280 - Show Me The Money

A lot of the heartache that comes with opening a new office can potentially be avoided by getting something that's already well put together. If you're purchasing something that has the bones and the structure, and all you have to do is come in there and improve upon it and run the play, it can be a very, very appealing situation.

Hello, and welcome to the Remarkable CEO Podcast, a show dedicated to chiropractors who want to transform their job into a business so that they can have a remarkable practice as part of a remarkable life, not instead of one. With your hosts, Dr. Pete Camiolo and Dr. Steven Fransen.

What's up, remarkables? Hey, it's Dr. Steven Fransen here. Welcome to another episode of the Remarkable C CEO Podcast, Chiropractic's number one podcast. So super excited today for the conversation we're going to have. We're going to talk about acquisition. So if you've ever thought you'd love to be able to buy a practice. So maybe you're starting out and you're saying, instead of de novo, a new startup, I'm gonna buy a practice. Or maybe, you know what, you're at an associateship opportunity right now and you're like, you know what? It's time for me to start my own thing. And buying a practice is just such a great idea. We're going to be strong advocates of that today. We're going to talk about acquisition for you. We can also talk about if you always wanted to have an enterprise and have multiple practices. Man, you're going to love what we have for you on this call. Or maybe you're going to grow through acquisition. You're going to grow so by buying surrounding practices and absorbing them into your practice, it's like the amoeba effect of growing your practice, right? So, man, we've got some experts, some of our remarkable experts from Financial Corp. With us today. Uh, we've got Janet Emmerich and Corey Biddle, our good friends and success partners for the Remarkable Practice. Super excited to have you guys share your time and your expertise with our listeners. Janet, Corey, thank you so much for being here.

Thank you for having us. We are thrilled. It's one of our favorite subjects. We love these kind of deals. It's always exciting to see either, you know, a successful exit or a new entrepreneur get to spread their wings and find something that's ready made. So exciting times. Love it. Love it.

Janet, I know that Corey is. He's more like the spokesmodel. You know, he brings, you know, all his good looks and charm to this partnership. But we've dragged you onto this podcast as well because of all your experience and your love. And I know you've got a passion for M A as well. So we appreciate you lending us your mind and your time.

Welcome to the Call Lady Salute last year.

Appreciate your invite.

So guys, if you are listening to this as a podcast, that's great. It's going to add huge value for you. Audio only. But if you would like to join us on YouTube, this is a great opportunity for you. Watch this on YouTube as we are going to be sharing a PowerPoint deck as there's plenty of data here that you want to be able to get your head around and your mind around. It always helps when, especially when you start talking about numbers and processes and steps when you can actually look at a screen and visually learn this process as well. So I'm just going to encourage you and invite you to join us onto the remarkable CEO podcast on our YouTube channel. We'll make sure to put a link in the show notes as well. Corey, I've challenged you here today. I'm saying, hey, you know what, I know that you're experts. I know that we could have an advanced, high level conversation and go deep and get granular on this. But I'm going to challenge you to say, all right, so let's, let's talk to first time buyers, right? So let's have an acquisition 101 conversation. I know that we're going to end up going deeper, but I just want to make sure that we make no assumptions. I just want to do Acquisition for Dummies. And I mean that with love because I needed that when I first, you know, started studying this material and just recognizing man as chiropractors. This is not part of a conversation. Nobody's having this conversation. Nobody's teaching doctors how to do it. And I think it's an incredible opportunity. I think that it's becoming a bigger and bigger opportunity. It's definitely always been a big issue in chiropractic, right? So this is another chiropractic black eye when it comes to businesses. Unfortunately, over 80% of practices never actually sell. They actually shutter and close. And that's tragic, right? So we can't afford to lose one chiropractor. Not to mention the trending that we're seeing in transitions today, right? So you've heard me talk about this confluence of three dynamics that are happening right now. Number one, there is this post Covid hangover. Number two factor is the pig in the python effect. Of this population of baby boomers that are aging out of the profession and out of their careers. And number three, the pending economic uncertainty, we'll call it that, right. Has got some people freaked out and they're like, that's it, I'm done, I'm out. So we've seen a 2x or a doubling at the rate at which people are transitioning out of practices. I'm going to give you a chance to speak in a second as a take a breath. Just recognizing that a thousand chiropractors a year transition out on average over the last 10 years. But what we're seeing now is a doubling of that. So there's been a 2x uptick on that trans transition rate, which means quick finger math. We're seeing 2,000 and more than 2,000 practices a year coming up for sale predicted for the next five years. That's 10,000 practices in the next five years transitioning out of practice. And if 80% of those never sell, we'll be losing 8,000, 8,200 chiropractic practices in the next five years. And that to me is the tragedy that we must avoid. My desire here is that we give these sellers a nice soft landing and give these potential buyers, these chiropractic entrepreneurs, an opportunity to help more people. So Corey, thank you so much for what you've prepared. Why don't you jump in high level? Let's go. A bridging success to acquisition. I know you've got it all teed.

