Bernard D. Newman, Certified Financial Planner
More and more today, you are hearing stories of doctors who are packing up and moving to another state to start over. The reasons for doing so vary, but some of the most common reasons are either financial, or are related to a changing chiropractic climate in the doctor's current state. California, once the golden land of chiropractic where 20 percent of the world's DCs practice, is a good example of how things have changed in just a few years. Back in the mid-1960s, I remember my father trying to get a California license. This was a very difficult task, because everyone wanted to practice in California, one of the few areas where insurance paid for chiropractic services. When I graduated from Life Chiropractic College in 1983, California was probably the toughest state to get into. Today, California is in the forefront of the managed care movement. The same "progressive" thinking that led to chiropractic acceptance, is now leading the way toward managed care. Add to that the social problems caused by the L.A. riots, the earthquakes, and the high cost of living, and you can understand why many California doctors have chosen to head north or east.
Regardless if you are a California doctor moving out or a practitioner in any other state starting over in a new area, the formula for making the move is the same. It starts by making sure that moving is the correct thing to do. We always have a tendency to think that the grass is greener on the other side of the fence. Often, a little research helps to put your current reality into perspective. Before you pack it all up, and be sure that what you are seeking really exists. Speak to a minimum of 10 DCs to get different perspectives. I have found that doctors in a given town will not tell you the truth if they perceive you as competition, but doctors in towns not too far remote will give you the facts of the area. Find out how difficult or easy it will be to start a practice. Find out what kind of changes in insurance are in the pipeline for that state. And also find out how willing the local population is to pay cash for their chiropractic care. If you are planning to leave an area strictly because of insurance changes related to our profession, think again. You can run, but you cannot hide. Sooner or later, most likely sooner, managed care will come to the areas that still have "good insurance." Generally California set the pace for change ... what first comes to California soon comes to the rest of the nation.
If your reasons for moving involve quality of life or are firmly related, then you may decide to move on to the next step in planning a long distance move. This step involves picking up the pieces of what you now have. You need to inventory all of your major financial assets: your house, your practice, including equipment and accounts receivable, your automobiles and any other savings. Add up all of the liabilities that you have as well. You will need to determine what you will realistically have after selling and paying off your loans. Since starting over in a new area will probably require at least six months to a year before you become self-supporting, you will need a large cash base to draw from. In most cases, the doctor's greatest asset will be his equity in his home and anything he can get for his practice. More often than not however, if you are leaving for financial reasons, the practice will not be worth much. This being the case, the doctor who moves to a new state should plan to rent his home at first. This may not sit well with the doctor's spouse and family, but the reality is that a start over doctor's priorities should be rebuilding his income producing practice: a new house will come later.
Selling a practice today is a risky proposition. Very few new doctors have a few hundred thousand dollars just sitting in a bank account to be used to buy a practice. That being said, you will probably have to "hold the paper" if you want to realize any kind of decent value for your practice. And herein lies the problem. If the area that you are leaving is experiencing a changing chiropractic environment, you cannot predict the success of the new doctor. And if the new doctor goes bust, you will be left holding the bag. You will have to closely examine the risk/reward ratio for selling out at a low price for all cash, versus getting a high price but having to finance the sale. It would be better to sell your practice for $125,000 cash, than to sell it for $250,000 over 10 years, if you think the practice will not survive the next few years. Of course, the best choice would be to get a high price with a large down payment, but that is unlikely to happen. If you have made the decision to move, then be realistic about what you can really get for your practice. You will have enough stress in getting started over again, so you will not need the aggravation of having to repossess a dying practice in a far away state. Get what you can and be gone.
Once you have liquidated, you will need to develop a business/financial plan. Depending on what you have, you may need to borrow to finance a new start up. Again, some doctors will be able to obtain bank credit, which is the cheapest form of money and some doctors will not be able to. Generally banks are reluctant to lend to newcomers. If you cannot obtain a bank loan, then leasing your equipment is probably the only way of getting started again. While I generally do not advise leasing anything, practice startup is the exception. My rule is if the only way to get revenue producing equipment is to lease it, then do so. You will need to conserve your capital to sustain you and your family through the months until you become profitable.
Make a list of the mistakes that you've made. Review that list frequently. You don't want to make the same mistakes twice. Even previously successful practitioners will have a list of things that they want to do differently this time around. The trend is toward small, "boutique" type offices. While the seasoned practitioner may not like the idea of practicing in 1,000-1,500 square feet, the economic realities of health care today may not allow for anything larger. Again, you should attempt to get the landlord to make any necessary improvements to the office space and to build the costs into the rent. The more cash you conserve, the better your chances of survival.
Your startup budget should allow for advertising. Some studies have shown that most advertising is no longer cost effective for today's chiropractic doctor. But a new doctor does need to let people know that he is there. And I assume if you are moving to a new area or state, that you will look for an area that is not already saturated with chiropractors. Yes, I know, they are few and far between, but they do exist and locating in one of these areas may mean the difference between success and failure. Advertising in an area that has a low ration of DCs per population should yield better results.
You should have a list of things that you will do once you do become profitable. Perhaps buying a new house will be a priority. You cannot deny your family forever. However, until you get really rolling, you should avoid the urge to splurge. Any profits not needed to support your family should be used to reduce debt and to build the practice. Be careful to reinvest your money wisely. If it does not help you to help your patients, and does not pay for itself, don't buy it.
I urge all doctors who are thinking of moving to think twice (at least) before doing anything. Be sure that the chances of an improved life are really better in the new area. Changes in practice are in the wind for every area of the country. Until we really know what the future is going to look like, it would be foolish to trade uncertainty for uncertainty. In the meantime, the best advice that I can give would be to reduce spending, reduce debt, start saving money, and do the best you can with what you already have.
Bernard D. Newman, DC
Pittsburgh, Pennsylvania
