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Buying or Selling an Acupuncture Practice? Here’s what you need to know

by Honora Lee Wolfe

In the last year or two, I have received calls or emails from people asking me advice about buying someone else’s acupuncture practice. This was not a common event in the world of acupuncture until recently, but as our profession grows, it will become more and more common. Since it has come up several times in recent weeks, I decided it was time to do some research and find out what people really should know, whether they are on the buying or selling side of the equation.

First of all, let me say that there are many web resources available on this subject, although all the ones I could find are specifically discussing the sale of either a medical practice or a chiropractic practice. So the information I am presenting here is as generic as I could make it for acupuncture practices based upon the resources currently available.

Second, because the information available on this subject is not acupuncture specific, there may be some wiggle room on the numbers I present here, although it’s my gut feeling that they transfer pretty well to any medical profession and may be used as a safe rule of thumb for buyers or sellers.

Third, if you have bought or sold a practice either successfully or unsuccessfully, I’d love to hear from you with your experiences and what you learned from it. If we all shared information about business experience with each other, we would all do better as business people. At the end of the day, the more of us who are successful, the better it is for the profession as a whole.

With those things in mind, I have tried to divide the information below into concerns for buyers and considerations or advice for sellers.

Buying a practice

There are many things to consider when purchasing someone’s practice. The most important considerations are as follows:

1. What would be the difference in cost between starting and successfully growing your own practice as opposed to buying the practice that is for sale? Be as honest as possible with yourself about start-up and growth costs for a practice.

2. What are you really buying? Are there hard assets such as equipment, furniture, or real estate involved in this transaction? If not, are you buying the accounts receivable or the bank account balances?

3. If there are no cash or hard assets, you are then buying what is called “goodwill.” In that case, a medical or chiropractic practice is considered to be worth no more than 30% of the annual gross receipts of the clinic. If there are any hard assets, those are added on to the value of the “goodwill.”

Practice assessment for a potential buyer

1. There are a few ways to determine or prove the value of gross receipts. Most sources suggest that you require access to two years of tax returns and financial records. If a practitioner selling a clinic cannot provide these records, it is questionable whether they will have kept their patient records in any more organized a fashion! At that point I say buyer beware. If they refuse to give you access to this information, then you certainly don’t want to do business with them.

2. Intangible assets may include:

a. the clinic market position (monthly patient visits, positive cash flow, take home pay of the practitioner[s], number of total patient records, income and expense projections, base overhead expenses per month).

b. regulatory history (are there any suits or legal problems)

c. operational systems in place and quality of patient record keeping

d. quality of the facilities and capacity for growth staying in those facilities

e. soundness of the balance sheet and up-to-date financial record keeping

f. size and current-status of the mailing list

g. reputation of the clinic in the community

h. staffing situation (will the current staff stick with you)

i. visibility of the location

3. Other considerations you need to research:

a. How flexible is the financing and payment structure for this purchase?

b. How many months or years is the current practitioner willing to stay in the clinic and work with you? The longer this transition process, the better to introduce you to the client base, and the more valuable the practice is to you.

c. What does an analysis of the local demographics reveal? Is the area gaining or losing population? What is the average age of the population and what was the average age a decade ago? Are there many 3rd party payers serving this community that require you to be paneled in order to serve the largest segment of the population and what do those panels pay?

d. What does an analysis of the clinical appointment book for the last year reveal? Are there many repeat patients? What is the average number of appointments per patient? What type of hours and workload is the practitioner maintaining and does that work for you?

e. Will the seller send out a letter informing the entire patient base of their upcoming departure and supporting you as their practitioner of choice for referral? Will they pay for that mailing?

f. If you only keep 40-50% of the patients who have come to this clinic, would that be enough to support you while you build back the patient base and would the price still be worth it?

g. What is the status of the current lease? Are there opportunities for expansion? Are there any legal or zoning problems with the building that could affect you?

h. What is the seller’s definition of an active patient? Is it the same as yours?

i. Who is assuming responsibility for the inactive records and what will it cost you if you must store them?

j. Who owns the clinic name and logo if it is not the person’s name? For example, John Smith Acupuncture Clinic is not a name you want to buy as part of the purchase, but you might want to keep the name Whole Woman Health Clinic if it is well established in the community.

