10 Smart Questions [And Answers] on Buying a Clinic in Uncertain Times
Updated: Aug 19, 2020
COVID-19 has changed every aspect of modern business, and chiropractic clinics are no exception. In times of uncertainty, the instinct is often to freeze—hunker down, wait things out, and play it safe.
That may not be the best idea. The pandemic has hit small businesses hard, but that creates opportunities for buyers and owners alike. To quote Warren Buffett: “Be fearful when others are greedy. Be greedy when others are fearful.”
So: Don’t panic. Instead, arm yourself with information and set yourself up to come out ahead.
We’ve gathered 10 questions buyers are asking and set out to answer them.
1. This seems like a crazy time to buy a clinic – why should I do it now?
Let’s be clear: we’re not recommending that you buy just anything. Many clinics have been hurt by the current conditions, and not all of them will rebound.
But most businesses will rebound, and strong clinics will come out even stronger. Doctors who are weaker or ready to retire may close up shop, which means stronger clinics will gain more market share. This is particularly likely in small and medium-sized towns.
The upside for buyers: purchasing a well-positioned clinic will deliver especially good bang for your buck.
Even better, some sellers will always need to sell for health or family reasons. They’re more likely than ever to be flexible on price, provide an extended transition, and give extra support to the new owner. Good clinics may be priced at a bargain for the cash flow and lifestyle you’ll get.
2. What should I be looking for in a clinic purchase in this unique time?
You want to find a business that’s poised to take advantage of the upsides as the crisis eases.
Location is important. Search for areas with recession-resistant characteristics: good insurance reimbursement rates, areas with high disposable income, and states that require personal injury protection are all safer plays in uncertain times.
If possible, be open to new areas. Small to midsize towns will have lower costs of living, less dense populations, and lower viral incidence. And the more money you can put away by saving on expenses, the better your odds of flourishing in the future.
On the operations side, clinics with a high profit margin and lean operations will provide more margin for changes in the marketplace. High numbers of new patients are a good sign, as is a strong online presence.
As usual, buy for growth. Your energy level should exceed the seller’s, and the clinic should have room to expand in your areas of strength (and offer stability in any areas of weakness).
Finally, don’t buy too small. Larger clinics tend to be easier to finance, offer better leverage for your money, and give you more stability.
3. How are clinics valued in COVID?
Clinics are still being sold, but how has the pandemic affected valuation? For closed clinics, it hasn’t—yet. Historical value isn’t wiped out based on the last 60 days, and most of the clinics we represent have rebounded strongly after reopening, rebuilding to 70-90% of previous numbers within a few weeks.
If a clinic fails to perform well after reopening, the price will be adjusted down. COVID is like a stress test for clinics, showing which ones are the strongest. But it’s important not to judge too quickly: give clinics a chance to reopen and get their numbers back up before writing them off.
4. How is lending in this environment?
So far, the lending environment is favorable. Interest rates have gone down 1.5% in the last two months, and the SBA is offering six months of loan forgiveness for buyers who meet the August 1st deadline. That’s one more reason why taking advantage of the moment is wise.
All the same, we’re concerned about ongoing stress on banks as the ramifications of COVID unfold. If credit markets freeze up, opportunities to buy (or pull equity out of real estate to fund a down payment) may be limited. If you plan to make an acquisition in the next 12-18 months, this could really impact your ability to make a move, which is another compelling reason to consider moving your acquisition timeline up.
5. Why should I buy a clinic instead of staying in my associate job?
In this case, being cautious can hurt. Student loan debt has skyrocketed over the last two decades, but associate pay has remained roughly the same.
With many practices closing or making cuts, the situation is unlikely to improve. Job security will be lower—associates are often the first layoff if a clinic is under heavy stress. We’ve already heard this from many of our clinics who have laid off associates.
The biggest advantage of buying a practice is control. As an associate, you have no opportunity to influence your future or increase your pay. As a business owner, you can add additional services, engage with the community, and pivot as the market requires. Your financial destiny is in your own hands.
6. Why should I buy a clinic instead of starting from scratch?
This may be the worst time to start from scratch in over a decade. Costs haven’t gone down—rent, build-out, and x-ray equipment will cost as much as ever. Start-up loans are being put on hold as lenders focus on stimulus programs for PPP and acquisitions, and a recession will further delay the already years-long time when a new business becomes profitable.
People are less likely to respond to marketing during a recession, which means that establishing a reputation for a new business is more difficult. If you buy a practice, all you need is 10% down to get a business with name recognition, a bulletproof reputation, and marketing systems already in place.
Additionally, in uncertain times a seller’s experience is more valuable than ever. They’ll understand their clinic’s performance in different financial environments, and they can provide crucial support during the transition process.
7. What are sellers looking for in a buyer?
Sellers look for buyers with a plan. A buyer needs energy and organization: the more momentum you have coming in, the more the seller will believe that you’ll carry their practice forward.
It’s important to have your financial ducks in a row. You want to show up prepared, with the right questions and the right answers. The SBA loan process involves a million small details, and you need to get them right for a sale to go smoothly. If you’re uncertain, a broker can help with this process.
8. How would a chiropractor know if they are a good buyer?
This is a good question. In times like these, it’s important to have more excitement than fear. Be judicious but also be ready to seize opportunities.
If you do want to buy, you’ll need to get comfortable with smart risks. No matter how careful you are, there is always risk involved—but risk takers often reap the benefits of uncertain environments.
Be aware that in an unpredictable economy, staying as an associate is a risk of its own. If a clinic hits a severe downturn, you may be on the wrong end of the layoffs. Assessing these risks depends on comfort level and clinic position, and the decision will always be a personal one.
9. What are red flags you should be looking for in a clinic for sale?
One useful aspect of COVID is that it provides a barometer for clinic health. If an economy reopens but the clinic does not return to near normal profitability and patient volume, that’s a sign of danger.
Beware of inflexible sellers. If a seller is unwilling to provide support through the transition, the buyer has greater odds of failure and may be buying into unknown problems. In the current environment, good sellers will be flexible on terms and transition.
10. How can a broker help a buyer?
There are two keys to turning risk into reward: understanding and execution. A broker can help with both.
A broker’s primary role is as a matchmaker and buffer between the buyer and the seller. Since we only sell chiropractic clinics (and have sold hundreds), we’re well positioned to identify and create the best fit. That includes helping buyers understand the underlying complexities and challenges of the clinic they buy.
Brokers also provide support through the sales process. We help buyers make a strong first impression and get financials in order for a smooth loan process. Even after the sale, a good broker can connect buyers with industry leaders and trusted companies to skip the trial-and-error of a new clinic.
All of these steps help to mitigate risk. Buyers and sellers with poor information can easily make six-figure mistakes in overpaying or buying the wrong clinic. We are deeply committed to win-win deals.
Those deals are still happening—a time of crisis can bring opportunity as well. Everyone is facing new challenges in a post-COVID world, but with preparation and the right strategy, you can look forward to more than just surviving.
Want to see if there’s an opportunity that’s a great fit for you, or learn more about the stimulus benefits available for clinic acquisitions? Schedule a complimentary consultation today!