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Hey everybody. Welcome. I am Dr. Randi, Ross CEO of Premier Practice Consultants. And I’d like to welcome you to our show today. Uh, let’s first give a big shout out to ChiroSecure for sponsoring and hosting. These shows, you know, it gives you such great information every week. Go to their website, amazing team. There’ll be happy to help you with anything that you need. All right, well, we’re going to go ahead and jump right in here. We don’t want to waste any time. Uh, so today we’re to list your practice or do you want to sell your practice? And this is a conversation I have probably almost daily, if not two, three times a week. And it’s two very different concepts. Um, and often when people are thinking about selling their practice, you know, we have to determine, you know, kind of which half of their brain they’re working this with.
Uh, so do you think that you have any idea what your practice is worth? Do you think it’s worth what you gross? Do you think it’s worth two times gross? Do you think it’s worth two times net? Do you think it’s gross and equipment, do you think it’s gross and equipment and plus plus plus plus plus, or maybe a one of those, the things your practice is priceless? You know, it’s, it’s very interesting to think about this and, uh, you know, a lot of people really don’t put a lot of thought into this until they’re winding down or maybe they’re relocating, like a lot of people are doing today. So, uh, often we have a lot of misinformation and we’ve been given kind of the wrong, uh, guidelines as to which, you know, is the right way to think about this. The first thing that anyone should do, if you really thinking about considering selling your practice, and this might be something you’re thinking about, you know, maybe I want to retire in two years or three years or five years.
If you’re thinking in that kind of timeframe, you want to start this practice, you know, most places are anywhere from 12, 18, 24 plus months to sell depending upon a lot of different variables. So if this is something that you can see yourself getting into that timeframe, you really want to start in. The first place to start is to get an objective, proper practice valuation. So this really is not, you know, your, your colleague that practices down the road. Um, it’s not even other people that might be part of your professional team, because there’s some very specific variables that goes into determining what your practice is worth. And the other thing that’s important to note is our profession is different than others. So words what chiropractic practices sell for and possibly what a dental or a multidisciplinary medical practice Salesforce is very different. So if you don’t have someone that specializes in understanding the chiropractic profession, you might actually get misguided and you might actually be misinformed.
So when we talk about, this is a question I get all the time. So when I finally determine what my practice is worth, should I actually start a whole bunch higher so that I have room to negotiate. I don’t really live by that concept. I think that if your practice is properly priced, you have a proper valuation and you have the documentation to substantiate where that value came from. Not just, you know, kind of out of thin air, whether that, you know, tax returns and P and L’s and certain stats that you know, many of you keep that, especially if you work with, with different coaches, um, you know, w what’s the value of your equipment, the depreciated value, not what it costs when you bought it. So I’m not big from the school of, well, you know, my practice you’re telling me my practice is worth $300,000.
So let’s start at three 50. So I have room to negotiate. I don’t really think that that works. If someone’s gonna offer you less than your practice is worth as their way of presenting an offering terms, that’s going to happen. Whether, you know, you start high or not, they’re going to be looking at the data that substantiates what the actual value of the practices. And actually often when you try and use this strategy, it doesn’t always work because then people think you have an overinflated opinion of the actual, what I call market, ready value of your practices. So you’re going to be a little more difficult to work with. So you can actually scare away certain people that could be potential viable buyers. So keep that in mind, you know, remember you’re not in the real estate market when we’re doing this, and this is really important.
We all know that in many places right now real estate is, you know, over the moon. You know, I live in Southeast Florida and property values have gone up 20, 30% just in the last 18 months in certain developments. This is not that. So if you’re trying to equate it to, well, you know, I priced my, my home a little bit higher. So there was room to negotiate. This, this is not that strategy. Your home is going to be a different selling model than your business. Your business is going to be worth. It’s going to be based. The value of your business is going to be based on certain elements that are going to go into determining, uh, you know, what someone is willing to pay for your practice. So go through a few of these, just see, kind of get an idea of how you should start thinking about this.
So when a buyer looks at your practice, they’re going to look at a number of things. You know, first when we talk about the math portion of it, they’re going to look like they’re going to look at what is the business grossing, um, you know, uh, is a business grossing $300,000, 500,000. Maybe it’s only grossing a hundred thousand dollars, you know, and that’s okay. That’s what the reality of your situation is. And then they want to know the profit. So these are two very different things. Um, and one of the most important things that people struggle with that I work with when we’re, when we’re trying to determine, or, or a buyer is trying to determine what the actual value and what I’m willing to pay for your practices is someone coming up with what we call clean overhead, clean overhead is what it costs to run your business.
