The question we often get from potential practice buyers is “Where is a good spot to own a practice?”  There are a lot of factors that contribute to answering that question. But first, let’s discuss the reasons why you want to own a practice.

If you are in it because you love being a chiropractor and love helping patients and you are not necessarily in it to make the big bucks, you can really own a practice almost anywhere.  A lot of buyers seem to want the downtown metropolitan practice thinking it’s a great place to practice since there are so many potential clients and you can live the urban lifestyle.  I’ve helped doctors who absolutely wanted to be in a metropolitan area, even though the demographics made no sense whatsoever, who then started a practice and did quite well.  One doctor that I helped always dreamed of owning a practice in a particular city.  He went for it and is successful.  And I have seen others want a practice in a certain area, and although the numbers didn’t make sense, they did it anyway and were successful.

Some of you are buying a practice because you want to make a lot of money, in which case, further analysis and discussion is needed.  If you’re buying an existing practice and you have identified that the practice already has good cash flow, you can purchase the practice and have success almost no matter where it is. If it’s a poor performing practice, you would need to examine if the poor performance is because of the location, the management, or something else.  If you want to buy an existing practice and are looking for an opportunity to grow and have lower overhead, I would suggest looking outside of the metropolitan areas.  Practices outside of metropolitan areas have less competition, wages and rents are lower, and it’s easier to grow those practices.  And if you are considering doing a startup practice, the same rules apply.  Look for a location with good demographics outside of metropolitan areas.  Of course, if you absolutely want to be in a metropolitan area, don’t be afraid to go for it.  Just look closely at the numbers and hire a good chiropractic practice or real estate broker to help you out. 

I do recommend that you 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 services per person within a zip code and other more granular items.  Or, Omni has information that we can provide.

One of the advantages of working with Omni is that we have both chiropractic practice brokers and real estate brokers to help you traverse the ownership trail in any way we can.  Just give us a call at 877-866-6053 or email us at [email protected] and we’ll be happy to help get you started.

​Ah, the big question! The shortest period I have had from start to finish for selling a practice was 4 months, and a year can be normal. I have had several that take more than a year. There are multiple issues that can impact the timeliness of finding a buyer and closing the transaction.
Unique locations or settings can cause a practice to take longer to sell because of a limited buyer pool. Not every chiropractor and their family want to live in an isolated area, on the coast, or in the mountains. You may have a great practice but finding the right fit for your area can sometimes be challenging.
Buyers want profitable practices. It’s common to look at production only and feel like you have an easy practice to sell, but it requires more than high production. Collections and expenses are king. Buyers look for 50-65% overhead. Your broker/transition specialist will work with you to determine any expenses that can be adjusted back as income. For example, children that are paid through the practice but do not truly work in the practice, or high continuing education or car expenses.
Using non-chiropractor specific advisors such as attorneys, banks and lenders has been a disaster in my experience. Many of us have friends and family who are advisors. But if they do not know the chiropractic world, you get inadequate information and documents and it takes much longer, which means more expensive. Your broker/transition specialist will help ensure that your advisors have all the necessary information and that they stay on track.
To put a value on your practice, and potentially the associated real estate, we must have accurate and timely information. We provide a list of information needed and we assist you in making this process as easy as possible. Potential buyers cannot decide to purchase and lenders cannot decide to finance without all the appropriate reports and documents.
If you are leasing your space, be sure to pull out your lease agreement and review it. Poorly written leases can cause delays. Financing for the buyer requires a transferrable and solid lease for the life of the loan.
The average practice has about $800,000 in annual collections, so if your practice is a lot smaller or larger, it may take more time to find the right buyer. For larger practices, we may need to look at experienced chiropractors or groups with multiple locations. If your collections are lower, we push “great growth opportunity”.
Specialty practices can take a bit longer to sell because there are more general chiropractors, so the buyer pool is smaller. We may want to advertise in a more general respect regarding location so that your sale remains confidential, and we may have to weed out a few buyers after they sign a non-disclosure agreement to determine if the exact location works or does not work for their needs.
We see more and more chiropractors relocating, so your buyer may be coming from another state or area, and more time may be necessary to get the buyer in town to see your practice and to sell their current practice and home.
Chiropractors are people too, so sometimes you just never know buyers’ issues or concerns. But never fear, we are here to assist you in finding the right buyer and move the process forward, but be patient!

Now is the time to invest in yourself and increase your income! Yes, COVID changed our lives and yes, loan rates are a little higher, but if you surround yourself with trusted advisors, you can do it. Start making more money and driving your own ship today.

Transition specialists/brokers are here to help you understand everything about the practice, such as areas of opportunity to grow and to increase collections. If many services are referred out that you may do, what does that increase look like? For example, if the selling chiropractor does no specialty services and you do, we can potentially research the number of referrals and put an average patient fee to it and determine an immediate possible increase in collections.

