Selling a Chiropractic Practice - Key Insights & Info
Selling a chiropractic practice is a big step.
You've put years of hard work into building your business. Now, you want to ensure you get the best price and find the right buyer to continue your legacy.
But where do you even start? Valuing your practice? Finding buyers? It can all seem confusing if you've never done this before.
Don't worry - this guide will walk you through the entire process step-by-step.
Whether you're a veteran chiropractor ready to retire or just considering possibilities, you'll learn insider tips to sell your practice for maximum value.
So let's get started!
When is the Best Time to Sell a Chiropractic Practice?
Generally, the ideal time to sell a practice may be when it performs well financially, and practitioners have the time and energy to prepare for the transition properly.
Selling 1-3 years before a target retirement date will provide enough time to increase a practice's value while avoiding desperation if the sale process takes longer than expected.
On average, across the industry, it takes 12-18 months from an initial sales call until someone actually makes a purchase.
Remember this to prepare your staff and patients for the changeover thoroughly. However, that’s not it; you must look at other important factors and trends to get maximum valuation.
You'll probably want to sell your practice when it's making good money. Look back at the last few years to pinpoint the months or seasons when you profit more.
For example, if you're located somewhere with a tourist or seasonal economy, sell during your busy time when you have more patients and make more money.
Selling when your revenue is going up makes the practice look stable and growing to potential buyers.
While you can't control the whole economy, strong industry growth and competition can make it an excellent time to sell and get more money for your practice.
Do some research to take advantage of positive trends for chiropractors. Also, watch the chiropractic industry as a whole, along with your local area.
You may want to sell when demand for chiropractors is high, competition is low, interest rates are reasonable for buyers, and the economy is stable.
Most important of all, think about your personal goals. You might decide to sell when you hit your income, growth, or impact target.
Or when you're ready to retire, move, or try something new!
3 Factors Affecting the Value of Your Chiropractic Practice
Many aspects influence how much your chiropractic practice is worth. Carefully evaluating and optimizing these value drivers is vital to maximizing your sale price.
1. Methods for valuation
There are three widely used approaches to value a chiropractic practice - each considers different financial metrics to estimate fair market value.
Multiple Analysis Method
The first is the Multiple Analysis Method, which focuses on business earnings or cash flows.
For chiropractic offices, valuators often look at multiples of the seller's discretionary earnings (SDE) or earnings before interest, taxes, depreciation, and amortization (EBITDA).
As explained in more detail in this article on EBITDA multiples, EBITDA is commonly used to value businesses across many industries.
If a practice had an SDE of $200,000 last year and the standard multiple is 2x, the valuation would be $400,000 ($200,000 x 2).
Typical SDE multiples range from 1.5x to 3x, while EBITDA multiples are commonly 2x to 5x.
Next, we have the Asset-Based Approach, which tallies up all tangible assets of the practice itself - equipment, furniture, supplies, etc.
Each physical item gets an estimated fair market value, whether purchased new or depreciated over years of use.
Adding up these asset values provides a baseline figure, accounting for anywhere from 10-40% of the final valuation amount.
The third primary method is the Income Approach, which projects future earnings potential.
It estimates maintainable revenue and cash flows going forward based on historical financials and expected growth rates.
These future incomes get discounted back to today's dollars using set formulas to determine present value.
Each method has pros and cons. Experts often apply a blend of approaches to derive a fair overall value.
2. Market trends and industry standards
Your practice value doesn’t exist in a vacuum - broader chiropractic industry trends impact what buyers will pay.
For instance, the chronic pain treatment industry is projected to grow 6.9% annually over the next decade, driven by the rising demand for alternative therapies like chiropractic care.
As more health insurance plans cover chiropractic, it gains clinical legitimacy and becomes a recession-resistant field.
These positive macroeconomic trends lift the value of chiropractic practices industry-wide by increasing demand and clinical acceptance.
It’s also helpful to research sales of comparable practices in your region, which helps benchmark value. For example:
An equivalent practice could justify a similar pricing if a neighboring 25-year cash practice in Anaheim recently sold for $1.2 million at 3x SDE.
However, due to thinner margins, an insurance-based high-volume practice in Dallas may command a lower 2x SDE multiple.
Patient demographics, insurance mix, competitive climate, commercial lease rates, and local supply/demand dynamics also contribute to setting reasonable valuation expectations.
3. Financial health of your practice
At the end of the day, buyers care about one thing while valuing any company - profit potential. A practice's financial track record over the past 3-5 years communicates this potential clearly.
For example, showcasing steady 8-12% annual revenue growth shows demand momentum.
Maintaining 60%+ profit margins indicates efficient operations. Keeping advertising costs under 7% of revenue proves patient retention strength.
Boosting collections rates to 98%+ accelerates cash flow.
Cutting staff turnover in half builds workplace stability.
Essentially, the healthier your margins, volume consistency, overhead controls, and revenue metrics - the higher premium your practice deserves.
