Empowering Women in Chiropractic -Top Deal Killers in Healthcare Practice Sales - Part 2

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Welcome back to part two of Top Deal Killers in Healthcare Practice Sales. I'd like to thank ChiroSecure for allowing me to spend a few minutes with you hosting these events and sharing what I feel is some pretty important information that every practice owner should know. I am Dr. Randi Ross, CEO of Premier Practice Consultants.

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All right. Let's move on to our next top deal killer, and that is lease mistakes. This is such a huge element that most people don't really either negotiate, know this when they're negotiating their current lease or don't realize that there are certain things in there that can come and give you a big bite in the buttocks.

So understanding exactly the term of your lease, first of all, in other words, what's the term you're signing or does it-- are there options? How many options? And are those, are the prices actually spelled out within the option? Sometimes it just says option, which really means you have to go back and renegotiate One of the biggest things to understand about your lease is what is the ability to transfer that?

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So almost every lease will have the ability to transfer with a whole bunch of buts. So one of the buts is the landlord still has the discretion to review the finances and the strength of the person coming in to acquire your practice, or are they gonna be a good tenant? So they still have to jump through the hoops of whatever financial documents they are going to require.

So understanding that's in there. Here's the biggest thing that most people miss because they don't read it. Often when you are in the middle of a lease term, let's just say you have a five-year lease with a five-year option and you're starting year three and we're selling your clinic. Okay. Yeah, your lease can be assumed, but do you know that the-- whatever remains on the lease at closing, so let's say by the time we close it, you have two and a half years left.

You are a backup guarantor on that lease, and in most cases these days, especially if you're in any kind of larger facility that's managed by a real estate management group you're gonna be a backup guarantor in there. That means if I bought your clinic, right? You have two and a half years left.

Let's just say at year, two, I stop paying the rent 'cause I'm not doing well, they're coming after you for that rent. And if you most likely personally guaranteed it. If you have a spouse, that spouse might have signed to personally guarantee that as well. I will tell you 99.9% of the time, there's no way to get you off of that.

It just that's their backup, that's their protection, so they wanna make sure that they're getting their lease payments. Being aware of it is important. It doesn't mean it's gonna go away. I just don't want it to be a surprise for you we're seeing this more and more. The only place it really doesn't exist in very kind of smaller l- either independent buildings or co- small kind of strip malls where it's owned by a family or something.

We're even starting to see it there. So you have to be prepared to understand that you are the backup guarantor on that lease. Now, there are things that attorneys can do to draft another type of document that in the event I didn't pay the lease as the new owner and they're coming after you, that then you have recourse to come back after me.

Nobody wants to fall into a legal situation, but again, it's just a bunch of CYA. So being aware of that is really important, knowing your lease, understanding your lease. If you're month to month and you no longer have a current lease, you want to make sure that you have somewhere along the way had a conversation with the landlord and said, "Hey, if I need a lease, can I get a lease?"

Depending upon your relationship, you may or may not want them to know when you get to the point that you're gonna sell your business, because obviously no one's gonna buy your practice without a lease in place. In other words, month to month probably came over time when one of your... When your lease expired and you just continued to be like on a handshake agreement.

So understanding your lease, knowing the particulars in there are really important. Having it available as part of that package of, w- even though we talked about it as financial information, is just as important. Anyone's gonna wanna see that lease The next thing is really important, and this is unrealistic sale pricing expectations.

Pretty much anybody viewing this is gonna say their business is worth more than it is. I'm gonna say it's very rare when I get someone that's realistic. Happens now and then, but it's pretty rare. We all think what we have is worth more than it is, and some of that is because we have a more of an emotional attachment to it.

We've-- for many people, we've birthed it, we've grown it, we created something that's pretty spectacular for the community, providing service. We love our patients, they love us, and all those things are very emotional. Emotions don't have a monetary value, and a buyer coming in to buy your clinic has no emotional attachment to your clinic whatsoever.

They're not there yet, you're there, they're not there. So I will say most people have anywhere from a 20% to 30% excessive expectation of what the value of their clinic is. The other thing to remember, people ask me this all the time, what is the value based on? Different things will be of value to people, but on a real simple kind of math level it can either be a percentage of a three-year average.

But remember, if your three-year average is declining, that might not apply. In other words, if you have a declining practice, for the most part, people might only look at the last complete year and then wherever you are in the year that you're in. So that's important to understand. The other thing that it really comes down to is essentially most people don't care how much money you make, they wanna care how much money you keep.