Up and ready to rock. Thanks, Stephen. So the first thing that we're going to look at here, whether you're a buyer or seller, it all revolves around the seller and their practice. When you're doing anything to do with the merger and acquisition, the business that you are looking to purchase or looking to sell is absolutely crucial. So having a plan in place, right. Proper planning prevents poor performance. If you have an exit plan as a seller in place and you're able to execute and you're able to do some pre work, it definitely makes it much easier on your end. Plus it's all going to be more favorable for you because then your financials are cleaned up and you can potentially get more for your practice. And the guy coming in is going to have a much, much simpler time. So most of these are done through the SBA 7A process and the SBA 7A for mergers and acquisitions is cash flow based. So whatever your profit is, the bottom line on your P L, the bottom line on that tax return, that is what is key A business broker can go in there and value your practice at, you know, 350, 500,000, depending on, you know, what your financials look like. But when a bank looks at it, they're strictly looking at cash flow. Would this cash flow and support not only the borrower's loan for the business, but also any potential salary requirement that the borrower may have. It has to be able to service the loan, has to be able to service the buyer, and it's got to be able to continue trending in a positive manner. So a few things to look for that would make things significantly easier on really everybody involved in the process is prior to selling, sit down and take a look at a few things. Number one, how's your revenue trending? Has your revenue been decreasing for the last several years? If so, what can we do to fix that? Is there a narrative behind why your revenue's been decreasing? It's not always a good deal. If a seller checks out for three years, right. And it's just been kind of doing its own thing, when the borrower goes to get his loan, the bank's going to have concerns about that, as they should. Personal expenses, what's an allowable add back? What seller's discretionary earnings. The business broker will always tell you, here's the seller's discretionary earnings. And in that they're going to make the business look as good as possible as they should. Right? That's their job. But when a bank looks at it, a bank is going to look at your bottom line and the bank is going to go, you put, you told the government, you told the IRS, you made $30,000 in profit last year. Then there's this whole list of, hey, I got my house painted, I bought a car through the business, all these other things that are indeed owner, owner benefits. The thing is with the bank is they typically look at the buyer and go, the buyer's going to do the same thing, right? Because it's a business, it's a, it's a benefit to the business and it's something that, why wouldn't they do it? Right? That's how we're advertising it. So there's only certain add backs that a bank will look at like depreciation and amortization and things like that. So as you are preparing yourself to sell, a lot of those personal expenses you need, you need to reel those in. You need a nice fat number on the bottom that's going to be able to carry that loan. There's no guarantee whether or not an underwriter is going to get on board with the list of add backs that's as long as our arm. It just, it's the reality of it and it is discretionary.

I love this approach. So, you know, very often when we talk about the buying and selling conversation, all we think about is the buyer and the seller.

Right.

So there's actually a third party involved in this conversation, which is the banker.

Right.

So somebody is going to be financing it. So there's a third party that has to agree on what the business is worth. Right. So it's one thing as a buyer to say I want this and another thing for a seller to say, okay, that's what you want, that's what we're going to do. And they have to turn to a bank and the bank is going to say whether that's a bankable deal or not. So you know, I'm going to just paraphrase as we go, but what you just said was, number one, it all comes down to profit. Right. So whether we're talking about profit, cash, cash flow, ebitda, sellers, discretionary earnings, however you're phrasing it, right. So for an owner operated business, we talk seller discretionary, earn it for, for a professionally managed business, we're talking about Evita, everybody understands what profit is and, or cash flow. The bank is going to be looking at the cash flow of the business. When they're determining exactly what, what do they, not necessarily what the business is worth, but what are they willing to finance. Right. So, which is probably two different numbers, right? So and you have to take that into consideration because if there ain't no money there, there ain't no deal.

Right.

So and we've got to make sure, unless it's a seller financing deal with the sellers, like I'm going to take back paper and I'm going to do seller financing. I suppose I'd have you speak to that as well. It's like I, I know that's less palatable. Is it a good idea, bad idea? Is that an option on the table? Is this something that's, you know, I know that's really kind of out of your arena of what you do, but there's that option as well. Is why is that a good idea? Why is that an option? Why is that a bad idea? Let's speak to that a bit.

Yeah. So seller financing is actually looked upon in a very positive manner to an extent when you're doing something and it's something that you should really consider as a seller. Banks like to see it because it keeps you engaged. Now, there's certain caveats to that, right? This, the banks, he who holds the goal makes the rules, right? And when you look at it, I think most people think, hey, I'm buying something. They look at it at the same approach as a real estate transaction, where the burden is typically on the buyer, but 100%. The seller's business is sort of the one applying for the loan, especially if you're doing a stock purchase instead of an asset purchase. So it all comes down to the seller's financials. If you have a weak seller and a good buyer, you don't always have a deal. If you have a weak buyer and a really strong seller, the seller's business can overcome that. So getting into the details like seller financing, banks like to see that they'll usually require it to be on some sort of a standby note. But when you bring that into the equation, the buyer can actually have a lower down payment. If a seller holds like a 5% note and they're okay with not getting paid for two years, the banks like to see that because it keeps the seller vested in the performance of the business after they've departed. Right?

What percentage does the bank like to see as far as the seller taking back paper on the deal? What percentage does the bank want to see to make the deal more attractive to them? Or is that a sliding scale based on the difference between the cash flow and what they're looking to finance?

It's a sliding scale, but we've seen it kind of go both ways. Traditionally, if a seller will hold a 5% note, then the buyer can only bring a 5% equity injection or down payment to the deal. Mergers and acquisitions typically typically require a 10% down payment from the borrower. But if the seller holds a 5% note, then you know that that's less money that the buyer has to bring in. Their seller's notes can be larger when they get a little, you know, if you're carrying a seller note for 50% of the value, that's where banks start to kind of, you know, they go a little wishy washy on you, but you can, you can even hold multiple seller notes. There's a way. If you use it for an equity injection, it's got to sit there on standby for two years. That means no payments to the seller until the bank sees that that business is performing well enough to support the additional payment. But if you've got cash flow for days, you could do a 5% seller's note and then a secondary 5% seller's note. And if you've got the cash flow for it, the secondary note can kick in from day one, you can start making payments on that and then you just have the equity injection, seller's note, that's on standby for two years. So there's ways to structure it. Ton of nuance to it. So. But it, it is looked at generally as, as a very positive thing to have a seller invested in the business as after closing.

