How to Sell 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!
TL;DR - How to Sell a Chiropractic Practice
We'll discuss the following steps to selling a chiropractic practice later in the guide:
Qualify potential buyers
Prepare marketing materials
Prepare business sale documents
Participate in buy-side due diligence
Develop a transition and integration plan
Market the business like a pro
Negotiate terms of sale
Close the sale
Transfer ownership to the new owner
Implement the transition and integration plan
While you can implement most of these steps on your own, some require the input of professional M&A lawyers, tax accountants, investment bankers, and wealth advisors.
For example, M&A lawyers can help you prepare and review legal documents, such as non-disclosure agreements and the purchase agreement.
Through our streamlined three-step process, we can help you find and work with the best M&A experts in the medical industry.
Consult with us at Exitwise to discover our process and find the top M&A professionals for a maximum-value exit.
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.
Asset-Based Approach
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.
Income Approach
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.
For example:
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.
How to Attract Buyers for a Chiropractic Business
You can sell your chiropractic business sooner if you attract the right potential buyers. Here's how you can achieve that:
Define and target the ideal buyer: Research and describe the type of buyer you would like. For example, if you prefer a strategic buyer, you can look for other chiropractic clinics looking to expand. To profile the buyer correctly, you must also understand what they would be looking for. The most common aspects buyers consider include strong financial performance, operational efficiency and scalability, recurring revenue, and an experienced team.
Improve the practice's value and appeal: Use the right strategies, such as increasing revenue streams, to boost the value of your practice. Additionally, you can make it more appealing by ensuring the premises are clean, repaired, and easy to maintain.
Get your financial house in order: Optimize your business's financials by cleaning up its books, normalizing earnings, and increasing profit margins. For example, you can streamline operations to increase your annual EBITDA or discretionary earnings.
Document and standardize your operations: You should document all your Standard Operating Procedures (SOPs), scheduling, customer relationship management processes, billing, and electronic medical records systems. Documenting and standardizing operations is key to showing buyers that your business can run smoothly without your heavy involvement.
Market the practice widely but strategically: Reach out to the potential buyers you've identified and let them know you are selling your practice. You don't have to reveal the finer details; just give them the necessary basics to see if they would be interested. Platforms like related Facebook groups, BizBuySell, and industry associations are good places to market your practice online.
Work with M&A professionals: Find M&A advisors familiar with selling medical practices to guide you through the sale. You can get attorneys to handle the contracts and legal structure, and accountants for tax and financial planning. These experts can help attract buyers through their expertise, networks, and pre-qualified buyer pools.
Steps to Take Before You Sell a Practice
You'll want to be as ready as possible for the sale. Here's an overview of the major steps to take before you sell:
Determine the right time to sell: As mentioned earlier, the right time to sell your business can vary. You can sell it when it is on an upward revenue trajectory, when the demand for chiropractic clinics is high, or when you simply want to move on from the business.
Assess your readiness and goals: Have a clear idea of why you want to sell, what you expect from the sale, and your readiness to sell and complete the transition. Try getting answers to questions like: What are your professional goals for the next five years? How much is the business worth, and how much will you accept for it? How will you ensure that quality patient care continues after the sale?
Gather financial and operational records: Organize the tax returns, cash flow statements, balance sheets, and income statements for the last three to five years and update your SOPs. These records help when valuing the business, identifying areas for improvement, and showing the practice’s performance and potential.
Groom the physical environment: The business premises must be in good physical condition, with cleanliness and up-to-date repairs.
Improve the business's value and appeal: Increase operational efficiency, profit margins, and growth potential to make the practice more valuable and attractive. Some strategies include increasing revenues, reducing expenses, streamlining operations, boosting your online presence, and hiring talented assistants, chiropractors, and other therapists.
Conduct reverse due diligence: Ensure your practice has a clean bill of health by conducting detailed sell-side or reverse due diligence. Look for issues that may scare buyers away, such as non-transferable contracts, dilapidated premises, or huge debts. Address these issues as early as possible.
Get a professional valuation: Work with professional appraisers to get an objective valuation of the practice, complete with a valuation report you can share with potential buyers.
How to Sell a Chiropractic Practice - Step-by-Step Process
Once you've completed the above steps, it's time to actually sell the business. Here’s how:
Qualify potential buyers: You must vet and qualify buyers. Check if they share your business goals, values, and vision. They should also be willing to continue your business and its legacy. Ensure they are financially capable of buying and running the business.
Prepare marketing materials: Make the right marketing collateral, such as the sales pitch and teaser.
