Risks and Benefits of Selling to a Corporate Buyer
Passing your practice to a corporation could mean renewed growth and opportunities. It could also be a step backward. Consider these pros and cons before selling to a corporate buyer.
The Benefits
Greater Expansion and Compensation Opportunities
Advertisement
Joining a corporate “family” can greatly increase your resources and reach. Their existing network of professional connections and customers may be accessed to your benefit, boosting exposure and revenue. You may also find that a corporation is able to offer improved benefits and incentives to employees.
Your Patients Could Receive Better Service
The potential for a corporate-owned clinic to have access to superior equipment and methodology translates directly to a better patient experience. New or improved technologies could unlock a more diverse range of services, allowing you treat new patients while helping existing ones more effectively.
Improved Work/Life Balance
Some corporate deals allow practice owners to keep working in the clinic at reduced capacity. This lets them stay connected to a business they worked to build, while letting them step away more often to expend energy in other professional and/or personal areas.
The Risks
Corporate Due Diligence (and Lack of Your Own)
Every chiropractic physician knows the feeling of intense regulatory scrutiny. Those are arguably less severe than the eyes of corporate buyers who’ll be looking into every aspect of your business for the slightest flaw.
Any weaknesses in your past and present compliance structure, company policy, or documentation, can and will be used to reduce what you gain from the sale or even sink it entirely. It’s essential to review these deal-breaking areas and make them as strong as possible before considering a corporation.
Chiropractic physicians must also rigorously research corporate buyers. One essential step is speaking to other chiropractic physicians whose practices the corporation has previously acquired to discuss how their agreements went. It’s a big risk to sign any deal if the corporate buyer refuses to provide that contact information.
Holdbacks
Any practice sale could be subject to holdbacks – portions of the sale price retained as a form of insurance for the corporation until certain post-sale conditions are met. Holdbacks can prevent nasty surprises for corporate buyers, while adding significant pressure and risk for sellers.
Terms can vary and may include the practice performing at a certain level for a set period after the sale, key employees staying with the business, or proving to be as well-regulated and compliant as you appeared pre-sale.
Satisfying holdback provisions will see this financial retention released. Underperformance means a pronounced risk – if not a guarantee – of losing it. The better organized your clinic, the lower you can reasonably expect holdbacks to be. This is by no means a rule. Weigh the danger of how much you stand to lose; meeting holdback conditions isn’t always within your control.
Inability to Disengage
It’s now no longer your business. Imagining and living this reality are different, and some ex-owners may find their diminished influence on the practice’s future harder to bear than anticipated. This feeling can be lessened by joining a corporation with a similar company culture. Aligning with one that doesn’t share your values is more than a risk – it’s a recipe for regret.
Disengaging from ownership can be tough. Doing so from the agreement itself can be a long and arduous process (if it’s even possible) without legal forethought. Sellers should include a get-out clause in the Letter of Intent that allows them some form of payment should they step away from the partnership under pre-determined and mutually agreed-upon terms. Whether your exit strategy includes selling to an associate or even corporation, it is important to know the risks and benefits. Additionally, it is never too early to think about your exit strategy. Your practice is likely a huge part of your retirement planning. For more information on selling your practice now or in the future, you can watch the webinar recording presented by Dr. Tom Necela in March of this year, by clicking here!
