As a profession, we seem to treat our offices as sanctified ground, preferring to have them unsullied, rather than mon-etize the downtime. But think about it. There are “greenhorns” out there looking for deals. These collaborations often lead to very convenient arrangements for locums and make your prac-tice much more attractive to potential buyers, to say nothing of the passive income from your “tenant” they garner while you are still practising. MARKETING The last topic I wish to touch on, before moving to valuation methods, is marketing. Much information can be found on this topic, so I won’t be spending too much time on details of vari-ous techniques and approaches. My experience as a coach has demonstrated that most of my clients know a lot more than they actually do. In fact, most of us know better than we do. We can delve into the psychol-ogy behind this some other time. But, the reality is most of us simply need to do more, rather than just know more. As one of my mentors was fond of telling me, “knowing the way is not going the way.” There are many effective marketing techniques that require more attention than they do money. Not that I suggest you cut back on any proven marketing – far from it. But, if you have been successful with some strategies and tactics, ramp them up! This is not a time to try unproven marketing plans, however – repeat what has worked, especially if it has worked for you! CHIROPRACTIC PRACTICE APPRAISAL When? A chiropractor would want his/her practice appraised for: • Practice sale or purchase • Buy-sell agreements, partner buyout • Taking on a partner • Succession and estate planning • Legal disputes and taxation • Raising capital • Marital dissolution • Calculating personal net worth How? As I mentioned last time, to estimate the value of a chiropractic practice, you may use a number of valuation multiples derived from recent sales of similar practices to come up with a “value range” for your practice. These multiples are ratios that relate the actual selling prices to the practice’s financial performance. Usually, the following valuation multiples are used to value a practice: • Selling price to net annual sales • Price to gross profit • Price to net income • Price to earning before interest and taxes (EBIT) • Price to EBIT and earning before interest, taxes, depreciation and amortization (EBITDA) • Price to total practice assets • Price to owner’s equity. A practice may be valuated based on: a) Sales of similar practices – This valuation gives you the valuation multiples for similar chiropractic practices. www.canadianchiropractor.ca Each valuation multiple is based on an in-depth analy-sis of recent chiropractic practice activity, as well as the (chiropractic-sales) experience of the valuator. b) Practice earning power – The Multiple of Discretionary Earnings method is especially well suited for valuing chi-ropractic professional practices. This method provides a highly consistent way of calculating the practice value based on its earnings and a set of financial and opera-tional performance factors. c) Practice assets – This includes hard assets (equipment, fixtures, etc.) and “goodwill.” Goodwill has been exten-sively defined in a previous issue of Canadian Chiroprac-tor magazine, (Manning, Lloyd C., October 2008, page 16), but basically represents the assumption that the pa-tients you had will return to see the DC who buys your practice depending upon the rapport you have built with these patients, the durability your practice has exhibited as well as aspects of its location. OTHER PRACTICE VALUATION METHODS Capitalized Excess Earnings method A well-conducted chiropractic practice appraisal usually relies on several business valuation methods. Since chiro-practic clinics can build up various levels of “goodwill”, the Capitalized Excess Ear nings valuation method is a frequent single choice. It is an income-valuation approach that de-termines the value of a practice by looking at the current benefit of realizing a cash flow now rather than in the future, and is effective when that cash flow is very predictable. Practice goodwill valuation in divorce cases Practice goodwill valuation in divorce cases is typical in cases of marital dissolution in those jurisdictions that treat professional practice goodwill as part of the marital es-tate. Valuations may have to divide the goodwill into the personal (“celebrity”) and institutional parts, based on the case law in your jurisdiction regarding the distribution of goodwill assets. Direct capitalization methods Direct capitalization methods – for example, the Multiple of Discretionary Ear nings valuation method – are another good choice for the valuation of privately owned chiroprac-tic practices. Such methods provide a highly consistent way of calculating the practice value based on its ear nings and a set of financial and operational performance factors. As you can see, valuating a practice really boils down to placing a value on the elusive, intangible term “good-will” because putting a value on anything else, (hard assets, worth of similar practices, etc.) is relatively easy. This dem-onstrates how appraising a practice hinges on the experience and savvy of the valuator – anything else would be a sort of guesswork. This goodwill will, largely, be built up by you, any SLs you take on, and your staff over the years that your practice is open. Equally clear, then, should be the fact that every day you are in your office can make a difference for you, not just in the short term, but also when you’re ready to sell your practice and move on. • CANAdiAN CHiROpRACTOR | MAY 2011 • 31
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