Planning for the Future:
Buying and Selling Your Practice
PRACTICE MANAGEMENT
By Raymond Foxworth, DC
Two years ago, I decided to sell my practice. Finally, it was time after 35 years. Thankfully, I started giving it a lot of thought years earlier and had a plan in place when the time came to move on. Not all my friends and colleagues have been as fortunate. Some were forced into retirement because of health issues, others through life changes, and some just woke up one day and said, “I’m done.” The most common method of selling a practice has been to hire an associate in hopes that one day he or she would purchase the business from you. So how do you successfully sell your practice?
According to my friend and consultant, Dr. Tom Necela, here are a few tips for a successful sale to an associate.
Establish the Practice Value from the Start
Unfortunately, many chiropractors are unaware of the value of their practice or even how to determine the value. Some use an oversimplified formula based on collections, but according to Tom, that is a mistake. He said,
“It is important to recognize that many factors can directly influence and contribute to the final value of a chiropractic business, not all of them being financial.”
He recommends a chiropractic practice valuation within three years of selling your practice. (Necela, How Much is a Chiropractic Practice Worth? Thoughts on Properly Establishing a Value for Your Chiropractic Business, n.d.)
Lock in the Purchase Price
Once you’ve established a baseline that your practice is worth, you should either lock in the purchase price or set a fair formula for how you will value the practice in the future. If you have untapped potential in your practice, your associate will be able to thrive, and revenues can increase by 15 to 25% or more per year in the first few years of your relationship. If you have established a baseline value ahead of time and have locked in the practice price, your associate will work as hard as possible to “buy into a bargain.” (Necela, Selling to a Chiropractic Associate? Best Practices for Buy-In and Buy-Outs, n.d.)
Financing the Purchase
You have obtained the value of your practice and agreed on the price. Now, it’s time for your associate to secure financing. For recent graduates, their primary concern will be the amount of their student loans. Of course, student loans may impact how much your associate can borrow, but as Tom points out, purchasing a chiropractic office is a revenue-producing asset, which is different from borrowing money for something that decreases in value over time. Additionally, he works with lenders around the country eager to finance clinic purchases because they have discovered that chiropractic offices are less likely to fail than other small businesses. (Necela, Facts About Buying a Chiropractic Practice: So Fears Don’t Cloud Your Decision Making, n.d.)
“Many chiropractors are unaware of the value of the practice or even how to determine the value. Your license to practice is not a right but a privilege.”
Finalize the Agreement in Writing
I want to be surprised by the number of chiropractors who decide to sell a practice verbally with no written agreement, but I am not. According to Tom, it is one of the biggest mistakes chiropractors make when selling their practices to a colleague or associate. A contract eliminates any misunderstandings that could derail your practice sale. It also shows that the purchaser is serious enough to buy your practice and does not postpone your retirement. Be sure to have a legal professional draft or at least review the contract to ensure that all conditions are included, and that the agreement is legally binding.
As business owners, we don’t hesitate to hire consultants and business coaches to help us build and grow a successful practice. However, few of us take the time to get a consultant to help us plan for the end of our careers as we transition to retirement. This will be the first and only time for many of us to sell our business, so how do we know what we don’t know? I am a huge fan of paying experts to help me navigate the unknown. In the end, it saves me time and money. I can’t think of a better time to employ expert help.
On the flip side, how do you know a practice is the right one to purchase, or if you are even ready to make the leap to practice ownership? Refrain from letting the excitement of getting into practice lead you to make decisions you may regret later. Carefully review associate agreements, building and equipment leases, and provider agreements. Before you sign anything or join an existing practice, use your head, and seek wise counsel from trusted colleagues and legal counsel. Never take someone’s word for what you should and should not do, or can and cannot do, when running your practice, or what is acceptable when operating a practice. This is not meant to be harsh toward those with good intentions who offer advice to help you succeed, but it is intended to encourage you to protect your license to practice.