Prepare business sale documents: Get all the relevant business selling documents ready, including the M&A NDA, Confidential Information Memorandum, financial records, and party-to-party agreements. You'll issue them to potential buyers at various stages of the sale process.
Participate in buy-side due diligence: Help the buyer complete their due diligence process by answering any questions or concerns they may have and providing all the necessary documents.
Market the business like a pro: Use the marketing materials to place the business in front of the right buyers. You can use online platforms like business-for-sale websites or offline options like print media adverts or word of mouth.
Negotiate terms of sale: Different buyers will offer different terms of sale. Select the most promising buyer and negotiate a better sale price, terms and conditions, and payment terms.
Close the sale: Finalize the sale by signing the purchase agreement and receiving payment, depending on the sale terms.
Develop a transition and integration plan: Once you finalize the deal, liaise with the buyer to make a detailed transition and integration plan to help them settle down faster after the transaction. For example, you can discuss how the two practices' cultures will merge.
Transfer ownership to the new owner: Change the practice's ownership details to the new owner, including the practice itself, the agreed assets, the liabilities the buyer agreed to assume, and other relevant items.
Implement the transition and integration plan: The sale doesn't end after receiving payment and transferring ownership. You might have to help the new buyer settle into the business or integrate it with their other business.
The business selling process is not a walk in the park. You'll need specialized expertise and experience.
When exiting your business, the best practice is to hire industry-specific M&A experts such as financial accountants, wealth advisors, corporate lawyers, and investment bankers.
At Exitwise, we can help you hire and collaborate with these experts until your practice sells. The professionals we help you choose can assist you with preparing the business for sale, marketing it, and negotiating the most favorable terms.
Schedule a consultation with our team today to learn more about how our system works to secure you the best possible deal.
Legal Steps in a Chiropractic Practice Sale
Like other business sales, selling a chiropractic clinic requires completing various legal steps to ensure compliance, legality, and amicable dispute resolution if needed.
These steps can include:
Gathering all legal and regulatory documents: Collect all the legal and regulatory information, including valid licenses and certifications, insurance policies, and compliance records for HIPAA and local healthcare requirements.
Hiring legal counsel: It's advisable to hire industry-specific M&A lawyers from the outset to help you with the legal aspects of the sale. This is particularly important if you don't have enough legal expertise and experience with business sales. The lawyers can help with document creation and review to ensure compliance and protect your interests.
Conducting reverse due diligence: Check keenly into your business to see if there are any legal issues that could make a potential buyer shy away from the deal. Again, your M&A lawyers are better equipped to help you with this step.
Participating in buy-side due diligence: Team up with your lawyers to help the buyer conduct due diligence on your practice. Answer any questions they may have regarding the valuation, asking price, and more.
Negotiate a favorable purchase agreement: Understand the buyer's proposed terms of purchase, including the purchase price, payment terms, and any contingencies. Negotiate these and the terms and conditions to ensure legal compliance and that your personal and business interests are well-protected.
What to Expect After Selling a Chiropractic Practice
After a successful sale, you can expect the considerations and next steps below:
Personal adjustments like emotional transition, retirement, or finding a new purpose.
Investing the sale proceeds and exploring new income streams.
Dissolving your claim in the practice by canceling your business license and tax accounts, terminating the business bank accounts, and notifying your state chiropractic board and licensing body.
Taking care of the taxes on selling a business, including reporting the sale to the IRS and allocating the purchase price.
Ensuring HIPAA-compliance procedures were followed if patient files were transferred, including retaining access or copies for the period required by your state.
Securely storing and managing patient files if you didn’t transfer them.
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.
According to IBIS World data, over 69,000 US chiropractic offices generated $20.5+ billion in collective annual revenue as of 2023, with substantial profit margins.
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.
What Is the Role of M&A Advisors While Selling a Chiropractic Practice?
M&A advisors act as guides, strategists, and negotiators to help you sell your business successfully. They can help with:
Ensuring the sale is legally compliant.
Assisting with the transition and integration process.
Preparing and reviewing legal and marketing documents.
Determining the most advantageous way to structure the sale.
Identifying and marketing your business to the right potential buyers.
Conducting reverse due diligence and participating in buy-side due diligence.
How Long Does It Take to Sell Chiropractic Practice Assets?
If you are only selling your practice's assets, it can take around 1-6 months.
The duration can be shorter or longer, depending on your readiness, the quality and value of the assets, your marketing strategy, the demand for chiropractic assets, and the type of assets you are selling.
Conclusion
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.