Loan rates are a little higher, but that little amount is nothing in the life of your career. You may also be able to refinance at some point and your CPA can assist you to take advantage of current tax deductions and accelerated depreciation if it makes sense in your specific situation. Reducing taxes is money in your pocket. As an example, ask your CPA about sections 168, 179, Special Depreciation, and DPAD. Perhaps it is time to incorporate a retirement plan into your office, again, if it makes sense in your situation.
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Start talking with us and we can provide contacts for chiropractic specific lending, CPAs, and attorneys to help you move forward with your career plans.

By Steve Kikikis, Vice President, Commercial Real Estate Broker

Money Pit or Cash Cow?

On occasion when a doctor purchases a practice there is also an option to purchase the real estate.  Historically, real estate has been a good investment over time, but owning a commercial building has its own nuances. 

There are a lot of similarities between owning a commercial building and a residential house.  As the building owner or homeowner, you are responsible for paying the insurance, maintenance, and property taxes.  Be sure to understand what your out-of-pocket costs are before you take on the responsibility of purchasing a property.  Investing in a building or home inspection conducted by a reputable building inspector is always worth it.

Before you purchase a commercial building, know your demographics, and do your research.  If a building is a steal, make sure you do some research to find out why.  A commercial real estate broker that specializes in your industry can assist you in looking at the demographic information to fully understand the value of the real estate.

After you’ve purchased the practice, you are now the king of your castle and if you are business savvy, you can make a profit from owning your building.  Having some knowledge of what to expect and what the pitfalls are of owning a building can save a lot of headaches down the road.  For this article, we will consider that you are the owner and sole tenant of your building. 

Maintenance – You’re now responsible for everything from the leaky roof, sweeping the parking lot, HVAC systems, lighting, ADA compliance, security systems, plumbing, and possibly the water and sewer mains underneath the property.   The best advice is to adhere to a schedule with regular and preventive maintenance.  Don’t skimp on issues that may seem small but that can turn into a bigger safety issue (both expensive and potential lawsuit if hazardous) in the long run.

A lot of potential challenges are dependent on the age of the building and how the previous owner took care of the property.  You can hire a property manager to be the point of contact so you’re not distracted and can concentrate on your work.  Some owners like to be involved in every decision, while others don’t want the hassle of being contacted for leaky pipes, clogged toilets, etc.   

Insurance – a commercial building policy will differ from a residential homeowner’s policy on your home.  A commercial policy will also have coverage for the business operations, its products, and operations liability.  Much like homeowner’s insurance, the age and construction type of the commercial property will determine the premiums.  Commercial insurance is also based on the neighborhood where the building is located.

Although chances are slim, some policies cover loss of income in the event of a fire or other loss of the building.  These are usually additional policies that can provide peace of mind. 

City ordinances – Although you may own the building, ownership doesn’t necessarily mean you can do anything you want.   An example is a new building owner who wanted to utilize a specific size of a sign for his business, but the city ordinances stated a sign can be no bigger than 30 square feet.  Be sure to reach out to the city before you decide to change or update the signage on your building and also verify if there are any restrictions for the exterior of your building such as signage, color, material, etc.

Taxes – There are two points on the taxes. First, for the building taxes, make sure your ownership is properly transferred to you during the purchase, and make sure that you keep up-to-date on your taxes. Set up an account directly within the municipality you are located or make sure your loan program is paying it directly. For your business taxes, owning your own commercial real estate has many tax advantages. Connect with your CPA, make sure you’re paying your real estate entity as a business expense, and more.

Money Pit or Cash Cow? There will be costs to owning your own commercial real estate, but taking the proper steps and working with an experienced commercial real estate broker that specializes in medical/dental purchases will save you time and a lot of money. Just think, if you are leasing a space, after 10 years you will be signing up for paying the landlord another 5 years of income. If you own, after 10 years, you will be working towards paying that building off and have the equity in the building.

Partnerships can be great or not-so-great. They can include different scenarios: buying a partnership, adding a partner to your existing practice, or a start-up partnership. To ensure you have the best outcome, financially and emotionally, you’ll need to consider some important questions.
 

• Are you friends, relatives, or colleagues with the people whom you are considering entering into a partnership with? Are you convinced you can get along in a work environment?
• How will you resolve disagreements and make decisions regarding advertising, patient care, team management, and acquiring new equipment and technology?
• How will you divide up responsibilities within the practice?
• Is there enough physical space for more than one chiropractor? Are there enough patients?
• How will you divide up new patients and exams?
• How are you going to determine compensation, such as 30% of individual collections, then 50% split on all additional income and costs? If one of you performs procedures with much higher lab bills, you may need to consider a lab payment option. These items will need to be written up by your attorney as part of your partnership documents.
• Do your legal documents include specifics on terminating the partnership? You will need to address details regarding non-compete agreements, disability or death, and how to sell a practice when one or both partners are ready.
• Do you know a good CPA who specializes in chiropractic practices and can assist you with setting up the entity or entities that make the most sense?

