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March, 2016

Ready to Sell? Key Considerations

By Tony Corley

Thinking about selling your practice? Consider how these practice characteristics might hold the key to how long your practice is on the market.

1. Demand for Urban Locations Exceeds Rural

The growth in urban population in the U.S., not surprisingly, has led more chiropractors to urban areas to practice. This means all other practice characteristics being even, there are less buyers for rural practices. The projected growth of a practice has a significant impact on its ability to be sold. If the practice catchment area is declining in population, then the perceived value from a buyer can be greatly reduced. We've noticed rural practices can take 2-3 times longer to sell than urban practices.

2. A Good Associate Can Ease a Sales Transition

But like all relationships, it requires a good match. We are still gathering data on the impact to length of time to sell a practice, but most sellers do seem to look first to an associate in their practice as a potential buyer. Having a young associate come on board with the expectation that the associate will eventually buy the practice can appear to be a good strategy for transitioning ownership. However, the actual effectiveness of the strategy is debated, with some only citing 5 percent success rates. A bad relationship with an associate could derail an exit strategy and make a practice unappealing for outside buyers.

3. Cash May Be King, But Most Patients Vote for Insurance

for sale - Copyright – Stock Photo / Register Mark If a buyer wants to run a cash-only practice, a practice that accepts commercial insurance patients would not be that attractive. You have to assume some attrition of patients who would still want their commercial insurance to be accepted. Surveys have shown that between 60 percent and 70 percent of patients want the option to use insurance when they go to the doctor. Buyers who know this won't like the idea of going into a practice with 30-40 percent less market potential.

Cash-only practices can be successful, but the appeal of these practices can depend on whether the incoming doctor is focused on wellness or pain management. Wellness-focused patients are more understanding of cash-based practices as an investment in their healthy lifestyle, whereas pain-management patients are more insurance focused.

4. Having an EHR Already in Place Reduces Buyer Stress

Learning how to run a newly bought practice is tough enough without the added stress of EHR installation and integration. Few doctors want to buy a practice knowing they will have to be the one to put their new staff through the transition. Implemented correctly, EHR systems improve patient care and increase operating efficiencies.

As more offices are optimizing to health IT and EHR systems are becoming standard practice, an outdated paper system could be valued as the clunker of yesteryear. If you are not already using an EHR system and considering whether it's worth the time and cost, the questions to ask are: Where do your patients, your colleagues and your payers want you to be? Where do your buyers want you to be?

5. An Integrated Practice Has the Appeal of Diversified Revenue, Less Risk

The diversification of revenue streams is a well-documented trend. Just as investors seek diversification in their investment portfolios, various sources of revenue from multiple service lines are equally appealing for buyers of practices. The risk of revenue volatility is greater for those practices dependent on one service or payer and susceptible to potential changes in legislation or reimbursement. Buyers are increasingly looking for turnkey integrated practices, so setting one up properly can greatly decrease time on the market.

Notice I do not mention price in the five considerations above. In a frictionless marketplace, selling price is a function of these keys. If your practice is on the wrong side of one or more of these considerations, the marketplace will drive price down to the demand for a practice with your characteristics. The good news is, you can think about readying your practice for sale and getting on the right side of as many of the above as possible before you choose to exit.

Tony Corley is the founder and CEO of Healthcare MarketMaker, a company that brings health care buyers and sellers together in one virtual marketplace. He has degrees from Auburn University (accounting) and Vanderbilt University (MBA).

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