Give Yourself Enough Time

Crystal Misenheimer is the leading expert in chiropractic practice sales. The first and only chiropractic broker to earn the coveted Certified Business Intermediary (CBI) designation from the International Business Brokers Association (IBBA), she sets the gold standard in expertise, quality, and service. She offers full-service representation, hourly consultation, and “for sale by owner” support; in all service lines her clients can be sure that they are represented by the best. Now, further cementing her unparalleled credentials, Crystal has also earned the new CM&AP certification.

Episode Highlights:

3:41 – Three practice sales in less than 10 years. “My husband is a former chiropractor. I ran our offices and, because of some health challenges that he encountered, we ended up going through three practice sales in a period of less than 10 years. That is a lot of practice sales, and we just learned it's crazy. You just don't think that it'll be that complicated, but it is. If it's not handled right, there's all these problems that will come up afterwards and they can chase you down for years after the sale closes. After the third sale and so many problems, we decided that somebody should really come in and build a better brokerage that will really serve chiropractors because they are unique profession of healers who often stumble into business ownership. We've spent the last 10 years perfecting that model, trying to go the extra mile with service and really doing the things that optimize their sales.”

4:51 – Emergency sales are the saddest of all. “One of the most heartbreaking things we do is when a doctor is ready to sell and thinks it's going to be a very fast turnaround, but we tell them exactly how practice value is built and the challenges to come and they usually cry and wish they had done so many things differently. I speak at events and try to get the word out, but there's 80,000 chiropractors and one of me. I post on billboards all around the country that the preparation for these sales is so much more than you're expecting. You must start early. You must understand your value early so that you can have a plan because the emergency sales are the saddest of all.”

6:05 - Average amount of time needed to sell a practice. “In an ideal world where you're going to be a go-getter proactive person, you're going to start this process three to four years before you sell. That just gives you time to make some changes, get them all into your business and gather your tax returns for the period of data that's going to impact your sale. For the doctors who didn't do all of that, they are probably going to be very surprised when they spend a period of three to six months or sometimes a year to get through the process of cleaning everything up so that it's actually ready to go in front of a buyer and a lender.”

6:52 – Business value and transferability. “When you think about business value and transferability, one of the biggest things is how easily will the business transfer to someone else? If you as the doctor are standing in the middle of the machine and you're moving all the gears personally, there's not a lot of people who are going to feel like they can step into that. If you build a business that has some doctors, management or marketing that will stay after the sale, that is something that people will pay more for.”

 7:52 – The multiple for chiropractic practices. “It takes us about 10 to 20 hours to figure out the right multiple just because it's so in depth, right? We're looking at business trends, at things that could be impactful in the competitive environment, at potential problems that buyers and lenders would dock value for. It's really hard to give a ballpark and if anyone gives you a rule of thumb, they're true about 30% of the time. You should definitely not lean on that, but, for a general chiropractic practice, a lot of doctors are going to be surprised where the multiple caps out. It's usually going to cap out under a 2x multiple, and a lot of doctors will get closer to 1.2 or 1.3 just because of some of the challenges in their clinic that a buyer and a lender might perceive. Again, take that with a huge handful of salt because there's just so much that goes into it, but doctors are surprised all the time at the multiples that practices sell for. It's important to understand you're not selling a technology company or a restaurant or anything that people might not even notice if the ownership changed. That's where those multiples come from. The banks actually set the ceilings that the loans will go for. Because so many chiropractic practices are funded through the Small Business Administration, a federal lending program, they really set the ceiling for the value that a chiropractic practice can sell for.”

17:35 – The higher the multiple, the higher the investment. “A lot of people are really surprised when they hear the multiple range for chiropractic practices because they've seen articles about companies that have sold for 10x or 15x. The multiple is actually a statement of risk - how likely is the business going to transfer over to me? It is a hands-on business where there’s a chiropractor providing service to a patient. When the owner/operator leaves, the buyer and the bank both recognize that it is riskier than buying a technology company. That's why the multiples are lower. Now, as practices get bigger, their multiples definitely go up. We've definitely seen multiples in the 5x, 6x range for chiropractic practices, but now you're looking at multi-clinic groups that have a strong foundation in a region. They've got multiple doctors and a management system that is going to stay, but as you get into bigger multiples, you're talking about corporate buyers. You're no longer talking about a chiropractor going through the SBA. You're talking about an investment group coming in and purchasing your practice. You can get higher multiples, but it's not going to look the same. They're not going to pay you 5x, 6x for big practices or 2x, 3x, 4x for smaller ones unless you buy through their structure, which means that you'll get a portion upfront. You'll be a partner for years after the sale closes and they will be wanting you to aggressively grow that practice with them. For some people, that's a great opportunity. You take on some risk because you're not getting all your sale proceeds upfront, but you have the opportunity to get a much higher payout at the second one if the growth plans work. It's important to know that that opportunity is there, but it's also not a fit for everybody or every practice.”

