Issue link: http://cp.revolio.com/i/142672
or business practices are sharply divergent, his or her clients may give you one try and be gone. Buying a thriving practice is not the same as owning a thriving practice. Important Factors Two of the most important qualities to look for when considering buying a practice are a good fit and a planned transition. If a therapist simply wants to sell you her practice and disappear from the scene, then all you're buying is a list of (presumably qualified) prospects. Such a list might be worth a few hundred dollars, but not much more. Contrast that scenario with a business transition in which the seller gives you an option to buy the business in three months for a predetermined price, then takes you under her wing for that three-month period—essentially accepting you as a partner, introducing you to her clients, and letting you join her in working on them. An announcement by her after three months that you are taking over the practice with her support and encouragement puts you in a much stronger position to retain those clients. An opportunity for such a transition might well raise the value of the practice into thousands of dollars, exactly how much depending on the practice's scope. Gauge Value The value to you of a practice's existing clients is the most difficult factor to gauge. Even loyal customers are irregular in their use of massage. Most practices only include a handful of regular, once-a-week clients. Other factors—equipment, location, lease terms, and the business's reputation, for instance—are easier to assess. In the end, value usually comes down to how much money the business earns. In the business world today, local retail or personal service businesses generally sell for about one and a half to three times their annual earnings. It is important to remember that personal service business earnings are calculated after assigning a reasonable assumed salary equivalent for the work hours put in by the owner. Value is subjective. Sellers naturally think a business is worth more because they remember all the hard work they invested. Buyers see the risks and uncertainties they would be taking on, so lower their value perceptions. Your goal should be to bring as much objective analysis to the process of determining value as possible. Consulting with an independent business appraiser, as well as an accountant and an attorney, will help ensure that the selling price reflects the business's real worth and benefits both the buyer and the seller. The basic technique an appraiser will use is to start by examining the current owner's income statement, then make adjustments to it to reflect your circumstances. The net result of these efforts is a revised income statement that shows the income the business could earn if it were yours. That's the figure you will then keep in mind as you seek to negotiate a purchase price for the business. Where do you want to practice bodywork? In what town or area? In what physical setting? Are you more comfortable in an office setting or visiting clients in their homes? Buying Tips CPA Sandra Shelton offers the following tips for potential business buyers: "Know your own strengths and weaknesses, and predetermine your financial abilities before you jump into a business purchase." How much of a down payment on the purchase price can you afford to pay? Where will you get the rest of the money? Shelton also suggests getting and verifying good accounting data. Likewise, she feels it is important to structure any purchase of a personal service business to include a noncompete agreement for the seller so that she doesn't sell her practice to you, then immediately create a similar new business across the street. Finally, Shelton recommends remaining confident that the acquired business will generate enough cash flow to support both you (personally) and the business. SPH