Yeah, it sounds like for, for obvious reasons.

Right.

Keeping the seller engaged. Seller's not going to agree to a deal if they know that they're going to be attached to that deal for years. They want to be teeing it up and setting it up for success. And last thing I'm going to say, and we promise we're going to keep it high level, we were already breaking our own rules here. So last thing I'm going to say is, I think a really important point which is counterintuitive is if you're three years out, five years out, what have you from selling your business, you should really watch those add backs and what you're running through the business because at the end of the day, you, like you said, you want to see a big bottom line, right. So you want to see greater profit. And as much as you're like, wow, I'm getting away with running $35,000 through my business or 50,000 or a hundred thousand through my business, you're literally just pulling it off of the profit, the perceived profit of the business and making your business less attractive. So you have to ask yourself, is it really worth it doing that and pulling those monies out or running everything through the business and eroding the profitability with the stated profit represented profit of the business, it's going to end up being a black eye in the exiting of the business.

Right. And you know, that kind of reminds me of one additional thing that you should really, as you're going through that, ask yourself, are you really trying to, are you trying to fully exit or are you trying to partially exit? Because we do see this happen more often than not where somebody might sell their practice and then they still want to work in the practice for a year or two afterwards. Say you're close to retirement age and you just don't want the stress of owning it or being a managing partner and you'll sell it and then you'll want to work in the office there. The SBA does have some regulations on how long a seller can work in the office afterwards they all kind of have their own quirks. But you can do partial buyouts now. A seller can only, you know, they can sell 99% of their company, maintain 1% ownership or even 19% ownership, not guarantee the loan with the, with the borrower. And, you know, now you've, you've basically just done a partner buyout, like an equity transfer almost. Right. And that's a good thing, especially if you have an associate that's a high performer and you want to sell it to your associate or an independent contractor that works in your office. Right. And you trust them and you want to make it kind of an in house deal. That's not a bad option to do just to kind of keep things in the family. Plus then you, yeah, you can now take over that minority owner role that doesn't have so much stress and, you know, they can buy you out at a later date. So it's all just things to consider.

And it's more common than people think. We call it the remarkable switcheroo. Right. So it's like you're just changing rules and like, okay, you've wanted to run this place. You could do it better than me. Go for it. I'm going to stay on as a celebrity adjuster. All right, man, I know we got stuck here, but it's all good stuff and I want to make sure we flesh, flesh out the bones.

Yeah, not a, not a problem. That's going to take us to kind of our next point here, and I'm going to turn it over to Janet in just a second. But if you haven't got the point yet, the seller has got to be engaged. There's no way to do this. If you're leaving for Europe and you're not going to be on the grid for two months, it's not a good time to put your practice under contract. Remember, your practice is what's the most important thing in the deal. You got to open your books. You have to submit all sorts of documentation. You've got almost as many documents as the borrower. Right. They got to know everything about you by the end of it. So I'm going to kick it over to Janet here and let her walk.

Through what that looks like as a seller. There are, like Corey said, a lot of documentation that the bank is going to want to know. You know, they're going to dive into your business from every aspect and things. So the, what we kind of like to do is get a package, review it, and make sure that you're going in the right direction. That we've got a great loan, you know, so we can figure out which lender would be best for you and the buyer. So some of the, some of the documents that we're going to need from you or your, what last three years of business tax returns as an example, that would be 20, 21 and 22 and 23 in this case, they're going to want those fully unredacted. They don't. They want to make sure that they can see all of your Social Security and your business ID number. So you, you're sharing, sharing everything. So if it's part of a Schedule C on your personal tax return, they're going to want the full tax return to look at. If it's a business tax return, they don't want anything hidden, no little X's in the last four digits of your numbers and, and things like that. So beyond that, then that's, that's your, your previous information. Now they're going to want to know how you're doing this year. You know, are you, you know, are you still gaining?

Are you trending?

Yeah, are you trending? Are you, are you still going in the right direction even though now that you're selling, you know, because they, they're very experienced and, and see people disengage and, and things like that. So they're wanting to get your profit and loss statement. And on your profit and loss statement there are things that, the two things that they're really going to look at, like Corey mentioned is your sales. What was your sales and, but the bottom line, that profit.

That'S probably the first thing that they open and look at. You know, they don't, they know that the revenue is going to reflect what your purchase price is. We also need a balance sheet. On the balance sheet, they're looking to see what kind of loans, what your outstanding debt is. Do you have credit card loans? Do you have X ray loans? Do you, do you, are you still paying on an SBA loan that you did originally to get started and things like that. So those are things that they're going to find on your balance sheet. Of course, then they're going to want to know exactly where you stand. Do you have an AR report and accounts receivable and what your payables, you know, are you caught up on your receivables or are you doing through insurance? And your receivables are 30, 60, 90 days out. So. And they will want to look at that to see if that's part of the sell of the business, then the seller's lease, they take a look at the seller's lease. They want to know if there's anything left on the lease. Is it an assignable lease, can it be extended? What's the life left? And because the SBA is going to require a 10 year loan, so do we have to start all over? How much are you paying per square foot? You know, because the buyer is going to be doing some kind of projections what he's expecting himself to do, but some of that will be based on your original numbers. So, you know, we need to get that into the bank and let them take a look at that. We also, the key form that the SBA likes to sign, have you sign is an 8821. And it's giving you the taxing authority to allow the bank to request the copies of your business tax returns. So now if your business tax returns are schedule C and on your personal taxes, as part of that, they're going to ask for you full copies of your business tax return and your personal return because they're going to want to make sure that you don't have any other businesses and just they'll get a full, full picture. Otherwise the 8821 is going to ask for a copy of your 1065 or your 1120s, depending on what kind of business filing you do. Does the seller own your own building? This is a good one. It's important to know, did you buy the building and then add the practice, or was the building and the practice purchased together and now you're reselling it? And where that comes into play to be important is if you are selling it, are you just selling the building? Are you selling the practice? Was it lumped together as collateral in your previous loan? And if it is, then we need to either figure out how to separate those two or can it still be combined all into one loan?

