What defines entrepreneurial energy? According to David Lyons PhD,

“Entrepreneurial energy is the force that sustains the momentum and velocity of progression in the venture. Energy can rise through excitation/agitation and fall through decay of the energy as a result of predicaments or failures.
Entrepreneurial energy is an endogenous force that fuels motivation and sustains entrepreneurial action and momentum. Encapsulating hope, optimism and obsessiveness, the nature and experience of the entrepreneurial energy provides meaning to the entrepreneurial pursuit and venture. Entrepreneurial energy is a motivational construct characterized by positive intense feeling, emotional arousal and internal drive and engagement in the pursuit that is salient to the self-identify of the entrepreneur. The positive affective state also generates positivity in the cognitive state fostering creativity and recognition of new patterns of information critical to opportunity recognition and exploitation in the external environment.
Entrepreneurship, after all, is a science of turbulence and change, not continuity. Turbulence is caused by certain force. Such is the force in entrepreneurship, like the wind is felt but not seen; or seen through the ruffle of the leaves but not the wind itself.”

Most of you reading this article can relate to those attributes, especially early in your career.  Remember talking to your friends in chiropractic school and making plans for your practice? Remember the excitement of updating your new practice? Remember the hours put in behind the scenes to get the practice where you wanted it?

Do you still have that energy in you? If you do, this is a great time to be a chiropractor entrepreneur. Consolidation is happening and it will favor the big and the bold.

What if you don’t? That is okay also, but the time to consider harvesting your practice asset is now.
In my exit-planning training, coaching our clients to either grow or sell their businesses was absolutely paramount. Stasis really is an illusion. Equipment gets older. Technology becomes dated. Marketing plans become obsolete. Business values decline.

So ask yourself, grow or sell?

As you get nearer and nearer to retirement and are preparing to sell your chiropractic practice, there is something you need to ponder that many doctors do not think about.  That is the emotions you will go through during and after you sell your practice.
Selling space or even charts is easy.  It’s just an object that you are giving to another doctor to own.  But, I’ve had many doctors who realize their life will be different going forward after their transition.  They may have staff they have worked with for 25 years or more.  They have seen patients grow from being a child to being a parent and some even become grandparents.  Now their children and grandchildren are patients of the office.  You have vendors and your CPA that you have gotten to know personally and confide in.  Staff, patients and the vendors have all become family and you will not be seeing them as often as you have in the past. 
You will also be changing your life in that you no longer are the owner, manager and decision maker with people relying on you to lead them.  You may no longer have to wake up and go to work every day.  Believe it or not, you may even have “spare” time and have to find new hobbies, rekindle old ones or maybe even find take care of the honey-do list.
The good, if not great news, is that the staff, patients and vendors are thankful for the years of service you have provided them in addition to your friendship.  They want you to enjoy life and spend time with your real family – spouse, your parents, kids, and grandkids.  Preparing for this emotional aspect of your chiropractic practice sale will help make your practice transition into retired life a much smoother process.  

There are a number of things to look out for when buying a practice.  If you're not careful, you could end up with a bag of tricks.  Here are some of the top pitfalls to avoid when buying a chiropractic practice:
 
1. Not understanding the numbers. Be sure and know what normal chiropratic expenses are and what may be extraneous.

2.  Assume the staff are all on board and will be staying with the practice. Know who the staff is and what their relationship is with the seller, and how good they are...
 
3.  Embezzlement - hire an accountant to look for any irregularities. Statistics show there are a high number of practices that are embezzled by their employees each year. Are courtesy credits high?  How about patient refunds?   

4.  Does the procedures the selling doctor perform match the procedures that you do?   Make sure a large amount of the procedures you don't do are not currently being performed by the seller.  You don't want to have an immediate drop in production right from the start.

5. Understand the lease. How many years are there left on the lease? Are there more options to extend? Is there a loan form the landlord build into the lease? Which expenses are covered in the lease? Is it triple new or a gross lease?
 
These are only a few of the pitfalls to make sure you don't get tricked. Spend as much time in due diligence as you need and bring on experts to help you along the journey.  

-Rod Johnston, MBA. CMA

​You have had a great career and now you are thinking about selling and transitioning out of your Chiropractic practice. You would like to get the best value for your practice. Do you just walk away?  Being prepared can not only help you get the best price, it will help ensure a smooth transition. 
 
Here are a few things you can do to help prepare for your Chiropractic practice transition:

1. Know your financial situation - Meet with your financial advisor, CPA, or whoever gives you financial advice to get a good picture of where you are with your savings and investments.

2. Get a practice valuation - A practice valuation will help you see how much equity you have in your practice.  Additionally, a CPA can help you figure out what the taxes and net proceeds from your sale will be.

