How Much Is My Practice Worth?

Unfortunately, not as much as you think.

A friend sold her practice for almost a million dollars and moved to a warmer climate. I think she lucked out.

"Who bought your clinic?”

“My associate. All cash, no financing.”

“No way! How?”

“Rich parents bought it for them.”

“Wow, you should start a coaching program.” An inside joke I make often.

My friend is a decent chiropractor, but between her and her associate, they see a couple hundred visits a week. As the owner, she takes home around $200K per year. Realistically, her practice wasn’t worth $1 million.

Value is always subjective, but this is too much. I wondered if she was taking advantage of her associate and their unique financial situation? If someone wanted to overpay for my practice, I might have sold too.

Selling a practice is tedious. Local competition will snoop, tire kickers will low-ball, NDA’s will be ignored, and you will likely deal with a lot of nonsense before the deal is done.

Also, most banks won’t finance the entire sale of your practice, outside of equipment, so unless the buyer has a lot of cash, you may have to finance part (or all) of the sale. This can lead to legal problems if the buyer stops paying.

I’ve sold three chiropractic practices, two of my own and one for a friend. Each time, I had the practices professionally valued by super-professional-not-cheesy-at-all practice broker.

What does a practice broker do? I’m not exactly sure, other than they seem to have a monopoly on the websites where chiropractors sell their clinics.

When you hire a broker, they'll value your practice using a magical formula from a 20-page document that YOU will fill out for them. Next, you pay them a couple of thousand dollars to list your practice on their site, and if it's sold, they'll draw up a form-letter purchase agreement, and take a small percentage of the sale for their “effort".

You might be thinking: Isn’t it better to get a proper financial evaluation to find out what my practice is worth? Yes and no. The value lies in the buyer's perception. Your evaluated price may not reflect the market.

Two identical practices, each valued at $200K, one in Santa Monica and the other in northern Saskatchewan, have different values for most buyers.

Once a practice is valued professionally, it's tough for a chiropractor to accept the much lower, TRUE value of their business, and they will often ignore good offers to sell because of it. It doesn’t have to be so complicated.

Valuing a chiropractic office is no different than valuing any service business without inventory. It's not the traditional 2x gross billings, as many uninformed chiropractors suggest. You should never value a business based on revenue.

A small service business (revenue under $5 million) is valued simply and the formula applies to multiple industries, including chiropractic. Assuming the practice is moderately equipped, has no inventory or outstanding debt, and excludes real estate, you can expect to pay one or two years of profit for the business. That’s it. Nothing fancy.

I know, I know, you’ve seen properties listed on these broker sites for much more. I guarantee that if and when they sell, it will be for much less than the fake, broker-delusional, list price. A million-dollar practice with an $800K overhead? Your practice is maybe worth $200-400K. Better have a backup retirement plan.

Think of it from the buyer’s perspective: They want to buy an income, not a job. They need cash flow to sustain the business after you leave and they want cash back day one. No one wants to buy a distressed, unprofitable practice with “potential” at a jacked-up market price.

I sold both my practices for less than asking price and financed one for the buyer. Lawyers are expensive, by the way. The third practice I tried selling for a friend never sold and the bank stepped in and sold the assets to pay off debt.

Chiropractors are told their practice will be their retirement fund, but that's often not enough. They need to be realistic with pricing and stop listening to career practice brokers for advice. Maybe we should start out own no-fee brokerage website?

Regardless of how you sell, by the time you retire you should have saved enough where the sale price becomes less important than finding the right successor.