I made so many mistakes buying a physio clinic! I hope you don't make the same.
The top 7 mistakes I made when buying a physiotherapy clinic.
From experience, buying a physiotherapy clinic can be a very lucrative investment. There are many financial decisions I’ve made in my life but buying a clinic was probably the most stressful. In the year 2010, I finally decided to take a leap of faith and bought my first clinic. During my time in the business, I have bought one clinic and started four physiotherapy clinics. At first I was very hesitant but it proved to be a very rewarding decision. However, like with any new venture, one is bound to make mistakes. Despite my initial hard work, thought, and research into the process, I still made mistakes. In this article I want to share with you some of the mistakes I made and maybe you can learn from them and avoid them in future.
1. Under estimating money required after sale
Underestimating the working capital required to operate a clinic was the first mistake. Expenses such as lease preparation cost, stocktake cost and stamp duties were immediately brought to my attention. Lease preparation costs. Right after purchase, a bill was handed to me by the landlord that required me to prepare a commercial lease. I had to part with $1,200 just to prepare this lease. How could a document, likely a template, cost that much to process? It is therefore a wise idea to go over a commercial lease and understand who is required to pay for lease preparation and how much it costs. Stocktake costs. Keep in mind that when most people decide to sell their business, they only leave behind things that are of no value to patients or those that are hard to sell. If I had taken the time to talk to the previous owner, I probably would have eliminated or lowered the stocktake cost. It is therefore important to know what is included in the stock take cost and only pay for stock or things that will be useful to you. Stamp duty. Here in Queensland, the purchase of a business includes a stamp duty that is dependent on the purchase price. This can force you to dig deeper into your pockets, especially if it amounts to a large sum of money. I recommend getting in touch with the relevant department and finding out the actual stamp duty cost of your purchase. This will help you determine if it is within your budget. It is important to keep in mind that stamp duty cost is paid shortly after purchase.
2. Old crappy equipment
I bought a very established clinic but I soon realized that most of the equipment within the facility was either outdated or worn out. I even wondered how the existing staff had been able to operate the clinic using the equipment. I have had to reach into my pockets to replace the equipment and embrace the fact that these things happen. At first, buying tables, chairs, curtains, etc. seems like small expenses, but in the end, they all add up! Think ahead and be prepared for certain unexpected costs.
3. Overconfident that staff would like me
There were two existing staff when I bought the business. Thankfully, they stuck around the business for two years. Looking back, I now realize how lucky I was. I failed to realize that when a business is sold, it is a stressful time for employees and they take some time to reflect on their career and future. Sometimes employees decide it’s time to leave, which could be very risky for you as the new business owner. Another assumption is that employees will be in good terms with the new owner and it will be business as usual, which is sometimes not the case. I would advise you to open communication channels with employees as early as possible and be a kind and reassuring influence. Be prepared to find a replacement if they decide to leave. Also, establish the right balance between being an employer and a friend. If you are too kind it could backfire later.
4. Under performing due diligence
As the new owner of the clinic, I was given a financial report of the clinic that included: Profit and loss statements, patient numbers and the clinic’s business plan. Unfortunately, this information can be misleading. For example, the report showed that the clinic had a consistent number of patients while in reality it was the same group of patients seeing the same physiotherapist over and over. To my surprise, they stopped visiting the clinic once the previous owner left. They wanted to see the previous owner, not me. I recommend that you study the clinic’s diary, check patient’s name details and pay close attention to really high subsequent to initial patient ratios. In addition, look at the seller’s tax records where possible. If clinic expenses aren’t recorded within the profit and loss account but are included as personal tax deductions, the business will appear to be over inflated. Having a good understanding of the figures is crucial.
5. Changed things too early
About every resource I had read advised against introducing changes into a new business too early. I had plans to follow this advice but what these resources failed to tell me is that I would be under a lot of pressure to ensure that the clinic was headed in the right direction. As a business owner, you also have your own personal views on how the clinic should operate. Unfortunately, I failed to heed to this advice and went ahead to make A LOT of changes. The practice management software (PPMP) and the ugly blue/yellow walls are some of the things I couldn’t stand; I had to change them fast! Even though I thought I was moving the business in the right direction, all these changes upset the relationship that patients had with the previous owner. Furthermore, this also stressed my relationship with the current employees. If you are thinking of doing the same, do so with caution.
6. Over valued the previous owner
The previous owner and I agreed on a long settlement. My assumption was that we would be good friends and that he would willingly help and steer me in the right direction. I now understand that a business is a reflection of the person running it. Any changes I introduced can be difficult to manage for previous owner. I was going to go against most of his existing business practices. I recommend that you opt for a short handover process, maybe one that lasts between one and two weeks. Get the previous owner out of the way. You need enough room to run the business as you see fit. Otherwise, any changes you implement with the previous owner looking over your shoulder are going to be met with a lot of criticism. As i've now sold my clinics, and have been on the other side of the fence, this is definitely a better strategy.
7. Didn't seek professional guidance on business management
Before buying the clinic, I had been a self employed, sole trader for many years. I failed to understand that operating a business was going to be very different. If I had sought help from the very beginning, I would have been more productive and transitioning to this business would have been much smoother. My recommendation to you is to seek professional help, especially if the business is something new to you. Seeking the help of a business coach or joining a mastermind group may seem time consuming or expensive but it is definitely worth it. Even surrounding yourself with people who have experience running a clinic guarantees that you will learn one or more valuable points that will propel your business forward. I have always looked down on professional business coaches, with the thought; those who can't do it teach. There is massive money available in business, so why bother working as a business coach. These were my previous views, the views of a very young and naive physiotherapist.
Purchasing a clinic is definitely a good business investment that I would recommend to anyone. If you can avoid the above mistakes, I guarantee that you will have a very rewarding and lasting business. Do not try to rush into buying a clinic without first doing a background check on the business. Taking the first step is always the hardest.