Now, we all know as small business owners, legally, we’re allowed to write a whole bunch of stuff off, um, that really pertained to us personally, and that’s fine, you know, everybody does it. Uh, but what you really need to understand is a lot of those things that are illegal write-offs, um, are not going to be passed through expenses. And they’re not going to be an expense that if I come and buy your practice tomorrow and start on Monday, I’m not going to have those expenses. So that’s a really important way to determine what your profit is, because in theory, think, just follow me on this, because it’s so simple. It sounds almost too simple. If you take what you gross, and then you take what your real expenses are and you subtract them, that’s technically what your profit should be. Now, I know that’s not going to be the reflected net on your taxes.
We’re not talking about that because if someone understands what the profit of your practices, it’s going to be easier for them to determine is this something that they want to purchase and acquire? And if so, what are they willing to pay for it? If you have trouble showing someone what the true profit is in your business, you’re going to struggle with selling. And even as from a broker’s perspective, we struggle with helping people with that sometimes because not everyone is really organized and efficient. And sometimes even when we go through either their taxes or their P and L’s to help them get, uh, this, you know, accurate overhead number, there’s things just lumped together in these giant categories. And then you have to kind of sift through there, give you one insurance. Well, insurance is, you know, $15,000 a year. Well, is that your car insurance in there?
Is it health insurance for you and your family, nothing to do with employees. Um, is there, you know, your life insurance in there or your, uh, um, you know, your interests like, so those are things that would not pass through to a buyer. Those are things that, you know, maybe they have their own health insurance somewhere else. Their spouse works for a big company. They don’t need that. Um, maybe they’re not, I mean, it sounds crazy, but maybe they’re not interested in having liability. So those are just, you know, a few examples, another big one that I see that people forget to, um, when they’re selling their practice, what we call add back in is, you know, your travel, your entertainment, your conferences of your CE credit thing, all those things. And you have to go through this with a fine tooth comb to get the accurate number, but I can tell you makes a huge difference in determining what a buyer will pay for your practice, K your equipment.
Um, you know, typically, you know, we have people, do we call depreciated equipment list? Well, that’s anything more than five years is worth about half of what you paid for it. Yes, there were a couple of exceptions, but for the most part, that’s a general rule. A lot of people get stuck on their equipment is worth really more than it is. Uh, so remember, it’s not what you paid for it 10 years ago. It’s not even what your insurance broker has. It, uh, you know, priced at for replacement in the event. You know, God forbid you had a fire or something like that. That’s not the value of your equipment location. This is such a hard thing sometimes for people to understand. So, like I mentioned before I live in Southeast Florida, well, practices in Florida are really going as long as they’re properly priced for that top dollar.
Why? Because I think something like 150,000 people, you know, a week are moving here. Well, that creates a lot of growth and that creates a lot of demand for something. So location of exactly where in the country it is right now, especially is playing a huge part in what someone’s willing to pay for your practice, uh, because like anything else, um, you know, from the Northeast, people are migrating south to Florida, Georgia, the Carolinas, they’re not migrating north. There are exceptions to that when someone has family members or something that they want to get close to again. And most of the people from the west, you know, from, uh, from Washington state, from California are mostly going, you know, Arizona’s, uh, Texas, some Kentucky, things like that. They don’t seem to be coming as far east as, as you know, the coast over here. So that’s one kind of component of location.
The other component of location is exactly where is your practice? Is it on a main road? Is it on a secondary road? Is it on a tertiary road? Is it in like an industrial park, which you might have a beautiful office, but someone might think that that’s not super beneficial. So the location you chose for your practice could actually be a part of the equation for someone determining what they’re going to pay for your practice. Uh, the decor, you know, is your practice. Up-to-date aesthetically and modern. We actually discussed this a few weeks ago, or have you been in practice for 30 years? And you basically have the same carpeting, the same color, the same waiting room chairs, the same, you know, receptionist counter, because people frown on that a lot because they walk in and instantly they see, I have to spend $20,000 to update this practice.
This is not aesthetically what I would be comfortable with. So that’s one thing you have to consider your math might all work. The InTASC stick for a very successful business, but if someone walks in and see something old and outdated, there are some people, not everyone, they can’t see beyond that. So keep that in mind, if you’re preparing to sell within the next few years, your staff, you know, are you staffed rockstars? Are they staying? Um, you know, how, what kind of training do they have? These are all things that have value. Obviously your stats, everyone wants to know how many new patients do you have, how many total office visits, what was your billing? What was your collections? These are things that everyone is going to want to see. So make sure you’re keeping good records on that. And what is your payer profile?