Yeah, that's a really common question is, well, I own my building and I own my practice. Is it wise for me to cobble them together in the deal? My typical response is, well, I'm hoping at this point that you have, you know, separate and distinct llc. So the business is in its own and the building is in a its own. Right. So they're separate entities. It's a heck of a lot easier to cobble them together than to tease them apart. Right. So, and it gives you some leverage. So in that selling conversation, and in many, because this is an acquisition conversation and the buying perspective, this is very often people like, they may or may not they'll have the reasons why they may or may not want to buy the real estate. They may just want to buy the business, and they do not want to buy the real estate. And to your point, if the real estate is involved, it might make it more bankable of a deal, and they can collateralize the real estate to buy the business so that the seller can get their price. So there's a lot of dynamics here, and I hope that people aren't glazing over because we're having a complex conversation. But, you know, bear with us. These are just the most, like, high level, most important components of it. I mean, Janet just took off on all those forms, and I had to just click over Corey to make sure he was still with us.

But, yeah, I mean, at the end of the day, there is a checklist. There's a. As always, there's a checklist of due diligence that you need to do on both sides of this equation as the buyer and as the seller.

Seller.

And you have got to complete this due diligence all the way through. And it is time consuming, but the reality is, is it's. It's definitely harder and takes more time and gives you more brain damage if you try to do it on your own. Which is why we're excited to come alongside everybody and help you and say, okay, so we're going to give you homework to do, but at least your homework doesn't start with, well, what work do I need to do? So I appreciate you for that, Janet.

Yeah, absolutely. Well, and things back when people probably bought their buildings 20 years ago or so much different in their thought of how they did purchases, and things have evolved and, and now, you know, we're getting. Diving into, like you said, the details. But those details can make a difference of whether you can sell or not sell. So we want you to be able to get the most possible.

That's exactly right. I think at the end of the day, when it's in this. In this conversation, whether you're the buyer or the seller, optionality is a really important word. Right. So it's just recognizing in this situation, you always want to be increasing your options.

Right.

So you want to have greater and greater optionality. So structuring things in such a way where you have the options as opposed to, oh, my gosh, these things are stitched together in such a way that it's inflexible and it might make it less attractive to certain buyers who would have otherwise been willing to buy your business.

Absolutely. So, Marlo story there. Right. Bookkeeping can make or break or do that's just. Yeah.

I mean these things happen at the speed of trust.

Right.

These transactions happen at the speed of trust. And in my experience the fastest way to build trust is having fully loaded books that are accurate and transparent and complete and timely. Right. And really represent your business. It's the fastest way to build trust. Somebody looks at your business, whether you're the buyer or the seller, and they see that the financial reporting system is airtight, that that's going to build enormous trust and it's going to speed everything up. Conversely, if you do not have the numbers or you do not have a reporting system or you do not have a, like I have a fractional CFO that has all of this buttoned up and you know, it's all, it's all current representative fully loaded and clean. If it's not, and this, God forbid, it's either incomplete or it's inaccessible or there's some monkey business going on there. It's the fastest way to erode that trust and blow up the deal.

That's, and that's how the bank looks at it too. If we give a reason, an underwriter, a reason to really dig into something that is when you, you see them start asking for AR and AP and all that. If we present a very well put together package from the seller and everything looks like we've got our T's crossed and our eyes dotted, the chances of them wanting to really dig and look at some of the other documentation that could come out is, is minimized. If we here it is, it's clean, it's quick and easy. Look, they want to approve these loans and they want to go on to the next one. They don't want to, they don't want to have to write, they already got to write a 70 page credit memo on you. They don't want to make it 150 after they've looked at every, every report. So that's, that's exactly right. It's a collaboration. It's not. If something's asked, there's a reason. And they're not just asking to be nosy. They're asking because they want to help you sell your practice. They want to get it done and they want to finance it for you. So instead of, you know, this, it's all about mindset, if we look at it as a collaboration with the foundation of Trust, then we will all be successful and we'll all get to the finish line together. So beautiful.

