Selling an established massage therapy practice: Reflect, evaluate and transition
By Don Quinn Dillon
Someday you will stop practicing. It may be difficult to imagine now, but you will retire due to age, overuse or change of circumstances. What will happen to your practice? Do you plan to shutter, and direct your patients to practitioners in the area, or might you capture inherent value in the practice you have worked hard to cultivate?
It remains to be seen how many RMTs will retire this year…the pandemic has likely forced the hand of many to consider their position under the new requirements. According to the College of Massage Therapists of Ontario Annual Report 2019, 5.11% – or 765 – massage therapists left the profession that year. The same report demonstrates a quarter (26%) of RMTs are at the entry-level 1-5 years looking to get a foothold, some perhaps a practice to invest in.
At the tail end, 11% of RMTs are 21+ years in practice. Presumably, some of those may be looking to shift out of the profession, or find a successor to take the reigns of operation as they gradually withdraw. This may be an opportune time to put together those with established reputation and location, systems and contacts with budding practitioners eager to fast-track their learning and their earnings.
Massage therapy is often a very personal experience. Patients rarely switch between practitioners and maintain long-standing care relationships. Personal matters are often disclosed, and the client leans heavily on their practitioner to demonstrate care, ethical behaviour, confidentiality, and kindness. These qualities are not easily transferable, so clients become quite attached and assertive in maintaining their care relationship with a particular practitioner.
This is of great value to the practitioner during tenure, but what happens when the practitioner approaches retirement? Practitioners who have worked hard to deliver compassionate care may not be able to transfer the value of their business to eager new therapists looking to buy unless the retiring practitioner has created a tangible, valuable asset via a carefully crafted practice design.
The business, inextricably meshed with the practitioner when the business is new, must eventually take on its own identity to be salable and transferable. Ray Kroc, founder of the immensely success McDonald’s franchise, put functional systems and good employees in place at his flagship location before he could move on to open subsequent successful locations and eventually franchise. If you do not show up for work one day, is there still a functioning, quality practice in place, serving your local community? If not, you have got some work to do before you retire.
Industrious practitioners from early outset should be preparing for the day when they will pass their turnkey operation over to a new owner, at a lucrative market value. To do so, the practitioner must set up systems to run the practice predictably and automatically, eventually replacing herself with highly competent practitioners and administrators. When the founding practitioner makes herself irreplaceable, it is good for the ego, but bad for the transferable value of the practice!
How does one systematize? Michael Gerber in The E-Myth Physician describes how the value of your business (equity) depends on how well the practice works. The practice must be designed to deliver service systematically and predictably every time. (You can watch this in action next time you visit Costco, Tim Horton’s or McDonald’s).
- Critically evaluate your practice processes – promotion, intake, assessment and treatment, measuring outcomes, follow up and ongoing relationship-building, hiring/firing and administration, maintenance of physical spaces, etc.
- Determine your most effective protocols in delivering care. Reflect on and document these.
- Quantify and qualify the results (number of patients served, earnings, profit margins, satisfaction levels reported) and work to improve the systems continuously.
- Scale up, and replace your practitioner duties eventually with competent people.
- Repeat this process for every aspect of your business.
Gerber famously reminds us “you must work on your business, not just in your business. Otherwise you just own a job.” Working on your business permits you to streamline intake processes, enact strong promotional campaigns to draw business in, ensure efficiencies in expenses, pricing effectively to demonstrate profit margins, build a high level of care through quality controls, nurture networking relationships in the community, and improve on your physical space. The value of your practice-for-sale will not be evident unless you can demonstrate precise measures and protocols of how you achieve (and replicate) success.
Ready to sell? First reflect
According to RBC’s The Definitive Guide to Retiring from Your Business1, reflect on the following:
- Who will buy it? – colleague, employee, or investor (maybe family member)
- Can the buyer raise the necessary money?
- Does the buyer have real business experience, so she can successfully operate the business? (Very important if you offer seller-financing for part of the purchase!)
- Will you partly finance the purchase?
- Will the buyer offer personal indemnities to ensure the financing?
The purchaser may be a new practitioner starting out, complete with student loans and fears about taking on a large expense up front. Therefore, you may consider seller-financing (i.e., you lend the money, and the buyer pays in installments with interest). There are pros and cons to this, so do your research and speak with your accountant.