3. Update Technology - Buyer’s like to see new technology in a practice.

4. Cosmetic updates - Have you updated the interior with paint and carpet in the last 20 years?  If not, it’s time.  Buyers like a practice with a fresh feel to it.  A 1970’s feel was good in the 1970’s.

5. Review Accounts Receivable Aging - Collect any past due accounts, send to collections or write them off.  Also, review credits to either pay back to the patient or send unclaimed property to the State.

6. Review Staffing - Are you over or understaffed?  Adjust accordingly.

7. Clean up your financial statements - Make sure the expenses you’re running through your Chiropractic practice financial are related to your practice, or at least identifiable as an adjustment. 

8. Consider ramping up production - If you are not sure how, then hire a Chiropractic consultant.  Ramping up your practice when you’re 3 or more years out will pay dividends on the sales price.

9. Review your fees - Do you have the lowest fees in the area?  Consider a fee increase to catch up.

10. Harvest your Equity - Maybe you are a few years away from retirement, but tired of being an owner.  You should consider selling now, take the equity out of your Chiropractic practice and work back as a Chiropractic associate.
 

Whether you have owned your practice for 40 years, or owned it for 5 years, selling your chiropractic practice does not mean you are done practicing.  We often meet with doctors who are sick and tired of managing their staff, doing the bookkeeping, playing the games with the government agencies, dealing with the ups and downs of the economy, changing environment of the profession and on and on.  The doctors are about to crack, but think they cannot yet sell their practice as, according to their CPA or financial advisor, are not yet financially ready to retire.  We counter this by asking them "who said you need to retire?"  You can "harvest your equity" and either work back in the practice, or go work for another practice.  What the CPA's and financial advisors may not see is that your practice collections numbers are going down.  Or, your blood pressure is sky rocketing due to the above mentioned challenges of managing your practice to the point of a heart attack coming right around the corner.  If you have a good amount of equity in your practice, we can sell your chiropractic practice and you can put the cash in the bank and work as an employee until you are ready to retire in 5, 10, 20 years, or as long as your heart desires.  Transitioning out of your practice may be the way to enjoy your profession again.

​You've heard it before, the separation is in the preparation.  This is a quote that is typically heard in athletics, but can be applied to other endeavors as well, including buying or starting a new practice.  But, what do you prepare for before you jump into Chiropractic practice ownership.  Just ask any practice owner, there are a lot of things you can prepare for before you buy a Chiropractic practice.  Here are a few things that will help you separate yourself from the rest of the pack and allow you to hit the ground running when you become a practice owner:
 
1. Where Your Practice Matters - Know where you want to practice and the demographics of the area you are looking to practice. There are a lot of different websites and services you can look to in order to get this information. A lot of commercial brokers (Steve at Omni Healthcare Real Estate) will have data ranging from a breakdown of the age of the population, to ethnicity, income levels, how much money was spent on dog food per person, etc., There are several services such as Scott McDonald's that will help you gather data as well.
 
2.  Knowing You Market - Understand what the numbers and ratios of a typical Chiropractic practice should look like.  Your state or national association has resources that will show how much you should be spending on staff salaries and benefits as a percentage of total collections, as well as rent, marketing and other financial data as a percentage of collections.  
 
3.  Basic Accounting - Start educating yourself on basic accounting principles.  Specifically, learn how to read a financial statement - profit and loss report and balance sheet.  You will be given these by the Chiropractic broker when looking at a practice, so you should at least know what they are and what a financially viable practice looks like vs. a not so nice practice.
 
4.  Bank Financing - Contact a bank that specializes in Chiropractic practice financing before you start looking.  They cannot necessarily pre-approve you for a certain practice, but they can tell you whether you can get a loan, approximately what rate and terms you can get and possibly how much you may be able to qualify for.  You don't want to go after a $2 million practice if you cannot get a $2 million loan.
 
5.  Looking For Red Flags - Knowing where to find the skeletons in the practice is a key element in the process. Where do you look for embezzlement in the practice?   How about hidden staff incentives and payments?  Over or under treating patients?  Uncollected accounts receivable?  Etc.,
 
6.  Learn About Leases - What is a triple net lease?  What is the market rate for leases?  How much time is left on the lease?   What's a tear down clause?,etc.,
 
7.   Surround Yourself With a Good Team- Surround yourself with a good team; CPA, Broker, Attorney, Consultant, etc., Find those that specialize in your specific discipline.  They can help you avoid some of the pitfalls you may miss.
 
By preparing yourself ahead of time with some of these things, you can avoid having to spend more than you need to and find a practice that will bring you great professional challenges and rewards in the long run.