Hey, Doc. Steven. Franson. Here, if you're like me, you know that we're in the business of saving lives. And when business is good, everybody wins. That's the good news. But here's the bad news. Most chiropractors don't own a business at all. They own a job. It's a job they love, but it's a job. And for far too often, it feels like that job owns them. Is this true for you? Do you own a business or a job? Have you built and do you run your practice on brute force? Does it rely fully on your time, your effort? A pound of your flesh? Are you responsible for all growth, for all new patient generation? How about new patient conversions? Is it all up to you? How about patient care and delivery? Delivery? Are you a sole practitioner, an owner operator who owns the practice but is also the only one that is head down and bum up taking care of all the patients? Is revenue generation or collections all up to you? Let me ask you the most telling question, Doc. What would happen if you took 90 days off? What breaks in my experience, most on purpose chiropractors do not lay awake at night worrying about their practice practice. They worry about their business. Let's slay that dragon. The Remarkable CEO program has helped hundreds of chiropractors just like you turn the job that they love into the business that they've always wanted. Are you ready to run and build your practice on leverage instead of brute force? Do you want to create the scalability and durability that will allow you to make a bigger impact and a bigger income? What would it mean to grow your practice, increase your productivity and your profitability? Do you want to get your time freedom back? Are you ready to turn your pirate ship into a battleship? This sounds like you. Then the remarkable CEO program is for you. Just last year, 53 of our remarkable clients received the Seven Figure Club Award. Meaning they hit the million dollar mark for the first time or their next million dollar level, be it 2 million, 3 million, 10 million, up to 36 million and grown now, Doc, Is it crazy to imagine that your practice could be next? Click the link below and learn how to apply for the next cohort of the Remarkable CEO program. We look forward to working closely with you and creating the business that supports your remarkable life, not competes with it.

So we're going to kick it off and talk about entrepreneurship through acquisition. Everybody gets to ask the question to themselves, do I want to start my own practice or do I want to purchase one that is turnkey? Well, there's pros and cons to both right and whether or not it's right for you. That's. That just depends on your situation. Because everything is unique. There's always opportunities for improvement and there's always advantages. But a lot of the heartache that comes with opening a new office can potentially be avoided by getting something that's already well put together. If you're purchasing something that has the bones and the structure and all you have to do is come in there and improve upon it and run the play, it can be a very, very appealing situation. But in reality, you know, there, there are some, some pros and cons. And as you, as the buyer are going through the process, you may have to formulate a plan on how you're going to mitigate some of these things. So your business plan is absolutely crucial. You can't just go in there and say, I'm going to run the plan. I know I say that, but you have to have a business plan in place of how can I like the title of our slideshow? How can I bridge success from the seller to me? How can I make that translate? What is your role going to be? Are you taking over a clinic that was run by an absentee owner? Are you going to be an adjusting doctor? Are you going to just manage the day to day? You have to spell all that out for the bank and have a really clear cut plan on how you're going to piggyback off of that seller's success.

And in the real world.

Right. Not every practice is going to cash flow perfectly. We do plenty of tight deals. So do we need to go in there and do we need to write the ship? Am I buying something that seems like it's a good deal, it's in a great location and I believe I can turn it around if it's something that we need to write the ship on. How are we going to write it? What are we going to do differently? How can we present this to a bank that goes okay, we see diminishing returns financially? Why do I want to buy this? Because it's not just they're going to take you at your word for it. You arguably have to convince the bank why it's a good investment for you to buy it. That way they finance you. So it's, it's just like pitching it to an investor. You're just pitching it to the bank. This is what I'm going to do to make this right. What does that entail? Are we adding services? Are we going to make it a multiple modality location? Maybe the last guy wasn't doing spinal decompression. Maybe. Maybe you want to add massage therapy. Whatever it is, you need to have that plan in place. And you can even bundle. Just because you're doing a loan to make a business purchase doesn't mean that you can't get other allocations to your loan. It's not just a one and done. When you're getting an SBA loan, you have your set allocation for the business purchase, but you can add equipment to it, you're going to add working capital to it. You can add whatever you need to. Within reason, within guidelines, right? To make your practice successful. So if we want to go in there and we do want to add some things, maybe add some equipment, update some things, even do leasehold improvements, those are things that we are able to do. So have that in mind. As you're selecting a practice, you kind of have to know, why am I buying this practice? Why is it right for me? How can I fix it? How am I going to be successful going forward? And then you got to convince, you know, a lender to buy in with you.

