A successful sale but failed transition? — seller of a health care clinic has regrets

Key takeaways

• Some business transfers result in "fat wallets but broken hearts.”
• The founder wanted a reasonable price and for the business to maintain its integrity; he only got the former.

A business succession and transition (BST) case study

Storyteller: Seller
Business location: Metro
Industry: Healthcare and social assistance

Note:  The names of the seller and the business have been changed.

On this page

• Introduction
• The original purchase
• Running the business
• Planning for transition
• The transition
• Taking a step back
• The loss of personal touch
• After
   

Introduction

Growing up, Mark Koenig played a lot of sports. And like most kids playing sports, he often experienced injuries. His parents would take him to see his hometown chiropractor, and over time, the two built a sort of relationship. As Mark was getting ready to head off to college, his chiropractor asked him what he wanted to study. Mark replied with certainty–he was going to be a medical doctor. His chiropractor, however, questioned him further. He asked Mark, "Why would you be a medical doctor when you have always gone to see a chiropractor?”

"I said, ‘Well, isn't that what smart people are supposed to do, become a doctor or a lawyer?”
— Mark

Mark’s chiropractor took him to the chiropractic school where he got to see the students work on cadavers. Mark was intrigued, and he decided to look more into it. What he found surprised him. The chiropractic field, it turns out, aligned a lot more with his lifestyle than traditional medicine did. He had always tended to be a little more holistic, and he liked how that component played a part in chiropractic practice. That day, Mark decided he would be a chiropractor, too.

Mark always knew he was going to own a business someday, even if he didn’t always know what that business would be. He had gotten involved in the business world at just 16 years old when he started a lawn care service with his brother. At first, it was just mowing neighbors’ lawns for some extra cash, but then the business grew. The brothers saved up to buy a truck, and eventually, they were purchasing more and more equipment. The next thing they knew, they had grown far beyond only neighborhood lawns — they were doing year-round lawn maintenance for commercial properties and churches in California. Even after Mark went to college in Minnesota, he was running the business in California from his dorm room. He sent out bills, managed the equipment, and orchestrated teams to run the routes.

When Mark graduated from chiropractic college, he sold the lawn care business, getting his first taste of business transition. However, while it was his first business, Mark knew it would not be his last.

"I kind of (knew I) had to be a small business owner (ever) since I was a kid, and I just couldn't imagine working for anybody else.” — Mark

The original purchase

Mark had moved back to California for chiropractic college, but after a couple years there, he and his wife were ready to move back to Minnesota. Mark started talking to different chiropractors and doctors in Minnesota to see about job prospects. They all said the same thing: don’t do it. Doctor after doctor told Mark that Minnesota was a really tough state to practice as a chiropractor, and they wouldn’t recommend it. But, for Mark, this only pushed him more.

"Usually, when somebody tells me they don't recommend it or you shouldn't do it, that's usually an answer that I should do it.”
— Mark

So, despite all the warnings, Mark started looking for a chiropractic practice in Minnesota. After a bit of searching, he found one in the suburbs of Minneapolis/St. Paul that he saw as a bit of a "diamond in the rough,” an underserved practice that he knew he could grow. Since he had owned a business before, he felt confident, but despite this confidence, Mark still had to make the purchase work financially. Since he had some undergrad debt, banks weren’t too keen on lending him money. As a result, his only option was to turn to his friends and family. He borrowed some money from his parents and father-in-law. (Mark’s father-in-law didn’t know him very well yet, but he trusted him.)

When he took out the loans from his family members, he agreed to payment terms. Mark hated having debt, though, and started paying them back as quickly as he could. He was afraid of owing money but also of failing to take care of his wife in the way his father-in-law wanted. That fear was his biggest motivator to succeed. Mark wanted to prove to his father-in-law that he was responsible and going to ensure a future for his wife and children.

Running the business

When Mark purchased the business, they were closed Tuesday, Thursday, Saturday, and Sunday. The first thing Mark did was open the business five days a week, Monday through Friday. He also started marketing the chiropractic business wherever he could, and soon, he was able to open up business on Saturdays, too. At the time, one of Mark’s colleagues was getting his master’s degree in business administration at the University of St. Thomas in town. He was conducting a business case study for a group project and decided to do the study on Mark’s business. The small group of students presented Mark with a very lengthy case study detailing the recommendations for his business. Mark decided to implement some of the student recommendations, and the practice took off from there.