By Rod Johnston, MBA, CMA

We speak with hundreds of practice buyers each year.  Many are looking for that gem of a practice in their desired area; a practice with new or newer equipment, digital technology, great location, recently remodeled, etc.  Oftentimes, that practice either doesn’t exist; or if it does exist, it’s not for sale.  So what’s a buyer to do?

Omni is a rare breed in the practice broker world.  We not only provide practice transition and valuation services for chiropractors – both buyers and sellers – we are also experts in helping chiropractors with their real estate needs.  We are often asked in seminars, at conferences, or over the phone, “Should I buy an existing practice, or do a startup?”  I often suggest that chiropractors spend some time looking for a practice in their desired location.  If they can’t find one, they should consider starting a practice, especially if the doctor is 100% certain of the area in which they want to practice.

I recommend that chiropractors do a bit of demographic analysis on the locale.  See how many chiropractors are currently practicing in the area.  A good ratio is 2,000 daytime population for each doctor.  There is a difference between the daytime population and the regular population.  The daytime population includes the workforce.  For example, if you look at the population of South Lake Union during the day vs. the nighttime population, you would see a big difference.  Another demographic to pay attention to is the age of the population.  For a general practice, a good mix of young and old is best.  Homeownership is another good indicator of practice success.  You want to have more homeowners than apartment renters. You can obtain detailed demographics either through a company that will charge a fee and provides data such as the average annual dollar amount spent on chiropractic care per person within a zip code and other more granular items.  Or, Omni has information that we can provide.

If you perform the necessary research and find that opening a new practice in the area you like makes sense based on the numbers, we suggest that you go for it.  We have helped many chiropractors over the years do demographic research, find a space, and negotiate a lease.  Steve Kikikis is our go-to person for real estate leasing and sales.  You can reach out to Steve anytime by sending him an email at steve@omni-pg.com.     

Taxes are a fact of life, and an extremely important consideration when considering a chiropractic practice transition or sale. Let’s explore some potential tax mitigation strategies to consider.

Stock Sale. If you are incorporated, sale of the stock in your corporation to the chiropractic practice buyer can potentially yield you the greatest tax savings, because the sale of stock is almost exclusively taxed at the lower fixed capital gains rate as compared to the higher, tiered ordinary income rates. However, and this is a BIG however, stock is a non-depreciable asset to the buyer. As such, the chiropractic practice buyer is not able to write off the sales price and essentially ends up buying your practice with after-tax dollars. Consequently, a buyer is likely only to agree to buy your stock if you are willing to reduce your purchase price by 30 percent or more. For this reason (and many associated legal and liability complications), almost all chiropractic practices are sold as “asset sales.” In other words, the seller retains his/her corporation and all of its stock and instead sells all of the tangible and intangible assets of the corporation (i.e., the chiropractic practice). The buyer is then able to depreciate and amortize (write off) the entire purchase price.

Price Allocation. The IRS requires the total price of a chiropractic practice for sale to be allocated to the various types of assets being sold and that the allocation be made according to the fair market value of the assets. As a general rule, the tangible assets are taxed as ordinary income above basis, and the intangible assets are taxed as capital gains. (Above basis means the difference between what you are selling the tangible assets for and your book value or depreciated value.) Any consideration for a covenant not to compete will also be taxed as ordinary income. Since fair market value is somewhat subjective, there is some room for negotiating the overall allocation of the purchase price. As a chiropractic practice seller, you will save taxes if you can negotiate with a buyer for a lower allocation to tangible assets (equipment, furniture, fixtures, supplies, etc.) and a higher allocation to intangible assets (goodwill and patient records). (Unfortunately, it will benefit the chiropractic practice buyer to have just the opposite allocation, so consideration must be given to making the allocation fair to both parties.)

Carry back a note. Sellers frequently ask us, “Won’t I save on taxes if I self-finance part or all of the sales price (i.e., carry back a promissory note from the buyer)?” The answer is, “No, but maybe . . .” As mentioned above, the portion of the price in an asset sale that will be taxed as ordinary income will be due in the year of the sale. That recapture will be taxed regardless of the receipt of any actual cash at closing, which means you owe the ordinary income tax associated with the recapture even if you do not receive a cent at closing. Consequently, if you do not want to have to pay to sell your practice, it would be prudent to ask for enough of a cash down payment to cover the tax liability you will incur from the recapture. Since most of the remainder of the sales price will be taxed as capital gains and since the capital gain tax rate is a fixed rate, the same tax will be applied and the same tax amount owed whether you receive that portion of the price now or paid to you over time; unless . . . there is a change in the capital gains tax rate before the note you are carrying is paid off. If the rates go up, you would be taxed at that higher rate on that income as it comes in. Otherwise, self-financing a portion of the price serves only to defer capital gains tax, but it will not lower the total tax. (Also note that the interest portion of any promissory note payments will be taxed as ordinary income to the holder, while the principal portion subject to capital gains will be taxed at the capital gains rate.)