Corey, let me have you pause right there, because you just laid out a lot of gold and I just want to unpack it a bit to make it sort of feel real world. So you asked an important question from the beginning. It's like, is buying a practice right for me? So let's just start there. It's like, what, you know, what are your. What are your options? You can stay in your associateship position or if you've decided, hey, I do want to become a chiropractic business owner, an entrepreneur. If you are hardwired for that, if God has seated that in your soul, if you are, your cognitive profile is to be entrepreneurial. God bless you. Right? So it's wicked hard, but it's worth it if you are hardwired for it, right? So not everybody is. And I just want to give everybody permission for that to just recognize that you. There's a cognitive profile for people who should be owning and running businesses, right? So if you've decided that's your move, then you have some choices here as well. It's like the high level major categories, de novo or acquisition, right? De novo is I'm going to start something from scratch. I'm going to start it from vapor, start it from zero, right? So which is what I did, right? So Camilla and I did out of the gates, right? Or is there an acquisition? Which is actually, I'm going to buy out the guy that I Work for the gal that I work for in my associate. That would be an acquisition or I'm going to go elsewhere and I'm going to buy out a practice that's available. That'd be an acquire an acquisition, acquiring the business. Camilla and I have an expression, pick your problems, right? So at the end of the day it's, that's such a great way to go into any opportunity is don't look at just, oh, wow, look at, we got all blue skies over here and look at how wonderful and awesome that's going to be over here. A mature business person looks and goes, pick your problems. Like what problems do I want to be managing? And de novo startups, they're going to have their own set of problems and an acquisition is going to have its own distinct set of problems, right? So you have to pro and con the situation. If you don't see all the pros and all the cons for each. And as Dr. John DeMartini taught us, there'll be perfect equilibration. So there's just as many pros as cons on both sides of that question. And if you don't think there is, you're missing something, right? So don't get enamored with an opportunity, right? So you have to look at and be like, pick your problems. So why would you buy a practice? Instead of starting initially, it might feel like, wow, it's so much more expensive to buy an established practice. Why don't I just, you know, I'm going to do this on a shoestring, but I'm going to bootstrap this thing and I'm going to grow it from zero. Maybe that's the right thing to do. But you're picking a set of problems, right? So there's definitely a Runway that comes with a lot of expense of establishing a practice from zero. All the creative demands of that systems, processes, procedures, hiring people, marketing, getting those initial patients to come in your office like you don't have any customers, which means you don't have any revenue, which of course means you don't have profit. You are bleeding money for the first three months to three years, depending how good of a business person you are, right? So that has its own set of problems, right? But it feels like it's easier to get into, you know, and it's a lower risk and you know, there's, you have less on the line on the other side. If you were to buy an existing business that's already a successful business, that as a buyer you've qualified that business, you've got the financials, you see that it has a build out that's done even if it needs some refinement or maybe a redo, right? So but it's at least you've got a structure with a place, with a footprint. So you have a physical footprint, you've got a digital footprint probably, maybe, hopefully with the, with the social media, with SEO, you've got all of those elements that are established. You've got patience, so you've got revenue, so you've got profit, so you've got some momentum, you got a lot to work with and it should be, if you're picking the right business, it should be cash flowing from day one. Right? So what you're doing is you're compressing time. You're buying a business that's already cash flowing so you compress time and you pull the money forward, which is why it's worth taking on the debt. As long as you model it properly and you don't overextend yourself, you should be able to service the debt and pay for your salary and the business should be cash flowing. I don't want to steal any of your thunder here, but you went through quite a bit there Corey, and it was all gold.

Right?

And we can talk about arbitrage as well. I think that that's a really sexy conversation that people just don't really understand is like, hey, you know what, maybe the business you're buying, there's a lot of arbitrage there. In other words, you know, hey, they're only charging 25 collection visit average, I'm going to take it to 50 or 60. So now there's 25 to 35 of arbitrage on every visit.

Right.

In other words, there's a, there's some, some white space between where they are right now and where you're going to take it. Maybe they're only seeing 85 patients a week and you're super confident you can grow it to 185 or 285 week. This arbitrage zero and growth. Maybe they don't do any digital marketing and this person's been there 30 years and they, and they don't even have a website, never mind social media doing yet. So you're like, I'm really good at this, I'm going to bring that in and I'm going to grow this business because they don't do any marketing. Right? So there is such a list of potential arbitrage issues, right? So where you can take advantage of just Bettering that business, making it more attractive, making it more productive and more profitable. Man, I love this space. I love this conversation.

Absolutely. There's always an opportunity or a stone turned when you're, when you're buying a practice to take things to the next level. You just kind of have to, like you said, do you forego a little bit of creativity and a little bit of the, you know, are you a guy that wants to brag on going through the hard knocks? Right. If that is, start your own to start your own all day. But if you want to have a path to immediate cash flow, it's hard to beat a ready made practice and.

Just, and pick your problems because it'll come with its own set of problems. Don't be right, but pick your problems.

Just a couple more things to hit on here for you know, first time buyers is do you want to do asset and stock purchase is really a conversation that you and the seller should have. Asset purchase, I can tell you is a lot more prominent than a stock purchase. Look, there's pros and cons to both. In a nutshell, a stock purchase is you're buying their entity and asset purchases just where you're buying the business assets. And you're going to form your own business entity. You know, ask your legal counsel. I'll just refer to that as our disclaimer or a little asterisk, which of those might be right for you. Most people go asset, you know, it forgives any past sins. If you want to say from the seller, right. Somebody's not going to be able to see you because you're under a different business asset or a business entity. So there's pros and cons with both. Just think about it, think about what.

That means and have that conversation with your accountant as well. Because there's tax implications for both sides of the buyer and the seller.

Right? Right. So have that in place. You don't want to make that decision after you guys have agreed on a price and everything. All right, we don't want to stock our asset. You need to know that up front because it's two completely different paths to the promised land. And the last few things is when you're, when you are a first time buyer, there are certain requirements. They're going to look at you like you are a startup. You're just a startup that's going to be very well prepared because you're buying something that's already cash flowing. Right. So you still have to qualify. And typically for somebody that's doing this, this is Your first practice, you're putting 10% down unless you get that seller subordinate financing that we talked about earlier. If you get a 5% seller note, you're only putting 5% down. So there's a way to get into it with little out of pocket. If you're an associate buying out your, you know, the guy you've been working for for years, some banks may consider zero down. It all just depends on the structure.

And SBA will do that now, right? For, for an acquisition, they will allow a zero down in the Right.

They will. It is very dependent on the lender and the situation. If, if there's hair on the deal, it's probably not going to happen. If it's freaking clean and everybody's, you know, got everything straightened out, then there's promise to it.

Is there any disadvantage to the seller taking back 5% and the buyer putting down 5%? Other than there's a clear disadvantage to the seller. But is there a disadvantage to the sell to the buyer?

We love it when it's a 5 and 5 and that's probably just our banker bias.

Yeah, yeah, sorry, I'm just advocating for that. If you can do it right, your price, my terms and one of the terms, we do a five and five.