On the other hand, declining patient visits, insurance reimbursement cuts, 6-figure equipment costs, and profit volatility all undermine value.
Every extra percentage point matters when buyers assess risk-adjusted future earnings.
Whether preparing to sell chiropractic practice now or later, regularly monitoring key performance indicators allows you to course-correct issues before they impact your valuation.
How to Value a Chiropractic Practice
Now that we have covered the key factors impacting value let's examine some best practices for accurately valuing your chiropractic business:
Use the chiropractic practice valuation formula
While no "one formula fits all" exists to value chiropractic practices, there is a back-of-the-envelope calculation commonly used to estimate fair market value:
First, tally up your total collections over the past 3 years. Calculate the annual average.
Next, take 50-60% of the average of this annual collection. This percentage accounts for operating expenses that new owners would incur.
Then, add an estimate of your accounts receivable balance - typically 20-30% of the last year's collections. Receivables are crucial for cash flow during ownership transitions.
Let’s say your annual collections averaged $550,000 over the last 3 years
Taking 55% off $550,000 gives us $302,500
With $95,000 accounts receivable currently on your books
The valuation estimate is $397,500.
This calculation gives you an initial estimate to begin price negotiations.
You can make further adjustments according to other assets being sold, profit margins, regional sales data, and intangible value factors.
Try our valuation calculator
ExitWise's valuation tool allows you to plug in details about your practice to receive an estimated value range.
The algorithms assess your inputs based on wider industry data. This gives reasonably accurate approximations to start price negotiations.
Calculators provide helpful ballpark figures, especially if you lack experience valuing a chiropractic practice.
However, each practice and sale is unique, so consult an expert for a more tailored estimate. If needed, hire experts to help sell your company.
Take help from valuation experts
Most chiropractors don't have formal training to determine what their practice is worth. So, it's best to have a professional appraiser or broker to give you a valuation.
They will objectively examine your financial records, how your office runs, what assets you have, and what's happening in the local market.
Then, based on their experience and valuation methods, they can give you the fairest estimate of your practice's value.
Exit Wise can connect you with the right specialists to assess your specific practice and what it may be worth to potential buyers.
Getting input from pros is the best way to know you're asking a fair price.
Common Mistakes to Avoid
Despite best intentions, many practice owners make errors when selling a chiropractor practice that jeopardizes deals.
Watch out for these key pitfalls:
Not preparing the practice for sale
Failing to prepare your staffing, patient records, legal paperwork, financials, systems, and operations can diminish the value and turn off buyers.
It takes serious effort and at least 6-12 months to properly prepare a practice for sale. Without thoroughly “cleaning house” in all aspects, you leave yourself vulnerable to lowball offers.
Do the succession planning homework required to showcase your practice accurately.
Overvaluing the practice
Since founders naturally attach extra emotion and self-worth to their practices, it’s easy to overprice them unrealistically.
Unfortunately, inflated asking prices based on ego rather than actual financial metrics may lead to stagnant sale listings that sit ignored.
Remain objective, lean on data like profitability and multiples, and align pricing with your accountant to attract qualified buyers quickly.
Ignoring staff and patient concerns
The practice transition will significantly impact your loyal employees and longtime patients.
Failing to give them a heads-up, answer their concerns, and ease uncertainty about the future often unsettles them.
Their resentment can collapse your exit value and affect the new owner. Communicate compassionately about the changes and involve them in the process to help ease the transition.
Deciding when to tell your employees and customers about an impending sale is essential to maintain trust.
Neglecting legal and financial due diligence
In a sale frenzy, neglecting loose ends like outstanding debts, supplier agreements, payroll taxes, lawsuits, or regulatory issues can invite significant liabilities later.
Just as critically, not optimizing areas like revenue cycle management, collections rates, and accounting reconciliations robs you of maximizing valuation.
Do your homework thoroughly to avoid risks and showcase your practice accurately.
Frequently Asked Questions (FAQs)
Selling a practice for the first time leaves many chiropractors with unanswered questions.
Here, we address some of the most common:
Are chiropractic clinics profitable?
Yes, chiropractic care is a fast-growing, highly profitable healthcare segment.
This growth results from broader insurance coverage and strong patient demand.
How do you determine the value of a chiropractic office?
Estimating the value of a chiropractic practice involves totaling its assets, examining past financials, comparing local sales data, and calculating earning potential using multiples.
Experienced appraisers blend these approaches to derive a fair overall value.
Selling your chiropractic practice is a complex, personal process with high financial stakes.
With proper planning and perspective, you can optimize results and find the perfect buyer to continue your legacy.
If you are considering selling your chiropractic practice, ExitWise can help you find experts who can guide you through every step of the process - from succession planning and valuation to finding the right buyer.
With our access to a wide network of M&A experts, we help you assemble your dream M&A team that leaves no stone unturned to skyrocket your valuation and get the best possible deal for your practice.
Schedule a free consultation with ExitWise to start planning your successful practice transition today.