Despite the years and thousands of hours devoted to completing chiropractic college and, for some, hundreds of thousands of dollars spent, remember your license to practice is not a right but a privilege. Like any privilege, it can be taken away. Your license is extremely valuable and should be treated as such. Do not jeopardize your license by engaging in or participating in poor business practices or joining a practice that can clearly put you at risk. Violating rules and regulations from your board of examiners is bad enough, but the risks do not stop there.
Make sure your new practice complies with all levels, from your state board of chiropractic examiners or other licensing boards to the department of insurance for your state. Also, consider the rules and regulations from your provider agreements, state and federal anti-kickback statutes, the Centers for Medicare and Medicaid (CMS/ Medicare), and the Office of Inspector General (OIG). While this may seem overwhelming, it really is easy to accomplish with the proper guidance.
Suppose you have decided to join an existing practice with plans to purchase or take over ownership in the future, even the family practice. In that case, there are things to consider and respectfully ask about before signing on. Yes, it is okay to ask questions of mom and dad or other family members. As a second-generation chiropractor who did, I can tell you it may not be easy, but you have a right and an obligation to know some critical things about the practice. Keep the following in mind:
• Is there more than one fee schedule? If so, why? And is it legal? In some states, charging more to insurance patients than you do for cash patients is considered a “dual-fee schedule” and could be illegal. Ideally, there should be one fee schedule. One of the safest policies is only to offer discounts when they are part of a written financial policy, which could include contractual or network discounts, mandated fees such as those established by Medicare, or when there is a documented financial hardship. Other legal discounts could consist of a defensible time-of-service or prompt-payment discounts, but only if permitted in your state.
• Does the clinic upcode or downcode based on the type of insurance coverage? For example, do they bill a higher level of evaluation and management code for PI or workers’ compensation cases and a low-level code for cash patients?
• Are deductibles or copayments being waived? Again, that is a violation of rules and regulations and most provider agreements unless a genuine financial hardship is established by the clinic.
• Is there a written financial policy that is covered with patients? Many complaints to boards of examiners seem to be triggered by a poor financial policy, easily eliminated by a written policy.
• Does the clinic have a compliance plan to minimize the potential for fraud and abuse and ensure compliance with all layers of regulations? Many steps can be taken to reduce the potential for audits and mitigate potential fines and penalties.
• Has the practice ever been audited? If so, what was the outcome? Today, it is not a matter of if you will be audited but when. Remember, just because there has been an audit does not mean someone did something wrong. It could just be their number came up.
When it comes to the decision to buy or sell a practice, there are several things to consider. No matter where you are in your chiropractic career, these are two of the biggest decisions that you will ever make. How you make them will not only affect your quality of life, but also your family and your practice team members. Don’t let the list of overwhelming decisions and concerns of either decision keep you from moving forward. Embrace the process, ask for help, and celebrate as you transition into this new stage of your life.
Dr. Ray Foxworth is a certified Medical Compliance Specialist and President of ChiroHealth USA . A practicing Chiropractor, he remains "in the trenches" facing challenges with billing, coding, documentation and compliance. Fie has served as president of the Chiropractic Association, former Staff Chiropractor at Mississippi Chiropractic Association, former Staff Chiropractor at the G.V. Sonny Montgomery VA Medical Center, and is a Fellow of the International College of Chiropractic. To request a free one page financial policy, send an email to [email protected].
References
1. Necela, T. (n.d.). Facts About Buying a Chiropractic Practice - So Fears Don t Cloud Your Decision Making! Retrieved from Strategic Chiropractor: https://strategicdc.com/facts-...
2. Necela, T. (n.d.). Flow Much is a Chiropractic Practice Worth? Thoughts on Properly Establishing a Value for Your Chiropractic Business. Retrieved from The Strategic Chiropractor: https://strategicdc.com/howmuc...
3. Necela, T. (n.d.). How Much is a Chiropractic Practice Worth? Thoughts on Properly Establishing a Value for Your Chiropractic Business. Retrieved from Strategic Chiropractor: https://strategicdc.com/how-mu...
4. Necela, T. (n.d.). Selling to a Chiropractic Associate? Best Practices for Buy-In and Buy-Outs. Retrieved from Strategic Chiropractor: https://strategicdc.com/sellin...