Sale Timing. As discussed above, the tax associated with recapture over basis on the sale of tangible assets will be determined by your ordinary income tax bracket in the year of the sale. If you are planning to retire after the sale of your practice and, consequently, will have a drop in your ordinary income level, it may behoove you to strategically time the sale of your practice until after the start of the next tax year. Also, if you have owned your chiropractic practice for less than one year, you should, if possible, wait at least one full year before selling it since the sale of goodwill within a year of ownership will result in the higher short-term capital gains rate being applied instead of the long-term capital gains rate.
“C” Corporation Consideration. If you are currently incorporated and being taxed as a regular “C” Corporation, the sale of goodwill by your corporation will likely be subject to double taxation, once as capital gains inside your corporation and then again as ordinary income when paid as a distribution to the shareholder(s). There is some case precedence that allows for the shareholder(s) of “C” Corporations in closely held and professional businesses to sell goodwill individually, outside of the corporation, thus avoiding that double taxation. If this applies to you, consult with your CPA and/or tax attorney regarding the details of such a tax strategy and its application to your particular situation.

1031 Exchanges. If you are selling a chiropractic practice now and are planning to buy another practice within six months, a 1031 or “Like Kind” Exchange may be a tax deferral strategy to consider. It allows you to defer the taxes associated with recapture over basis you would otherwise incur with the sale of your tangible assets. A 1031 Exchange has very specific and rigid requirements. Consult with your CPA and/or tax attorney regarding the details of such a tax strategy.
​
Charitable Remainder Trusts. Charitable Remainder Trusts are not subject to capital gains tax. As such, a seller may potentially eliminate capital gains tax on the sale of his goodwill by donating it to a qualified charity. The downside, obviously, is that the seller must donate the goodwill proceeds to that charity. This is another strategy where you would want to receive guidance from your CPA and/or tax attorney.

​Selling your practice can be a difficult decision to make for many reasons. Perhaps you aren’t ready to stop treating patients but want fewer headaches. Perhaps you don’t know where to start or how the process works. Start today by contacting us to provide you with years of experience to bring you comfort and understanding. Below are a few things to consider.
You can start by having us provide you with the potential value of your practice, without the cost of doing a full valuation. We can do the same for your property if you own it. These potential prices will assist you in working with your CPA and financial planner to determine what your retirement cash flow looks like. Be prepared to pay off any debt on the practice at the time of closing. Debt could be from recently purchased equipment or any loan you may have taken out against the practice. If you lease your space, please review your lease.
Start thinking about whether or not you want to continue working a bit. You may not be able to stay on at your office if there is not enough production for two providers. Perhaps you want to work at a chiropractic school or cover for your friends when they are on vacation or sick. These important issues will need to be included in the purchase and sale documents if anything is outside the standard non-complete.
If you have a family member working in a main position in your practice who will be retiring as well or leaving the practice, consider options. We can discuss if it makes sense to hire and train someone new and if the wages you pay family are inflated, we need to consider that in the expenses and adjust potential income to a new buyer. The family member may also be held to a non-solicitation agreement or the like.
Preparing to sell also includes us looking at your practice software reports and tax returns. If your reports don’t look accurate, they may need to be researched. If you refer out services, please start tracking this so we can provide a buyer with potential immediate increase in income if they can keep the services in-house.
Please look at your credit balances. Some chiropractors are surprised to see how high those balances are, and they will need to be addressed. It may be an error you can fix, such as unposted treatment or incorrect insurance adjustments. If it is truly a patient credit, get the patient in for an exam or any incomplete treatment. Any credit balances at closing will be directly reduced from the sale price.
If you have a lot of old accounts receivable, determine what needs to be written off, such as old accounts receivable that you know you cannot collect or family members that you don’t intend to charge. Accounts receivable are often purchased separate from the practice sale and aging amounts are reduced. If you allow monthly payments in your office and the patients are up to date on payments, you may decide to not sell these or negotiate for a higher price for this specific piece of accounts receivable.
Now may not be the time to get all new equipment if you are preparing to sell, but it may be time to shape up a few things. If you do not have digital x-rays and electronic charts, consider investigating the cost and process to determine if you want to take that on or not. We can discuss if painting or other minor aesthetic changes might make sense. Decluttering is always encouraged!
If you have a website, be sure to increase Google reviews. This is important to new young buyers.
Please do not tell patients and team members about potentially selling. We can discuss the timing of this for you and your specific situation.
If you are considering selling, let’s schedule a time to talk about the general process of selling your practice and how we are different in our approach to representing you and your best interests.