Right. Well, but the thing is, from a buyer, it's advantageous because look, these practices are expensive, right? If you're buying a half a million dollar practice and you're going to put 10% down, that's 50 grand. But wait, there's more, right? They have to have reserves and banks usually want to see 5 to 10% and post closing liquidity is what they call it. But those are your reserves. They're more flexible about that on an acquisition than say they are on a startup where it's a hard number. You better have 10% or get lost.

But you got to have something. So if it's a tight deal and your credit, you have to have strong, you gotta have good credit. You know, it's just, that's just how good of a credit. You don't have to have as good a credit for an acquisition than you do for starting your own, but it's still going to be good.

Are you, are you comfortable sharing the numbers? Like what is today in the, today's lending environment in 2024, what are we looking at for what is considered a good, A good. Give me a range of quote unquote, a good credit for a chiropractor looking to buy a chiropractic business. What is, what is considered good credit?

If you're over 700, you're good, but it's, it's sometimes it's less about the number and more about the story. Yep. Though more and more lenders are starting to do that as they get these more adaptive models. The credit algorithms aren't maybe as set in stone as they used to be. That could change next week. But you can get something done if there's mitigating factors with a lower credit score, if you're in the upper 600s and acquisition is doable, but again, once you dip below that 700 threshold, they really start taking out the magnifying glass. So that's where your other factors are going to come in. If you're above 700 and you're putting 10% down and you've got a, you know, 6% reserves, but you're buying a strong building, they'll probably do that because you've got good credit. Right. If you're below 700 and your reserves are running low, they're going to want you to have the, you know, maybe the 10% reserves to help mitigate your credit score. Right. Especially if you have a history of late payments or anything like that. We've done this as low, I mean, we got one done that was in the 620s recently. But there's a lot of other factors and that's kind of where maybe purchasing the building along with the practice helps.

Right.

Because now we've got the collateral of a building. Does the borrower have personal real estate that you could potentially pledge? So if you can collateralize it, then you can potentially have a lower credit score. But as a rule of thumb, shoot for 700. If you're a 690 something, chances are we can get something done, even 680. But it's just about what's on there. And one of the things we, we can do a soft credit pull. It's not going to hurt anything. We're happy to take a look and tell you from a bank scoring model because what you see on your end, a consumer model is different. They use the newer models. Yes. It's a little deceiving and convoluted. That's Banking in America in 2024. But we'll tell you what a banking credit score would look like for you. And if there's any homework, you know, hey, sometimes it's something silly. Just pay a couple balances down and you go from a 684 to a 710. Now they're, now they're not beating you up.

That's Right.

It just goes back to the, to the prep work.

No, that's great, Corey. Very practical. All right, I know I only have five minutes left with you guys, so let's. Can we talk. We have time to talk about enterprise a bit.

Yeah, yeah. Let's hop to expansions. Just, I don't want to leave the guys in there that are trying to create their own empires. Right?

Yes, exactly.

So it's. Structure is key, but if you're trying to buy multiple offices, you can, the SBA can really take care of you. You're able to do these assuming that you have like the same ownership structure. If, if you're 50, 50 partners with somebody and you're trying to buy an office and you're this 50, 50 partnership with the same guy, they'll use your old business as like a co borrower and.

They'Ll code it as an expansion instead of an acquisition. And asterisk on that is they can code it as an expansion. Doesn't mean they will. But you can get these done for zero down versus having to put, you know, 10 down and go through all the, you know, hoops of looking at it like it's a brand new business.

Your business has to be clean enough to where it can service its own debt. Seller's rules still apply. The seller still has to cash flow and service that loan. But once you start adding cross corporate guarantees in there and you've, this isn't your first rodeo. The banks are, are really pro on those deals. They may not beat you up over reserves. They're going to look at your business operating accounts and go, okay, they're good to go. That's right. So they can be very beneficial. They can be very.

I don't want to say expedited because there's still a lot of third party valuations and things involved, but they can be, they can be smoother. The only rule against that really is the SBA likes to see it within the same state because your business entity, it is tied to your state. Right. Unless you have it formed in 15 other different states, Delaware, for tax purposes. Yeah. You know, you have to do it within the same state and typically within a couple of hours of your location. You know, if you're in Florida and your clinic is in Miami and you're opening one in Jacksonville, that's going to be a stretch to do as, as an expansion because what works in Miami doesn't always work in Jacksonville. Right. So if you're on the different, a different side of the state, you may get some pushback and not be able to do that for the 0 down and have that sort of a process. Expedited vetting is I guess what I'll refer to it as. But if it's within footprint, within, you know, a couple hours of, of where you're going, buy them all 91 days apart.

What? 91 days apart. That's what they want to see.

Yeah, you have to, you can't get more than one SBA loan within a 91 day period.

And that was going to be my next question.

But banks, usually, they're still banks. Right. The bank is the guy that looked at the car when horse and buggies were a thing and said, why would I need one of those? Yeah, they're very conservative. So if your plan is to try to buy a new office once every 91 days, they're gonna hit you with some pushback of are you growing too fast? Right. But if you're strong enough, it's possible. So maybe you have to flip lenders and do a different lender here and there. But that's where we come in. Right. To kind of help you through that process. But if you just want to expand one per year, you know, and that way you can provide financials for the one office you acquire per year and show that they're all cash flowing, that's going to be a pretty clear cut path to success.

And what we've seen is businesses that run systems like proven systems. I'm going to pat the remarkable practice on our, on our own back here and say if you're running a proven system like the remarkable practice system and you, and if you've shown that you've got a successful model and you're, you know, you've got a appreciating asset that's cash flowing and you're like, we're going to be reproducing these.

