The Chiropractic Practice Exit Strategy
FINANCIAL MANAGEMENT
Eric Huntington
Any journey that has a particular destination must monitor the direction of advance in order to ensure an on-time arrival. The same is true of any business. However, becoming a doctor is a long road and often the “destination” is “in practice.” And, of course, that is exactly where the doctor often finds himself, which is great until he considers that he would like a new destination.
The challenge at this point for most doctors is twofold. First, he has already created a business that might not fully align with the new destination, and now reaching the new destination is more difficult. Second, the doctor may have forgotten how to chart a new course, simply because he’s been consumed by the routine of “in practice” for so long.
While there are many things to consider in charting your course, one of the most important things to consider is your practice exit strategy. Most business owners do not consider this concept of exit strategy until it’s much too late. By too late, I mean when they are ready to exit.
You may assume that an “exit strategy” may be necessary someday down the road, maybe way down the road. However, the fact is, an effective exit strategy is created from the very beginning, often before you even open your doors, even though
^ ^ However, the fact is, an effective exit strategy is created from the very beginning, often before you even open your doors, even though you may not
plan to “exit” for a few decades J J
you may not plan to “exit” for a few decades! The good news is that even if you are already in practice and have yet to plan your exit, all is not lost. Now is the right time to begin planning because you will use your exit strategy to shape many of the decisions you make now that will lead you in the direction of a successful exit.
Who Needs an Exit Strategy?
The fact is, at any given time, the typical professional has the majority of his net worth tied up in his business. This creates two problems.
First, he doesn’t know how to access most of that net worth anytime soon, if ever. Second, for him to realize a return on that invested capital (the business), he often defaults to being
a self-employed professional, and maybe well beyond the point where he truly desires to continue working.
An exit strategy solves these two common problems for the self-employed professional. It can allow him to capture much of the value of the business, and it can allow him the opportunity to spend his time as he chooses, rather than forcing him to continue working at a job after the point he’d prefer to retire.
So, who needs an exit strategy? Well, I guess any selfemployed professional who would like more time and more money!
Components of an Exit Strategy
There are many aspects of a properly executed exit strategy. In short, it involves everything about how you set up your business, run your business, and the process in which you phase out of or sell your business.
Some things that you would want to consider regarding an exit strategy prior to opening your doors may include the name of your clinic or what kind of legal entity you select. As an example, you may choose not to put your last name in the
“He purposely does not build himself into the practice; he actually embarks on the process of backing himself out of the practice. JJ
title of the clinic because that presents a problem when it comes time to phase out or sell. Similarly, there may be a best legal entity into which you place your practice, making it easier to bring on partners or to sell.
Many chiropractors end up with a “personality-driven” practice. This is often a solution for a lack of business knowhow. It can be a successful or even fun solution if you intend to be the center of it all until you retire. For many, though, the personality-driven practice eventually leads to burnout and an unsellable business.
A chiropractor who is executing an exit strategy spends his time building a business based on systems, trained staff, and overall sound business strategies. He purposely does not build himself into the practice; he actually embarks on the process of backing himself out of the practice. The pace at which this is done depends on the plans of the business owner. This does not mean that he can’t be a doctor and treat patients because he certainly can even while arranging the practice for an eventual exit.
If you find yourself making most of the day-to-day deci-
sions in the practice or doing most of the work, then you are in a precarious position. Not only will you find it very difficult to ever exit the practice without simply shutting it down, but you also run the risk of financial catastrophe should you be unable to practice for any reason (for example, injury or loss of license).
One of the first realizations one often has on this journey is that a successful practice exit will require that the business must not depend on the departing owner. All is not lost if you are currently up to your neck in day-to-day work, but if you plan to someday successfully exit, you must begin by making decisions in the direction of making your business less dependent on you. This means that you must develop systems. Think of McDonald’s—not in terms of quality, but the fact that entire locations can be run by one manager and a bunch of sixteen-year-old kids. This is made possible by systems.
Another key aspect of an exit strategy is finance. To exit properly, you must coordinate your personal overhead with how much financial reserve you accumulate against any plans for new income (if any). This allows you to develop the timing and nature of your exit strategy. To determine your financial needs at the time of exit, you will need to calculate how much cash and other income-producing assets you must accumulate. For the doctor with a well-executed exit strategy, he can count on an additional seven-figure practice sale as he transitions out.
Some Benefits of a Successful Exit!
1. Realize the full value of all your work. This means not only maximizing the profitability of your practice while you own it, but also maximizing its value for a potential buyer. The most valuable business is very profitable and does not require the owner to work in it (although he may choose to do so).
2. Add an additional seven figures to your retirement. If you properly execute your exit strategy, it’s likely that you can achieve a seven-figure practice sale. Whereas a personality practice might sell for 60% to 70% of one year’s gross earnings, a systems-based practice can be sold for two to five times one year’s gross earnings.
3. Help another chiropractor take advantage of all you’ve built so that he can build it even bigger! It’s a shame that many doctors spend their lives building a business that improves the lives of thousands of people, only to have the business disappear when the owner retires. It’s part of the reason that our profession does not continue to expand. Almost every generation of chiropractors is starting over again. So why not create a situation where everyone wins—both the buyer and seller of the practice as well as the profession and the community in which the practice is located.
4. Have the time to do something else. This could be any activity—income-related or just for your enjoyment! I have young children and love having the freedom
to arrange my schedule so that I can spend time with my family. Although I continue to work hard on the many businesses that I continue to create, I always do so in a manner that is in alignment with the other areas of my life.
How to Develop an Exit Strategy
Let’s face it, fewer than 1% of all chiropractors will enjoy the kind of benefits listed in the previous section. So, you can go about attempting to figure this out yourself, or you can hire a coach to help you understand, organize, and implement a plan. It’s up to you how you want to go about it. Whatever you do, though, I urge you to be professional in how you go about achieving your goals. By professional, I mean be dedicated and determined. Locate and study the material you need to know and apply in order to achieve your goals and waste no time in implementing your strategy.
Create your future and continue to create because tomorrow you will be living in it.
Eric Huntington, DC is the President of the Chiropractic Business Academy (CBA), a chiropractic training and consulting group which assists chiropractors to build stable, profitable practices by teaching time-tested, proven business systems. To learn more about the CBA visitwww.chirobizacademy.com You can contact the Chiropractic Business Academy at 888-989-0855.