20:53 – Investor presence in the chiropractic space. “We've seen the investor presence in chiropractic grow over the last five years or so pretty steadily. It comes in waves as far as what type of investor is looking, so we really had a lot of private equity, larger firms really looking at getting a footprint there. As soon as the interest rates went up, a lot of that went away because they're just so highly leveraged already. They're not looking to take on new debt right now. Recently, we’ve seen a lot of regional groups that are looking to acquire pretty aggressively. That's been exciting to see them go from thinking about doing it to having five to six clinics. There will be a lot of opportunities for chiropractors to sell through that model, but also nothing is perfect. It creates some interesting dynamics for the chiropractors that are out there practicing and thinking about practicing. It'll just change the entire profession.”

22:37 – Mistakes in acquisitions. “A lot of times, the groups that are buying practices don't understand chiropractic. Chiropractic is different from any other healthcare specialty in my experience - we have challenges that physical therapists and dentists don't encounter. A lot of the investors see the space with great profit margins and many opportunities to consolidate. Some people leap before looking and made some mistakes. On the doctor side, one of the biggest things I've seen people make mistakes with is assuming that a corporate buyer, because they showed up and have this process of how they purchase something, the doctors think they can handle it, but they have no idea what they're getting into. These structures are so complicated. It's nothing like selling to a chiropractor. A lot of these people that are forming these groups have big private equity backgrounds. They're all Ivy-League educated. They've done deals in the hundreds of millions of dollars. Now, they're scaling that model down into a chiropractic practice acquisition and the doctors are just completely overwhelmed. I've seen them spend tens of thousands of dollars on trying to make these deals come together and then ultimately walk away with nothing.”

24:58 – What investors are looking for. “Be careful with your growth because unrestrained growth is one of the biggest reasons why practices go out of business. We do a lot of valuations for a lot of situations, so we can see what practices thrive and why practices fail. Unrestrained growth is one of the biggest reasons they fail, so you've really got to keep an eye on cash flow during growth. You've really got to be careful with your projections and you've got to understand that you can't bite off too much. You have to make sure that your team is able to get the first acquisition and move it into a place where it's stable before you take on the next one. Focus on what an investor would want and there's all kinds of investors. Investors are looking for physical space so that they can optimize the revenue that's coming into that one location. They're looking for a foundation with community, which means multiple locations that are thriving. They're looking for a platform that's showing that the model is something that can continue to scale in the community and beyond. They're looking for something where they can go in and add in additional services that fit in their model so that they can get that rapid growth. They're not looking to hold that forever. They're looking to grow it dramatically and then sell it to the next investor of the food chain at a much higher multiple.”

33:02 - Key drivers to increase their valuation. “You've got to focus on increasing the transferable profit and don't think of adding niche services. Don't do more IME exams. Don't bring on something super niche technique that only 100 chiropractors know. Think about what's going to appeal to the wider marketplace. Be careful where you're investing when you're doing that. I've seen people invest a lot in real estate and expensive equipment. You may not be able to get your entire return back on that if you're doing that right before you sell. Along those same lines, think about transferability. A lot of doctors, as they proceed in their career, they start to really specialize and that gives them an edge in the marketplace to stand out. But how many doctors are going to feel really comfortable stepping into your unique combination of 18 techniques that you just really enjoy doing? As you start thinking of retiring, you should start adding mainstream services back in so it widens the base of people who will look at your practice.”

35:17 - Associates. “Associates are interesting because right now it's so hard to hire them. The wages for associates are higher than they've ever been, which I personally think is great for those young doctors. They are coming out with so much debt. It is insane. A lot of practices unfortunately can't afford associates anymore, which is a challenge because a lot of doctors are thinking about retiring through an associate buyout. That's actually one of the more challenging ways to sell your practice because of the long-term nature of the relationship. If you're thinking about hiring an associate, I personally know of amazing consultants that have great systems. Anyone who has either never had an associate or who has failed at an associate, a consultant that has a program just for that is invaluable.”

38:04 – How do we end up here? “All of the practices we sell have a non-compete. That's pretty standard. The SBA requires five years and 15 miles, so that is the norm of practice sales. As far as staying on in the practice, most practices are sold through SBA financing. They have a 12-month limitation, so the doctor could stay on. We call it a consulting role, which can include patient care and training the new owner for up to 12 months.”

40:00 – Reframe your thoughts & prepare for a long process. “Doctors have this assumption that this is supposed to be simple. They don't understand that they're highly technical financial transactions. We're talking about tens of thousands on the low end and millions on the high end. There's really nothing that's simple about that kind of money changing hands. They just need to reframe their expectations and understand that even small things, if your practice stats/profit/loss statements don't match up, they are going to walk away because they're going to think that you do not have a safe investment. They just need to reframe how they're looking at the whole process. Another key component that they might want to consider is they just don't have a real good understanding about how long the process is going to take to prepare. They need to understand it's a way deeper level than they're thinking. Think about a detective movie and the board with all the red strings - imagine red strings from your equipment list to your employee history to your financial statement to your practice stats. A buyer is going to be reconciling all of those things and looking for places where it doesn't match because everything you're telling them is just things you're telling them. There's no one to verify what you're saying, even on your tax returns. The CPA is not doing audited financial statements. Those are $10,000 a year. No one's paying for that. Even practices we've sold in the multimillion-dollar range don't have that. It's for a much bigger business. The trust factor - it doesn't increase your multiple necessarily by having all of those clean books, but it maintains your multiple; otherwise, it's just going to get eroded away as they find more and more things that make them think the risk is higher and they need to drop the reward.”

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