While we work with many types of small business owners, chiropractors are our favorites. However, as we have worked with them, we have discovered that, like many other small business owners, doctors face the problem of properly evaluating their business. In fact, they tend to regularly value their practices at far less than they are truly worth.
When asked how much their practices are worth, we generally receive answers such as, “I’m not sure,” or “I’m guessing, but I’d estimate it to be $500,000,” or “I’m grossing X dollars per year, but I don’t know what my practice is worth.”
Conversely, these same individuals will know within a small margin of error what the value of their homes or investment portfolios are. However, for almost all of these individuals, their greatest assets are their practices.
For example, our firm recently began working with a successful doctor from the Northeast. He had come to us to prepare him for retirement. This DC had everything he thought he needed for a complete retirement plan analysis: retirement account statements, outside investment account statements, real estate assets, and insurance information. After reviewing his information, we found that he failed to include the one asset that paid for the children’s college educations, his house, his vacations, and the lifestyle to which he and his family had become accustomed, as well as, and most importantly, the asset that would provide income for his retirement years: his practice!
While his practice was grossing more than $1,000,000, he was willing to simply “walk out the door,” close up shop, and let those patients filter to other doctors in his area. Essentially, based on a fair valuation of his practice, he was willing to give up more than $500,000 from the potential sale of his practice. He had never seriously considered selling the business prior to our conversation. That led him to perhaps a greater realization: What if he had thought of selling the practice five years prior to retirement and had done the things necessary to enhance the value of the business to a future buyer? What impact could that have on the income he would enjoy during his retirement years?
Dr. Bob Hoffman, President and CEO of The Masters Circle, states: “A good exit strategy is to have your practice systematized so that anyone can take it over”. It should be transitioned from a personality-based practice into a systems-based practice. The doctor should have a training manual written for all aspects of the practice, including both procedure and financial information. He/She should do whatever possible to grow and expand the practice—before selling it—to raise the price or worth of the practice. The true selling point is a practice that is turnkey and, in the transition, can maximize the percentage of patients that shift from the selling doctor to the buying doctor.”
We also recommend that you implement a business structure that includes key man insurance, buy/sell agreements (as appropriate), and retirement plans. We also recommend that you have your practice professionally evaluated on a regular basis for both your overall financial planning and for the future sale of your practice. With that valuation, it is critical for you to get good advice regarding the value drivers that increase the price you will ultimately receive for all of the time you have spent building your practice. You’ll need a team of consultants to achieve the greatest returns on your business: a certified financial planning firm, a practice management consultant, a CPA, and an attorney.
Don’t wait. Get your team started to value your practice now. It could mean the difference between a good retirement and a great one!
Matt Boyce is a shareholder and Chief Financial Officer of American Financial Advisors, Inc. He graduated from Florida Southern College (Lakeland, FL) in 1995 with a bachelor’s degree in accounting, and earned the prestigious Certified Financial Planner (CFPTM) designation in 2001 from the College for Financial Planning. He may be contacted by email at [email protected] or call 1-888-679-9779.