What You Should Know About Buying a Chiropractic Practice
Regardless of if you are buying a chiropractic practice as a stock purchase sale, an asset purchase sale, or a practice merger, you must perform your due diligence well ahead of time before locking anything in. Proper due diligence requires a detailed investigation into the financial records of the chiropractic practice so that you can gain a detailed understanding of the ins and outs of the practice, as well as determine a purchase price that is fair and reasonable.
So, how do you buy a chiropractic practice? There are several things you should know before you buy a chiropractic practice including the following:
- Make Sure You Are Buying The Assets
- Ask About Payroll and Sales Taxes
- Figure Out Who Will Handle The Accounts Receivable
- See If You Can Assume The Seller’s Lease
- Figure Out If There Are Prepaid Expenses
- Be Sure To Negotiate A “Letter Of Intent”
- Watch Out For Bulk Sales Laws
- Try And Get Indemnity From The Seller
- Ensure That The Seller Stays Around For A While
- Try To Get To Know The Employees
Keep reading to learn more about this complex yet exciting process!
Make Sure You Are Buying The Assets
When buying a chiropractic practice, you may have a basic instinct to buy the entire business or LLC, but you should avoid this at all costs. Instead, make an offer to buy the business assets, and create a company that is a separate entity that can act as the purchaser.
The first reason this is important is that you will end up being in a much better off situation when it comes to taxes. Because your tax basis in the assets that you just purchased will be the amount that you paid for them instead of the amount that the seller paid many years ago.
The second reason is if the business is in debt to other people or is in the middle of being sued by a previous customer that you had nothing to do with, you won’t have to assume any of the liabilities that come along with it if you just buy the assets.
Ask About Payroll and Sales Taxes
In many states all over the US, the state tax authority can still come after you if they discover that the seller still owed payroll, use, sales or other taxes even if you’ve only bought the business’s assets.
If there are other employees associated with the seller, take some time to ask them if they were using a payroll service and if the seller is up to date in his employment tax payments. Once this is done, you can ask the state tax authority to supply you with a clearance letter that shows the seller is up to date in his sales and that they can use taxes on the date of closing.
This may be a few extra steps to go through, but it will end up saving you and your chiropractic practice a lot of hardships in the long term.
Figure Out Who Will Handle The Accounts Receivable
It is very normal during a deal of this nature for some of the previous customers of this business to still owe money to the seller when it comes time for the closing date. It’s important to ask who will be responsible for handling all of the overdue debts that are leftover.
One way to take care of this is to buy the accounts receivable at the time of closing, or you simply let the seller collect on them on his own time. It is recommended that you buy the accounts receivable at the time of closing so that if a customer wants more work done after the deal is done, you are in a position that is much stronger for bargaining a better deal.
See If You Can Assume The Seller’s Lease
An important factor to find out is if the seller is leasing the building where any business is being conducted. If this is the case, you should inquire as to how much time is remaining on the lease term and if the landlord who oversees the proper would be willing to allow you to take over the seller’s lease without any changes done to it.
If there are only around two years left on the lease, it will probably be worth your while to try and negotiate a lease with a 5 – 10-year term If there is some kind of security deposit that the seller has put down, the seller will most likely ask you to buy the deposit on top of whatever you have agreed on.
It’s a good idea to ensure that the security deposit is included in the overall purchase price if this isn’t the case, and that it is put into writing somewhere in your contract.
Figure Out If There Are Prepaid Expenses
Another good thing to get on the table when you are buying a chiropractic practice is to figure out if any expenses have been prepaid.
An example of this is the Yellow Pages. When you buy an ad in the Yellow Pages, it is normal for someone to purchase for an entire year at a time. If this is the case, when it comes time for closing, the seller will want to get reimbursed for the part of the year when you are benefiting from the ad that the seller had paid for initially.
These kinds of prepaid expenses aren’t normally thrown in with the purchase price that was agreed upon and they are just added on at the very end instead. Get ahead of this by requesting a list of closing adjustments from the seller now that you can budget appropriately for them. This will protect you from any unwanted surprises popping up during the closing process.
Be Sure To Negotiate A “Letter Of Intent”
A Letter of Intent is also called a term sheet and is an agreement between a seller and a buyer. This important document is where important conditions and terms of the sale are spelled out for both parties.
It is very important during a sale of this nature to have a Letter Of Intent that includes how and when the purchase price will be paid, the price of the purchase, any assets that are being sold, the ones that the seller will hold onto, and the terms of the sellers non-compete agreement.
When this kind of document is drawn up correctly, lawyers can gather the sale documents correctly during the first couple of drafts since all of the really important details have already been taken care of. If not, you’ll end up needing to negotiate the entire deal which will require many more drafts of the sale documents and a much heftier amount of legal fees.
Watch Out For Bulk Sales Laws
Thankfully, a lot of states have gotten rid of these kinds of laws, but there are still some states that require the buyer of local chiropractic practice to update the seller’s creditors that there is a transaction happening between you.
When notices are overlooked, the seller’s creditors might try to undo or rescind the deal that is in place to protect the assets that they have an interest in from being sold without them having a say.
If for some reason the seller doesn’t have any creditors, which doesn’t happen often, the state tax authority requires a copy of the bulk sales notice so it can decide if the seller owes any money. If the seller does owe money, they will need to pay their dues before any transaction can happen.
Try And Get Indemnity From The Seller
In any transaction of this size, details are going to be overlooked. When this happens, there is a good chance you might find yourself dealing with a lawsuit because of some of the actions of the previous seller before they passed it on to you.
That’s why it is very important to get indemnity for the seller, which promises to protect and defend any lawsuit and take care of the fees and judgments if they should arise. It’s also fair to give the seller indemnity in case they get sued for something that you have accidentally done in the closing process.
Ensure That The Seller Stays Around For A While
For a lot of service and retail businesses, it is normal for customers to have a good relationship with the owner, and this is not something that should be overlooked.
Make sure that the seller can stay visible and present throughout the closing process and even after the closing date so that they can introduce you to the consistent and committed client base.
Having the seller stick around will also help you acclimate much quicker to your new chiropractic office because you can ask all of the necessary questions to get very familiar with your surroundings before the business is fully transitioned.
Try To Get To Know The Employees
In a business transaction of this nature, one of the most important things you can do is have a conversation with some of the key staff. Are they willing to stay after the transition takes place? Are they happy with what’s happening?
They are the ones who will make the business run smoothly from day to day, so having a finger on the pulse of how they are feeling can make or break your new chiropractic business.
Buying any business is a process, so be sure you take a proper amount of time to research these important steps as you move forward with buying a chiropractic practice.
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