Selling to third party
The purchaser of your business may not someone of your discipline. Investors from various backgrounds look for an industry that fascinates them, but they’re not employed or experienced in – the winery industry, for example. Because the potential buyer will know even less about running a massage therapy business, there are some key points to consider.2
There are two types of buyers: financial and strategic. Financial buyers are interested in the company’s cash flow, i.e., “How much money can I make if I buy this business?” Strategic buyers are interested in businesses that fit in their long-range growth plans, e.g., to secure supply chains or open new markets. Perhaps an existing physiotherapy clinic or spa would be interested in your business to offer multiple locations and expand services.
You will need cash flow records and projections, listing of liabilities, information on new product development, and value of hard assets (property, equipment, intellectual property, customer lists and contractual relationships).
Make sure to form an advisory team (accountant and lawyer experienced in buying/selling businesses) to valuate your business, assist the buy/sell process and ensure protection from errors and omissions/misrepresentation.
The caveat: The RBC guide recommends “Don’t test the market if you’re not willing to sell. Selling takes up valuable management time, makes the sale public (which can affect business), and limits manoeuverability during the selling process.” You want to ensure the potential buyer does not usurp your business information and become a competitor!
Evaluating the worth of your practice
With careful consideration and planning, your massage therapy business should demonstrate real value to an unestablished practitioner who has not yet developed reputation and location. It is of course much easier to purchase a turnkey, established business than to start from scratch, and could be far less expensive in the long run to the eager practitioner.
For the seasoned selling practitioner, the sale of the business provides retirement funds or money to explore other interests. Once you know you want to sell, the first step is valuating your massage practice, and raising that value before it comes time to sell.
There are three common methods of assessing the value of a business: asset-based, market value and earnings-based.
Asset-based is the most tangible to measure. You are putting the assets – equipment, office computer, furniture, perhaps real estate, and contact list (more on this later) on the market for sale. This method however does not reflect intangible but highly valuable assets of established location and reputation, expertise of the staff and practitioners or future growth/earnings potential.
The second method is market value. Your business is put on the market at a price comparable to other businesses in the same stream. Your challenge is that it can be difficult to find comparable massage businesses for sale.
The third method positions you to sell the business based on historical and future earnings. This approach, based on speculation, cannot guarantee future business performance and the value is hard to defend on its own. Therefore, it may be helpful to have your business evaluated by all three methods to gain an approximate value.
A common question is, ‘What is the value of my contact list?’ In Success Beyond Work, Colleen Holloway outlines a strategy for evaluating her established contacts. She assigns a dollar value to ‘regular clients’ ($US55), ‘occasional clients’ ($US25) and ‘one-time clients’ ($US15). She then multiplies the value assigned by the total number of clients in each classification to obtain an overall price for the contact list. Caveat – consult and abide by privacy laws and standards of practice before distributing any personal health information.
What if your practice valuation is not what you hoped? You can reengineer your business before putting it on the market by increasing income, decreasing expenses, and reducing liabilities. Increase your income by adding modalities, producing the ancillary benefit of increasing care capacity with less wear and tear on your body. Raise service fees, sell retail, or add associate practitioners to increase the total income generated for the business.
Decrease your expenses by renegotiating your lease, buying supplies in bulk, and automating processes like appointment booking and bookkeeping/records management. Look at your personal expenses and eliminate non-essentials. Less personal draw equals more retained earnings in the business and a better-looking bottom line. Pay down your liabilities if possible, and write off outstanding bad accounts. Your accountant can be especially helpful here.
Ease the transition to increase the value
There are ways to increase business retention for the new owner. You could stay on for three months to ease the transition, formally introduce your clients to the new owner, and educate heavily via your promotional channels so clients are not unpleasantly shocked or surprised. Raise the profile and responsibility of key employees well before you sell. You might tutor the new proprietor in a few customized, effective massage techniques and caring practices that your patrons appreciate.
You can influence how smooth the transition is for all involved and thereby assign a higher value to the business. You will eventually fall into the background as the new owner takes on full operations…which is exactly what is needed for the new owner to have full confidence in replicating your results.
Even if you are not ready to retire, it is a good idea to start preparing your exit strategy. Remember, your primary goals should be to create a tangible asset from the practice you have worked hard to cultivate and sustain over the years. Learn to replace yourself, and one day you will enjoy the freedom of pursuing new interests.
- RBC Royal Bank: Retiring from Your Business – Sourcebooks for Successful Small Businesses and Entrepreneurs
Donald Quinn Dillon, RMT is a practitioner, author, and practice coach. Find him at DonDillon-RMT.com
This article originally appeared in the Winter 2021 edition of Massage Therapy Canada. Sign up to subscribe to our weekly newsletter, delivered straight to your inbox every Tuesday!