The BIG Reason 70% of Businesses Never Sell
Updated: Jun 9, 2020
Full disclosure- today is a bit of a self-plug. But I hope you will stick with me- there is some great information that all buyers, sellers, and doctors thinking about the future can use. So read on- I promise, it is short and sweet!
Ahem, so back to that HUGE, crazy number-- 70% of businesses NEVER sell! This is pretty scary stuff- you’ve been pouring your heart and soul into this thing for decades and now you find out the vast majority of them never even sell?! The big reason for this is pretty simple- the businesses just aren’t priced correctly. The current owner decides the business is worth a certain amount; It might be the amount of money they need to make retirement or another life change happen… It might be the amount that a “similar” practice is listed for… Or it might be based on some “rule of thumb” or formula that the owner found online … We talk to doctors all the time who’ve used these methods to price their practices; They call us wondering why their clinic has been sitting on the market for so long. The simple truth is, when something is priced too high, it just doesn’t sell. It’s not rocket science.
Also not rocket science? The key to getting the maximum price for your practice. It’s working with a knowledgable professional to get your practice appraised. A professional valuation is the only way to get an accurate picture of what your clinic is really worth. And that knowledge is the key to strategizing for practice sale pricing, timing, financing, and more.
And the appraisal, of course, is where we start with our clients. First, we perform a thorough review of your practice data- financial statements, tax returns, practice statistics, equipment, inventory and more.
Next we depreciate your assets and adjust your financial statements to make sure they accurately reflect the true profit your practice brings in. This is a process where we add back the profit you spent on things like your cell phone and car expenses. While these are legitimate expenses, they are not necessary for the new doctor to run your business, and as such should be removed. This process of adding back value is best done by a professional for obvious reasons… The potential buyers need to be able to trust the figures, and adjustments made by an owner might seem biased. Also, sometimes profit addbacks can have be complex, so before adding back any revenue an expert should concur that the expense should in fact be adjusted.
Then we use our proprietary formula to evaluate twenty different aspects of your practice to make sure all the intangible factors specific to valuing chiropractic clinics are taken into consideration.
Are you looking to list your practice immediately? We also look at various ratios that lenders use to ascertain if your business price falls into an acceptable range to qualify for traditional lending sources. And finally, we take into account what the market can bear, to make sure we don’t price you out of your market.
What does this mean for sellers? Whether you work with us or you go it alone, ultimately you are in charge of how much to list your practice for… But you will find that when you price it correctly, the sales process is much quicker and smoother, with a much more likely happy ending.
What does this mean for buyers? Beware the practice listed without a broker. The price may not have an accurate basis, it could be priced too high, and might not even qualify for traditional financing options. Also, make sure you question any of the expense addbacks a ‘For Sale by Owner’ clinic has done to make sure they haven’t (accidentally or on purpose) misstated the adjusted income.
What does this mean for doctors thinking of selling “someday”? Consider getting a Presale Valuation. After hearing from multiple doctors interested in such a service, we have put together a great program to do that and so much more. This appraisal doesn’t dive quite so deep (to save you $), but it gives you a highly accurate range of value for your clinic, as well as an action plan with specific areas to work on to grow your value for the future, along with an estimate of how this could ultimately affect your practice value. We are offering this service for just $299- and while any doctor could benefit from this knowledge, it’s a must for anyone thinking they want to sell in the next 3-5 years.
Alright, you have survived Valuations and Appraisals 101- thanks for sticking around! It can be dry material, but oh so relevant to your successful practice sale!