporate entity and tax identification number. This may be accomplished by structuring the acquisition as a stock purchase deal rather than the more common asset purchase deal where the buyer forms their own corporate entity. A stock purchase deal allows the buyer to simply buy the shares or membership interests of the seller’s corporate entity, and is frequently used in the sale of medical practices so the buyer retains the seller’s insurance contracts. Since it also means retaining the liabilities of the seller’s corporate entity, obtaining legal counsel is advised.

The sale of a chiropractic business should occur before there is an urgent need to sell and while revenue and profits are increasing. The focus prior to the sale should be on how best to effectuate a smooth and orderly transition of the patient base to the buyer. This will help maximize the purchase price by ensuring the buyer that the goodwill and future profit stream of the practice will remain intact after the sale.

Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.