 
There are many items to consider to ensure that you make the right decision, but we can help make the process go smoothly with the best outcome for all parties. We have guided many chiropractors through purchasing and selling practices, partnerships, multiple locations, and every size and type of practice. We have the experience and the expertise to help you achieve your goals.

There are many steps to selling your practice and your trusted advisors are here to help. Right now, I want to address just a few items that many chiropractors don't think about and that can lead to surprises.
Contact your CPA and/or Financial Planner regarding the following items:

1. Are you financially prepared to retire? Your transition specialist (broker) can assist you in determining the potential price of your practice and your real estate (if any).
2. Depending on your entity structure and past depreciation, what taxes will you owe?
3. Depending on your state, what taxes will you owe?
4. If you have any debt against your practice or real estate the debt will be paid at closing from your sales proceeds.
5. What will you do with the final funds? Do you have a retirement plan to maximize or does a 1031 exchange on the real estate make sense for you?

Again, there are many steps to selling your practice, but please address the above items to help reduce surprises.

You’ve made the decision to sell your practice, and with that comes the to-do list of tasks that can often feel daunting. One important task that is often overlooked is settling patient credit balances. 

What are credit balances and where do they come from?

In many cases, a patient will have a credit on their account when their insurance pays more toward their treatment than anticipated or you estimated a patient portion to be higher than was necessary and collected accordingly.  In these instances, patients paid more out of pocket than necessary; therefore, the difference will show as a credit on their account and on your accounts receivable report or unassigned credit report.  Credit balances can also result from patients mailing in a payment or making an online payment on a balance that they have already paid.  These are duplicate payments typically made in error.  When this happens, we recommend contacting the patients and advising them of the duplicate payment before posting it to their accounts.  Many patients will request that you return their duplicate payment to them and some will elect to leave the credit on their account if they have upcoming treatment planned.  If they have upcoming treatment planned, this can be an effective way to get them on the schedule. It can be difficult to reverse an online payment and, in those instances, you may have to post it to the patient’s account.  In other cases, patients may pay upfront for larger treatment plans and due to unanticipated circumstances, they were not able to complete their full treatment or perhaps less treatment became necessary.  If you have a practice where patients with insurance are required to pay their patient portion due at the time of scheduling their appointment for treatment, then credit balances will appear on the patient account until the procedures are posted and until insurance has paid their portion, this is just the normal course of collecting patient portions upfront.  The same applies for patients without insurance if you collect the patient portion upfront.

How should I be handling credit balances?

To keep your credit balances at a minimum I would suggest you come up with an efficient protocol with whoever is in charge of your accounts receivable, whether it be your office manager, bookkeeper, or yourself.  Credit balances are typically handled by an office manager.  It is our recommendation that your accounts receivable report or unassigned credit report be reviewed monthly.  If there are outstanding claims on an account, no refund is due yet.  If there is a credit balance and there are no outstanding claims, we recommend contacting each patient and advising them of the credit balance.   And again, if they have been treatment planned for procedures ask each patient if they would like to keep the credit balance on their account and get them on the schedule for treatment.  If they have no upcoming treatment, it is typically best practice to refund the patient as soon as possible to keep your accounts clean.  Make sure to document these conversations about credit balances in patient notes.  This will serve you well in the long run when reviewing your reports each month for credit balances.  Some practices choose to monitor patient credit balances quarterly; however, if you are preparing to sell your practice, we recommend that you do this monthly.  You’d be surprised how quickly credit balances add up and how often they are overlooked.
 
One important note of caution!  When reviewing the credit balances on patient accounts, do not assume that the refund always goes to the patient!  You want to look back to the last zero balance on each account and look at patient payments made and insurance payments made.  Insurance companies make mistakes and sometimes they overpay and sometimes they make a duplicate payment on a claim.  In these instances, the refund is due to the insurance company and not to the patient.  Some insurance companies catch these errors quickly and request a refund in writing.  Others do not catch them so quickly and they have up to a year to claim their refund (this may vary from state to state).  Pay attention to this detail when reviewing accounts.  Remember to make notes in patient account notes so you don’t have to repeat your efforts every month.

I have not been settling patient credits on a regular basis, I have thousands of dollars in credits now what?

Follow the detailed recommendations above and get your accounts with credit balances cleaned up.  It is essential to do this leg work prior to the sale of your practice.  Make every effort to contact your patients to refund any monies due to them.  If the refunds are due to insurance company overpayments, contact them and ask that they send a request for refund letter.  If you are unable to reach patients with credit balances due to them, these credit balances in many states, must be reported to the state in which your practice is located.  For example, in the state of Washington credit balances over a certain dollar amount must be documented on an “Unclaimed Property Report” and filed with the state before November 1st each year.  Do some research and find out what your state’s unclaimed property reporting requirements are.

*Disclaimer: The information above is not legal advice. Each state has its own rules and regulations. Be sure to review all rules and regulations as circumstances may vary.