Buy or Build? The Practice Building Question
By Drew Stevens, PhD
Many chiropractors, as they exit school and decide to begin their venture, are caught between a rock and a hard place because they are unclear about how to begin their venture. Truth be told, there are a few options to start a chiropractic career. Perhaps the easiest is to setup as a solo practitioner so that the chiropractor need not fuss with working for someone and the bureaucracy associated with it. However, doing so means not only substantial startup costs, but time learning a business, too. No matter the options, no choice is easy, but knowing the routes will allow you to make the best possible decision for your future.
Suffice it to say that you worked your tail off in school, taken your exams and graduated with the intention of operating your own business. Now it is time to make that decision. And truth be told almost 58% of most chiropractors operate their own practice. And, you have a choice, you may decide to begin from the ground up or you may decide to purchase an existing practice. There are advantages and disadvantages to both.
Beginning from Scratch
There is nothing more compelling than operating your own practice. The reward of controlling your destiny and being obligated to one person – you, is very appealing. Yet, while there is much glory with operating a practice, it does require a foundation. For example, you will be required to conduct location management. In other words, you will not only be responsible for choosing the best location but also the furniture, the build out, wall color, furnishings, utilities etc. Additionally, you are ultimately responsible for the acquisition of equipment. This requires tremendous attention to detail and time.
Once a location is chosen, the next step is perhaps the trickiest – financing. Since the 2008 Global Recession, many lending institutions became stricter with lending policies, making it very difficult to receive funding. There are some available but the ability is still difficult. One will have to look far and wide, as well as gain patience with the wait. However, realize when borrowing money, this adds to your overall debt. With student loans, the amount of debt will be daunting. Therefore, before signing any paperwork, recognize the amount, the timeframe and actions required for repayment.
Your next requirement is relationship building. Fortunately and unfortunately, the contingency of practice building is based on you. Patient volume, revenue, as well as patient education, all falls on the proprietor. This can scare any chiropractor. Knowing that all the revenue responsibility falls on one person – you – is frightening. This is why some opt to buy a practice. It is ready made, it has existing patients, it has revenue, it has a foundation. It is similar to being hungry and microwaving a meal – no preparation; but is it the right choice?
Purchasing an Existing Practice
As you can see, starting a practice assumes debt, time and much needed patience. Therefore, many believe that acquiring a practice is faster and perhaps less expensive. Depending on the practice, this may be true yet there are other nuances that many do not consider.
Of all the aspects in practice building, the most significant is patient relationships. Your patients conduct business with you because of the trusting relationship they have built with you. The same holds true for any practice you intend to acquire. Typically, when principles announce that the practice is for sale, there is patient attrition. Unfortunately, patients will develop a myriad of excuses, yet they will primarily leave because of the lack of a relationship with the new party.
I recall a time when David decided to acquire an existing practice for approximately $145,000. The existing doctor had a PVA of 90/week. Once he decided to sell to David, the attrition rate rose from an existing 3% per year to more than 57%. The new doctor, David, was seeing no more than 41 patients per week. The revenue dropped so precipitously that David is closing the practice since it is going bankrupt.
Acquiring doctors must recognize that every practice has its own culture, identity and personality; this is what is being acquired, not patients. Therefore, should you choose to acquire the best practice, there will be a subtle transition of at least one full year. The slow and steady approach enables the new doctor to build (over time) relationships with every patient while the existing doctor transitions responsibility. Research has shown that the steadier the transition, the less attrition exists.
Assuming that an acquiring doctor still wants the practice, similar issues of financing still apply. Financing today, similar to starting a practice is very difficult. Banks and other lending institutions have become very strict with providing money, especially to those with substantial debt such as those matriculating from chiropractic school. The best sources today stem from non traditional means in order to secure a loan.
Another factor most helpful to an acquiring doctor is making use of existing staff. In addition to the relationship with doctors, staff plays a huge role in the transition. Staff is the front line to the existing doctor; therefore, appointments, billing, general treatment, as well as alliances are all part of front desk and operational support. Staff is the reason the practice operates efficiently and why patients return. Not making use of existing staff will negatively impact retention.
Finally, a practice acquisition requires a great deal of patient communication. Patients and staff will be immersed in process, procedural and performance changes that make all feel uncomfortable, therefore the new doctor must increase communication to ensure all understand the rationale for change.
There are just as many reasons for building as exist for acquiring. Either method depends on time. Either way, patience will be a virtue in addition to research. It is best to walk before you run so that you can make the best decision based on debt risk, time, location and your degree of interest. Simply put, make the right choice for you and your business future.
Drew Stevens, PhD, is known as "The Revenue Doctor." He helps chiropractors develop strategies that exponentially grow revenue and returns personal time. He is the author of eight books including the widely acclaimed "Practice Acceleration" by Greenbranch publishing. He can be reached through his website at www.stevensconsultinggroup.com.