Chiropractic Practice Valuation

A chiropractic practice valuation is an important tool for practitioners who need to know how much their practice is worth. It is equally important for making sure no money is left on the negotiation table when you are determining a sale price, establishing a value for a management buyout, or planning for your retirement.

A chiropractic practice appraisal is something that most practitioners put off or ignore until they are ready to leave the practice, but a prepared doctor will use a valuation as a tool to improve performance, increase the value, and anticipate the options that lay ahead for the owner.

Keep reading to learn more about the essentials of the chiropractic practice valuation process and see how this knowledge is important no matter what stage of the business cycle your practice is in.

The Basics of a Chiropractic Practice Valuation

At its core, a business valuation is an analysis of how much a hypothetical third-party would be willing to pay for your practice. Take this a step further and consider what that hypothetical buyer would actually be paying for:a stream of income that they anticipate receiving after the practice changes hands in ownership.

For professional practices, the expected stream of income is often derived from your intangible assets that make up the business, specifically your goodwill (see below). Tangible assets like your equipment still carry substantial weight for a medical practice valuation—especially when you consider the cost of some specialty equipment—but they are a means for achieving your stream of income, not just the sole basis of value.

An Example of Your Intangible Assets Importance

Let’s look at an example: There are two practices in the same city located right across the street from each other. One has a single practitioner, Dr. White, who has a well-recognized and established practice, fair fees, a steady stream of referrals, and a high patient retention rate. His office, however, is old and he has somewhat aged office equipment and furniture.

The other office has two practitioners, Dr. Klonsky and Dr. Pell, who just opened up shop together. Their building, décor, and equipment are all new and top of the line. They have low local recognition, their reputations have yet to be established, and they have few referrals at the moment.

Which practice is more appealing in the eyes of a prospective buyer?

In all likelihood, Dr. White’s! While Drs. Klonsky and Pell have a great office with all the latest equipment, Dr. White’s history and reputation brings major value to a purchaser – you can buy great relationships after all! Such is the power of your intangible assets, or goodwill. If the buyer and seller take steps to ensure the practice’s transition is smooth, most of the goodwill should transfer to the new buyer and they can expect to enjoy the same pattern of income Dr. White enjoyed, and this should be reflected in a chiropractic practice valuation.

Difficulties in transferring professional practice ownership

If Dr. White didn’t want to stick around for more than two weeks after the sale and wasn’t interested in introducing the new doctor to his clients, then that would affect the transfer of goodwill and would significantly reduce the value of the business. The goodwill is what made the practice valuable—things like the reputation and recognition of a chiropractor are often what separate one practitioner from another. If Dr. White isn’t going to help introduce the new doctor, then that buyer would struggle to maintain the success of the practice.

Despite the importance of goodwill, remember that your company’s physical assets (think: things you can bump into) can hold a lot of value in many practices. A chiropractor practice appraisal performed by a competent expert should clearly analyze and fully explain what creates the value within your own practice.

Keeping Your Practice “Ready-To-Sell”

If your retirement is years away and you aren’t interested in parting with your office, maintaining a “ready-to-sell” practice has plenty of benefits for you at any stage of the business lifecycle.

Since the value of your practice is the amount that a hypothetical buyer would be willing to pay, you should always consider how selling a chiropractic practice would appear from a third party purchaser’s perspective.

To put things simply, the more capable your practice is of operating without you, the higher its value will be. Your presence may be a key part of your patient’s care, but you will boost the value tremendously if you can create a practice that would seamlessly transfer to another owner, and this concept will be reflected in a chiropractic practice valuation.

The Key Value Factors for a Chiropractic Practice Appraisal

A chiropractic practice derives its value from countless specifics of your practice. There are, however, some specific key value drivers that have an especially large impact on the value of your practice.

Competition - The practices surrounding you can affect your business more than you may think. The lower the number of medical doctors, osteopaths, and physical therapists there are around your practice, the better off you are. This is because of the reduced competition you’ll face for treating issues like lower back injuries.

Age of Population - As people grow older, the chance increases that they will develop some of the physical conditions that can be treated by a chiropractor. In fact, individuals 50 and over account for 38% of industry patients!1 As Baby Boomers continue to age, the greater their importance becomes to a chiropractic practice.

Healthcare - The less money that individuals are forced to spend out of their own pockets the better. Some private health insurance will provide coverage, which often leads to increased visits, but recent budget issues involving Medicare have reduced reimbursements for chiropractors.

Households Disposable Income - Because a large percentage of payments are made out of pocket for chiropractic services, a practice that is in an area where there is an above average per capita disposable income is often more desirable.

These are a few of the external drivers that can affect the value of your practice. A detailed chiropractic practice valuation should examine these major value drivers and explain how they interact with other specifics of your practice when determining a price.

Chiropractic Practice Valuation Perspectives

The methodologies used for a chiropractic practice appraisal will vary depending on the practice being valued, as well as the professional performing the valuation. No two practices are the same, so there is no one method for valuing a chiropractic practice that can always be used.

However, there are three underlying approaches that are the basis for any medical practice valuation.

1. The Income Approach: This approach assesses your practice’s future income-earning abilities in terms of today’s present value and is commonly used for professional practices.
2. The Asset Approach: This group of methodologies calculates a practice’s assets, both tangible and intangible, against its liabilities. This approach is often used when the assets account for a majority of a company’s value, such as specialty practices with very unique or valuable equipment.
3. The Market Approach: Market-based valuation methods compare what other similar practices sold for. An obstacle with this approach is when there is not enough comparable data, which is the case in many suburban and rural areas.

Any chiropractic practice valuation will be centered around one of these three approaches, but what is used is dependent on the history of your practice and the appraiser performing the valuation.

Looking Towards the Industry’s Future

The chiropractic industry is that it is expected to continue its slow, steady growth rate at an annualized average of 2.7% from 2011 to 2016.2 For chiropractors planning their retirement and formulating their exit strategy, this is good news.

Aging individuals are showing an increasing interest in alternative and complementary medicine. Alongside general health consciousness and positive healthcare reform, opportunities for growth are abundant, and doctors that can capitalize on these issues can expect to see a boost in the value of your practice.

Taking the Next Step

Many chiropractors have built up their practices over the years and have an intimate knowledge of exactly how their business runs. But most owners of professional practices (including medical practices, dental offices, etc.) have little, if any, idea what their practices are actually worth. While rules of thumb and industry multiples can make it easy to approximate a value, you should bear in mind that these numbers ignore any aspects of your business that make you different from your competitors. They are, after all, nothing more than an industry average.

Whether it’s for planning your retirement, selling a chiropractic practice, or updating a buy-sell agreement, a chiropractic practice valuation will make sure that you know precisely how much your practice is worth so that you can properly weigh your options right now.

We consider it a privilege to learn about your practice and we aim to help you understand what you’ve created and analyze your options.

So if you’re interested in learning more about a chiropractic practice valuation and telling us about your practice, you can use our contact form or give us a call at (800) 895-4100 and one of our Value Advisors will help you right away.

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¹ IBISWorld. (2011, January). Chiropractors in the US. Retrieved from IBISWorld Industry Market Research database.
² Ibid