If all this seems like too much and you are really serious about wanting to do this purchase, you might consider hiring an independent valuation expert. This is usually a shared expense between buyer and seller whether you end up buying the practice or not.

Finally, buyers, don’t ever think that buying a practice absolves you of marketing efforts in the community. Remember that most people who become your patients are buying “YOU” and you will still need to embed yourself in the community in a positive way.

Selling your practice successfully

The first and most important word for sellers is transparency, transparency, transparency. If you try to keep secrets from potential buyers or are tempted not to tell the truth about this or that, they will be immediately suspicious and shy away from the purchase pretty fast. If they dig a bit, they will most likely find out what you don’t want them to know anyway, so it pays you to be up front about everything, especially anything that is less than the perfect image you wish to project.

That being said, what can you do to help yourself sell the practice smoothly and for the best possible price?

Assess your market position

Before you even think about placing an ad or putting it out in the ethers that you want to sell your practice, you’ll be better off if you carefully assess all of the following.

1. How much competition is in the area, and how have you managed that competition successfully?

2. What is your payer mix of cash, fee-for-service insurance, insurance panels, worker’s comp, PIP, trades, and pro-bono? If you have accounts receivable, what is their average age?

3. Know the local and regional demographic trends (age, income, employment, stability) in advance and make this part of your seller’s information package. Cite or footnote your sources with dates.

4. Are there any other practices for sale in your region of the country? If so, can you compare and contract your practice in a favourable light? If not, this is a great marketing point.

5. Are there any recent or potential changes in the regulatory climate in your state?

6. Take a close look at your overhead and all expenses and decide if you could be more efficient in your use of resources. Is there anywhere that you could cut costs without losing quality or efficiency? Do you have the best phone service deal (bank service, draft capture service, laundry service, etc.)? If you can do better, you can make your net profit better and your profit/loss statements and balance sheet more attractive.

7. How is cash flow managed in your business? Could you improve internal controls to keep costs even lower, improve the terms on money you owe to vendors, get a better float or a lower interest rate on company credit cards?

8. What are your fixed and variable expenses? Can any of those numbers be improved? If so, do it now.

9. Consider various ways to advertise this sale and write your ad copy carefully. Consider state and national publications, online services, word-of-mouth, through your state association meetings and publications, and in school newsletters and on school bulletin boards.

10. Consider carefully your exit strategy. The longer you are willing to stay in the practice and introduce the new practitioner, the more valuable the practice will be and the better the selling price. Also, if you plan to stick around for a while, you can give a potential buyer longer to pay for the practice using their work as part of the pay-off. (They do the work, you get some or most of the income for that work.) Having three years to actually pay off the entire practice price is optimal and may, again, increase the value of your practice. The better the terms and the longer your exit strategy, the more you can charge for the business.

11. When creating a realistic exit strategy, define carefully the patient distribution and work load and how that might/will change over the months of your exiting. Who is responsible for what types and amounts of work by what dates? Be very clear about your final departure date and stick to it.

12. Be clear as to how and how much money needs to change hands and by what specific dates.

13. The more you do to let your patient base know about this transition (letters, postcards, phone calls, open houses, personal introductions) the more valuable the practice is.

14. Give yourself adequate time. If you are planning to retire altogether in, say, five years, start looking for a partner or younger associate now. By bringing someone into your practice, you can avoid selling off your accounts receivable and your equipment for nothing more than the depreciated value.

If this is all too complicated, then you probably are not ready to sell your practice. Even hiring a professional valuator will not exempt you from the work that you must do to assess the value of your practice, because they will require you to provide much of the information that we have listed above in any case!

As I stated at the beginning of this chapter, there are many books and websites that give you information about how medical practices are bought and sold. Whether you are buying or selling, the more you have read on the subject and the more research you have done, the fairer a deal you will be able to create.

This article is an excerpt from Points for Profit: The Essential Guide to Practice Success for Acupuncturists by Honora Lee Wolfe, Eric Strand, and Marilyn Allen, published in 2004 from Blue Poppy Press, www.bluepoppy.com.

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