Um, so obviously if you’re a hundred percent cash, never an issue, I’d never had a buyer say to me, my practice has too much cash. I’m not interested in it. Um, but some people might have practices that are higher pie. That’s just the type of payer profile they have, which is fine. But some people would not be interested in purchasing that. Some people might have a large amount of Medicare and for some people that’s not something that’s attracted to them. So you’re these, all these things that we just listed, you know, your payer profile, your stats, the core, your equipment, what is your actual profit, all, you know, uh, combined go into someone determining and evaluating, what am I doing willing to pay for this practice for someone sometimes what they’re willing to pay for the practice has absolutely nothing to do with what we determined it’s worth.
You know, the old saying something’s only worth what someone’s willing to pay for it. So always keep that in mind. And now we’re going to talk about it. All right. She have a buyer you’ve agreed on a price. You’ve agreed on the terms. Fantastic. Now that buyer has to go to a bank. So if we properly priced your practice, not a practice that, you know, we substantiated is worth $300,000 on, on the market. And you said, Nope, I want, I want 400,000 starting at 400. That let’s even say you’ve got a buyer, which that’s unlikely. We’re just kind of having a scenario here that person’s going to go to a bed. And the bank’s going to look at the same math and, and incorporated elements that, that we use to create a market report valuation for your practice. And they’re going to go, what are you talking about?
We’re not funding this practice of $400,000. We even care if the buyer wants to pay that we’re going to do 80% of $300,000. So just saying, you want more, again, this isn’t like real estate, your house is worth 300. You got to buy for 400. Guess what? That personal come up with the other hundred thousand dollars cash doesn’t work that way here. So don’t even think that, you know, even right, if you have all these elements together, the, the math has to work for the bank. Remember they’re always mitigating their risk. That’s all they care about a bank. When it comes to funding, are they mitigating their risk? And is there profit in this to fund this business? They can’t mitigate their risk if their information in their reports and how they do their own, you know, how they determine the value is way more than it’s actually worth someone Desi for it.
They’re not going to do that. They’ve just lost their risk. So, you know, it becomes to a bank about math. What’s the strength of the practice, you know, in other words, does it have good cashflow? Um, what’s its history, is it making money? Are you declining or are you increasing? You know, we can talk about COVID the COVID year, another time. I don’t want to get into that here, but just kind of, you know, usually they’re taking a three year average. That’s typically what they’re looking at. You know, what kind of documentation is there to, to provide them, to substantiate some of this information? You know, a lot of times people just have really crappy documentation. And then when a bank asks for information, you, you kind of don’t have anything to back it up that instantly for a bank, that’s a red flag. If you’re not organized and efficient and can’t give them what they ask for as obnoxious as they might be, that is a little bit of a red flag for them.
So something else to keep in mind to be organized efficient, and be prepared to share the documentation that substantiates the value of your practice. And what’s the buyer’s strength. That’s really important too. It’s it’s, it is based on your business that they’re technically buying for this person. Um, but the buyer has to have some strength too. And there is a lot of variables that can go into that. Um, you know, one of the things people think, well, if someone’s a, you know, a new doctor or just out of school, that they don’t qualify for anything, well, that’s actually not always true. There are other strengths that they can have that the right funder knows how to work with or manipulate. If we want to use that word that makes them look like a good risk to a bank. Um, and obviously there’s a lot of other variables when a buyer, yes, they look at your credit score.
They look at your debt to income ratio. If you’re not right out of school, um, you know, they’re going to look at other things, obviously, if you had any kind of, you know, bankruptcy or ill financial dealings of that nature, uh, that will come into play with that. So what you think your practice is worth and what a bank might be willing to pay for it, even if a buyer does, might be two different things. So what we want to offer here is if anyone’s interested in figuring out and finding out what is your practice actually worth? Okay, we’re offering 25% of evaluations through the month of August. Just go to our website, premier practice consultants.com on the homepage and see this little blue button that says client intake form, fill it out. It’s about five, six questions. And at the bottom, there’s a code just put in August, 2021.
And I will know that you came to us from this ChiroSecure event. Well, that’s going to wrap it up for me today. Hope you learned something, make sure you log on next week. Dr. Nathalie Beauchamp will be here. And she always has such amazing information on all different kinds of practice growth and your staff. And I mean, her, her list of accomplishments and information is just endless. Well, I’m Dr. Randy Ross, again, CEO, premier practice consultants, visit our website. See how we can help you like to thank ChiroSecure again for having me. And I hope you guys have a fantastic day.
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