Transitioning to Practice Ownership: Assess Yourself and the Practice Opportunity
By Loren D. Martin
Upon graduating, completing all boards and internships well qualifies you to practice chiropractic. However, before entering into practice ownership, carefully self-assess your individual skills and knowledge. “Know thyself,” recommends a famous quote by Socrates. Knowing yourself tells you which opportunities to avoid or pursue.
You may know what you want and don’t want in a practice. However, there is more than being interested.
A profile of the practice for sale would assist you in establishing if it’s priced fairly and is of your interest. This would include practice description, profit and loss statements, balance sheets, statistics, coding procedures, payor profile, equipment and fixtures list, and accounts receivable aging and type.
A buyer should make projections of income and expenses, marketing strategy and objectives. This information is of great importance to anyone in business, but of paramount importance to anyone buying or starting a practice.
Buying a well-established, profitable practice at fair market value makes the best economic sense. Most chiropractic practices are undervalued compared to starting new.
Transitioning
Most practice acquisitions include three to five weeks of transitional assistance included in the price. In some cases the buyer and seller have practiced together for more than six months. Longer-term transitions are more common in gradual earned equity buy-outs.
Rule of thumb valuation formulas commonly float around the profession. The more such formulas are quoted, the more doctors of chiropractic are willing to accept them as a valuation method. Doctors ask: Could such a formula be accurate? The answer is yes, but so would a broken watch give accurate time twice each day. The point is, don’t use guesswork. Thoroughly analyze any practice opportunity to make sure it is a good fit before committing.
One basic valuation method for price justification is the Ability Approach. When acquiring a practice, the net income should be adequate to pay all business expenses, doctor compensation (equivalent to an associate’s wage), the loan debt service, income taxes, plus extra net profit.
Do your due diligence, and seek competent help in the process, to support your decision and move forward successfully.
Loren Martin is President of Practice Opportunities, Inc. and specializes in consulting, appraisals and brokerage. He has completed more than 180 successful chiropractic transactions. He may be reached at 952-953-9444 or www.practiceop.com.