So I always use it as example, I could have, two clinics that we represent that both gross $500,000 a year, and one puts $300,000 in their pocket and one puts $100,000 a year in their pocket. Figure it out, which one's gonna be worth more, on the open market? So it's not just gross.

That's where I tell people to really continue to analyze your overhead and your expenses. I'm not saying you eliminate things that are driving business into the practice, but you should really take a look at what's working, what's not working. Always where you can trim the fat, because at the end of the day, it's all about cash flow, and that's what a bank's looking for.

A bank is looking for cash flow. So really making sure that you understanding where this price comes from is gonna save you a little bit of kind of that shock of when I tell you what your clinic is really worth on the open market. Or sometimes even the way I price it Buyers have different ideas. The old saying, "Something's only worth what someone's willing to pay for it."

So you have to be realistic. And if you're very unrealistic, then you're just wasting your time, and that's when we go to represent someone, I say you have two different paths here. Do you wanna list your practice or do you wanna sell it? It's two very different things." So unrealistic value expectations are something that you need to go into this managing.

Most likely, you will not get what you think it's worth. So that's often a tough conversation, so that's important to know. Another I'll call it like a deal killer is sometimes buyers can't get financing for a multitude of reasons. It could be on their side, maybe their credit score is not high enough, or maybe they don't have enough of a down payment to satisfy a bank, or maybe they're younger docs out of school and they have $400,000 worth of student loans and car payments.

They just don't have the financial strength or the ability to do that. And as I mentioned earlier, it can often be your business that is the pitfall for owner-- for b- for bank financing. That there isn't, as we just said, we talked about cash flow is really, cash is king, as they say.

If your business doesn't ch- hasn't strong enough cash flow, that's a kind of tough pill for a bank to swallow because they-- A bank has to make sure for a buyer that there's enough money where everything that needs to be paid currently is being paid to run the business, right? They have to be able to service the note to the bank, 'cause that's really what a bank cares about, am I gonna get paid?

And then they still have to make a living. If there's $25,000 left for a new owner, bank's not gonna fund that. So there, there's often many reasons why deals don't work. We do our best to vet people long before it gets to a process of a bank to understand who's a strong enough buyer to meet those criteria.

The other thing we do is we collect all the finances on a business we represent and show it to a banker beforehand to make sure what are the strengths and weaknesses of this business if I came to you with a buyer to buy it. So that's often very helpful, to understand. And one of the last things that people just don't understand, and it's often I heard this," or, "Someone told me this," and they're just, listening to a whole bunch of different people in their ear that think they know what they're doing or what they're talking about, and they often don't.

And that's improper or failure to plan for a transition of an acquisition into a practice. And most people don't understand that there is a process to properly transition or what I call hand the patients off to the incoming doctor. And there's no reason why that's not done successfully when everyone is given the proper skills scripting often and some other strategies that we share with people.

Everybody just thinks, "Oh, you're gonna lose 30% to 50% of a practice." I can tell you, if someone buys your clinic or if you're a potential buyer watching this, if you lose 30% to 50% of the patients that are currently there, you did not do a proper transition plan or you as the new owner have not taken the time to properly connect with those patients to give them that comfort zone and give them a reason to stay there.

Tho- those are the things that, fall through, and even then, it, it-- you should not lose that percentage of a- any kind of transition. Remember, whoever the exiting doctor isn't gonna be there anymore. They can't go to that doctor. They have to change chiropractors. So what are they gonna do?

They're gonna take their file and go somewhere where they don't know anyone. At least where they are now, there's familiarity. Hopefully, there's continuity of the staff in the office. And again, a proper handover of active patients is something that is strategically done when you know how to do it.

Like anything else, there's a wrong and there's a right way to do things in life, and hopefully, you work with someone like us or someone that can give you those very specific skills and strategies to be successful. I'm Dr. Randi Ross of Premier Practice Consultants. If you wanna know more about the services we offer, even if you just wanna chat about something that came up and you have some questions, go ahead and visit our website, premierpracticeconsultants.com.

You can find us on Facebook. You can pretty much find us on any social platform. Reach out. Happy to spend some time with you. I'd like to thank ChiroSecure for always giving me the opportunity to share some information with you that a lot of people are either a little misinformed or just really have never thought of how important these elements are.

So thank you again to ChiroSecure for letting me be here.

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