Chiropractic + Naturopathic Doctor

Features Collaboration Profession
Merging Professional Practices, Part 1


August 29, 2011
By Lloyd Manning

Topics

As a trained chiropractor with several years’ experience and a growing
patient base whose care is first and foremost, without question you
would consider yourself as a professional practitioner and not an
entrepreneur.

As a trained chiropractor with several years’ experience and a growing patient base whose care is first and foremost, without question you would consider yourself as a professional practitioner and not an entrepreneur.  However, the facts of life are that you are running a service business – one that must incorporate market economics, efficiency, productivity, changing demographics, and the foresight to meet present and future challenges. To survive and prosper, it is necessary to make a profit.

This is in the face of declining revenues, increasing expenses and growing competition. To rise to these and other tests, many single-practitioner and/or smaller chiropractic clinics are looking to merge with other similar chiropractic practices. Although there are some drawbacks, merging with other chiropractors who are in a similar situation, with similar problems and objectives, is one of the ways to attain one’s own objectives while meeting business needs and prospering in a competitive environment. In most instances, merging two or more borderline practices into one economic unit makes sense.

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SYNERGISTIC CONSIDERATIONS
Many professional practices – and businesses for that matter – are merged for synergistic reasons. The total benefit to be attained by the larger clinic is greater than the sum of the individual practices. Two plus two equals five, or more. The economics of size often produce cost savings. Greater utilization can be made of the fixtures and equipment, waiting room, office area, washrooms, storage and common areas. It can be more cost efficient in that there will be better use and less duplication of ancillary and clerical staff, services and billing systems. Cost savings will be realized through bulk purchases, and the pooling of financial resources. A merged clinic will have a greater ability to acquire and utilize more recent and updated diagnostic and other equipment. Today’s chiropractic environment requires substantial amounts of investment and working capital. New technology is expensive and because of constant updating, so much of it has a short shelf life. On top of this, governments are reducing the amounts paid to chiropractors.  Insurance companies are not fireballs when it comes to paying. Banks are often reluctant to extend substantial amounts of credit to professional practices, particularly startups, and seldom will you   have the luxury of obtaining outside investors.

BIGGER IS OFTEN BETTER
All chiropractors strive for zero defect; or to get as close to it as is humanly possible. While professionalism and patient care is paramount, flexibility is ultra-important. This requires the constant practice management and peer oversight that only the larger clinic can support. Still, underlying all else is patient benefit and retention coupled with the requirement to provide exemplary service, all of which must be correlated with the economics of scale. To survive in today’s business environment, practices must expand their rosters of professionals who possess the required expertise to offer differing chiropractic services.

The principal advantage is that a merged practice of several chiropractors, each with a different specialty is better able to provide more full-service care to its patients and compete in the marketplace. The larger practice can garner and retain business where it otherwise may not have been able to do so. This creates the ability to obtain a larger market share by offering more services in house. It benefits the individual chiropractors in that it allows them to advance their profession and patient load beyond what they could have previously done. A chiropractor can perform those functions in which he/she has a high level of expertise while passing other patients to a partner who demonstrates different talents. However, the marketplace will always dictate size limitations and compatibility.

Other advantages of a merged clinic include greater ability to adapt to changing circumstances, improved negotiating ability with insurance companies, worker’s compensation boards, managed care organizations and other third-party payers. It should be able to recruit other chiropractors and professionals, such as a practice manager, whose qualifications do not exist within the firm. Each chiropractor is now able to better advance him/herself in the profession in ways that would otherwise have been impossible.

THE DOWNSIDE
On the other hand, there are disadvantages to merging chiropractic clinics. Sometimes amalgamations are brought about because of a crisis situation, which is, actually, the worst of all reasons to merge. It may not eliminate all of the problems; in fact, it could exacerbate some.

For instance, the larger the practice the more direct management control will be required and not all chiropractors are good business managers. Some who could be capable do not wish to assume the responsibility or, as time spent managing is time away from professional practice duties, do not wish to divide their attention by taking on administrative duties. In short, this can be a touchy issue.  Therefore, if the practice reaches a size at which full-time management would be beneficial, it is often wise to employ a person competent in this area – and this costs money.  Before merging, then, these elements need to be considered: is one chiropractor going to assume a greater practice management role and its responsibilities, or are the partners going to put out the money to hire a dedicated practice manager?

But, the principal shortcoming is incompatibility with the other merger partners and differing expectations of what the merger will accomplish. Not everyone is a team player. Yet, this is what each must be if the merger is to prove successful.

Incompatibility problems can take different forms. There are conflicting objectives, differing talents, abilities, work ethics and financial contributions. Some wish to work hard and develop their practice while others are more interested in family life or recreation. There are leaders and there are followers. Still, all must promote the welfare of the group, and not that of any individual in preference to others. The hierarchy among individual chiropractors must disappear. There cannot be a pecking order.

WHERE TO BEGIN
The starting point for a merger of two or more chiropractic practices is a meeting with all prospective merger candidates and a general, open and respectful roundtable discussion of what is wanted, what is expected by the individuals, what the group hopes to accomplish, what each individual brings to the table and procedural matters.

When a melding of objectives has been achieved, all have agreed to the basics, and have laid out the rudimentary guidelines, the next step is to undertake a detailed pre-merger assessment and valuation of each individual practice that is intended to participate. It is best to have one neutral professional analyst and/or a professional practice appraiser conduct this task. By using this method, assumedly, all bias is eliminated. The analysis should include:

  • market value of each individual practice, the tangible and intangible assets, including the goodwill;
  • history of each practice, annual billings, collections;
  • details of the services each practice offers, particularly specialties not available everywhere;
  • staff of each practice, their salaries, duties, competency, length of service, etc;
  • facilities that could be occupied by the new practice – or abandoned;
  • a general economic analysis of each practice with a clear understanding of what each of the proposed participants brings into the merger (senior professionals are seldom interested in supporting poor performers);
  • untapped potential or potential as yet not fully capitalized on;
  • an economic and personal analysis to ensure all are compatible; and
  • an assurance that each will be better off after the merger.

In Part 2 of this article, I will discuss the mechanics of a merger and how to put it all together.


Lloyd Manning is a semi-retired business appraiser and financial analyst who is now a freelance business article writer. He resides in Lloydminster, Sask. He can be reached at lloydmann@shaw.ca.