Right.

So we're going to buy another one and we're going to do it just like this. That tends to be something that the banks look much, much more favorably on. Right. So also if you have centralized functions where you, we've pulled centralized operations in play where you're going to improve your efficiencies by centralizing like all of your marketing or all of your HR services or your back office elements, what have you. So now you've got satellite practices where you can make the argument that this business is actually going to be running much more profitably because we've centralized services as we built out an enterprise that also is a palatable deal for the bank they see that and it's. It's typical corporate or franchise model. When you see that, I have a question for you. Is like, I've heard people that are looking at doing like a Wyoming corporation doing like a holding company and buying practices in other states and even forming like a management company. What are your thoughts on that? And does that make it more. More attractive or even possible to buy out of state or. We've got a lot of our docs who are looking to buy practices in other states, and I know that some are doing it as we speak. They're actually looking nationally. Does that disqualify them on sbo? Sba. And they just need to look for different banking. What's your experience with that?

Anytime we run into it, MSOs are becoming more and more popular and we all, you know, it's not rare to see a Wyoming entity or a Delaware entity or something like that. And then, you know, say, here's a fictitious filing in Florida or not a fictitious. A foreign filing in Florida or Georgia or something like that. The banks understand people like those states for tax purposes. But what happens is, say you've got a holdings company and now that, especially if there's real estate and you have a holdings company and an operating company, that's where it starts getting convoluted.

Yes.

SBA looks at it. What's the borrowing entity? Because these are business loans. Right. So here is ABC Chiropractic. What is ABC Chiropractic owned by? It's owned by holdings company. Okay. Who owns the holdings company? Oh, okay. Is that formed over here? They'll go all the way back until they find an individual. So depending on how you structure it, if you've got an entity owned by an entity owned by another entity, or if you've got two partners and you both formed LLCs, and then those two LLCs own your entity, you just made yourself a mess of paperwork to have to go through on. On the sba. So that's where you would want to refer to legal counsel and your accountant. Is the benefit I get from that worth.

Is the juice worth the squeeze?

Yeah. Yeah. Is it? And the MSOs are becoming more and more scrutinized. And when there's an MSO involved, who's managing it? Okay. Can they trace it back to a person? How important are they? And if that person's super important, clearly, because they're managing the operations, sometimes they want to drag them into guaranteed loan. Yeah. So if you want it with. The key to these is they're complicated enough yeah, so a lot of the times less is more. Sometimes it might be more beneficial to. You're not supposed to change your.

You know, management structure or ownership percentage for a certain time after you close on an SBA loan. But it might be something like, hey, let's get open. Let's do this for. For a year or two, depending on bank requirements, and then maybe let's have an attorney or somebody make the change from there.

Roger that.

Yeah, you just. You just kind of got to plan that out ahead of time to know.

All right, Corey, I dragged you into the deep end. I said I wouldn't do it, but I did it. So that was. Sorry, that was personal. I wanted to hear that. All right, guys. So Financial Corp. You guys are awesome. How do people find you if they have questions? They want to reach out, learn more. What's the best way to get in touch with you guys?

Yeah, I'm gonna pop it up on the screen here. Usually just a quick call or an email. Either one of those. Jen and I work together in tandem. You know, office hours Monday through Friday, 9 to 5. We're on the East Coast. We could make exceptions, you know, depending on what your scenario is.

That's great.

So, you know, just shoot us an email, give us a phone call, text message, whatever works for you.

And what are your favorite kind of customers to work with? What do you got? What problems do you love to solve?

Business acquisitions.

Yeah, any. Anyone that's willing to take advice, honestly. And we don't want. My worst nightmare is to get a phone call on 3 o' clock on a Friday saying, hey, I need a loan and I need to close by next Tuesday. That's not what the SBA is built for. Right, exactly. We want people that. And the people that are most successful at getting SBA loans are the ones that plan ahead. We're cool with talking to you about your aspirations six months to a year in advance, because, frankly, that's how long it takes to get things ironed out. We want to know what you're thinking early. We want to partner with you in the early stages, and then we can make recommendations to look who you work with during this process matters. All you know, from us to the lender that you know, will help you source your coaching group. Right. And your legal counsel, you know, make sure you have an attorney that understands M A's. You don't want to get the guy that does, you know, investments. Right. If. If they don't brag and kick and scream that, say that they. They know M A then it's a different animal. That could be a sign for you.

Piggyback off of that a little bit. You know, a broker, too. We have brokers that we deal with and know that they know their business. So, you know, we. We've got a lot of good help for you.

That's right. It's all about building out a dream team. And I like to say I don't know everything, but I know everything you need to know, and I know somebody who knows it. So I can usually connect you to somebody, some expert like, oh, you. You need to talk to Janet It. All right, guys. Hey, we appreciate you guys. This is an oak tree conversation. We all know that the best time to plant an oak tree is 50 years ago, right? So the next best time is today. So money loves speed, but wealth loves time. So the sooner you get to this, the more likely you're going to have a great experience and a positive outcome. Thank you guys for. For helping us help more people. So I appreciate you.

Thanks for listening to this episode of the Remarkable CEO podcast. Remember, what the world needs now is chiropractic. And what chiropractic needs now is more successful chiropractors. If you like this podcast, please subscribe, share with a friend, and leave us a review. And if you'd like to connect with us personally, direct message us on Facebook, LinkedIn, or Instagram. Now go and be remarkable.

Sam.