Mark says his business was successful because he surrounded himself with people smarter than him, especially in a business sense. According to Mark, while you come out of chiropractic school with a certain skill set, it does not mean you know how to run a business. In his case, he was able to build upon the business background he had from owning and selling a business in his youth. But more than that, he surrounded himself with people in the business world. His father-in-law was in healthcare administration, his brother was a graduate of Harvard Business School, and a lot of his college friends worked in business. Mark felt like he could call up any of them and ask for advice. As a small business owner, you have to wear many hats, and it's hard to know it all. It can make it easier when you have a strong and knowledgeable support network.

For Mark, running the business wasn’t work. He loved what he did, and he loved seeing his patients. He never found himself looking at the clock and counting down the hours. He just enjoyed seeing the business grow and helping people along the way. He felt like he was given a gift, and he wanted to use that gift. However, Mark says that it wasn’t just him — it was the whole clinic. Everyone in the office made the business a place that people wanted to go to. It was all in how they treated every person who walked through their door. Patients knew that everyone had their back and was looking out for them. In fact, Mark says he hasn’t done any marketing since he first opened the business. He doesn’t have to; his patients do it for him. They are constantly referring their friends and family to the business because they know it’s a place where they will be treated right, and that is all Mark has wanted.

Planning for transition

For many years, Mark was working so hard that he didn’t have time to think much about transition — he had a business to manage. Still, he did what he could. He tried to get his kids involved in the clinic as much as possible. For the most part, his kids would just come in and do some cleaning or various odds and ends, but Mark saw it as a way to make the clinic a family business. However, when Mark realized that his kids didn’t have any interest in taking over the business someday, he knew he had to start thinking about transition more seriously. Mark had heard time and time again, both from his financial advisor and from people in the field, that he should start thinking about transition long before he felt it was necessary.

"If you're going to start looking to sell your practice, don't sell it when you need to sell it—when you maybe have an injury or a health condition, because then you're not going to get as much value out of it.”
— Mark

They warned him that he shouldn’t wait to sell the practice when it was on a downhill trajectory— that, ideally, it is best to sell the business when it is still growing. They also advised that he sell the business while he is still healthy, and before any decline in his health might affect his ability to manage the business. Mark took this advice seriously. On top of that, his wife was dying to travel, and she didn’t want Mark to wait until he was broken down and couldn’t travel anymore. She wanted him to retire while he was still young and healthy, so that they could spend those years together. In some ways, Mark felt like he owed that to her. She had stood by his side for the past 35 years, through the purchase of the business, through the 60-hour work weeks, and through all the uncertainty that comes with business ownership. Mark wanted to be able to give something back to her.

Even though he wasn’t fully ready to retire, Mark began the process of transitioning ownership of the clinic. From the moment he engaged a broker to the moment the practice was sold, the entire process took about three years. It was lengthy, but Mark says it didn’t really feel real until it was over. When Mark was looking for a buyer, his main goal was to find one who would keep his staff intact, had similar chiropractic philosophies, and would put the patients first like he had. This wasn’t easy. A lot of buyers just wanted to pull value out of the business, but Mark wanted someone who would keep the mission of the practice intact. A complicating factor was the fairly large size of the practice. Therefore, Mark couldn’t just get a recent graduate out of school. They wouldn’t be able to afford it, and they would have a very hard time finding a loan. As a result, Mark was stuck with the difficult challenge of finding a buyer who both had the resources to purchase it at a reasonable price and was interested in maintaining the values of the practice that he had worked so hard to build.

The transition

"I thought in my head, in my heart, that I found the right person. […] Now, here, eight months later, I’m not quite sure that it worked out the way that I hoped it would.”
— Mark

After some searching, Mark finally found a buyer who met his criteria. Or, at least, he thought he had. When he met with the potential buyer, they assured him that they would keep the business the same. Mark planned on working at the clinic even after ownership transitioned, so it was important to him that the nature of the clinic would continue. However, things would not play out the way Mark hoped. According to him, the new buyer never planned on keeping anything the same. In fact, they had a different game plan completely, and the moment they had ownership, they implemented it quickly. There was little Mark could do. Since he was no longer the owner, he wasn’t in control anymore.

All he could do was come to work every day and see the business he built change around him. He watched as the employees he hired disappeared, the clients he worked with stopped coming in, and the values he built were cast aside. The practice lost a chiropractor he worked with for 23 years, and then a massage therapist he worked with for 21. The four people who worked at the front desk were all let go. 

The new buyer had promised Mark that they would keep all of his staff, and because Mark was a trusting guy, he believed them. But now, only three of Mark’s original employees remained.

For those three employees, challenges remained. The business did not look like the business they knew, and sometimes, it was hard to know how to proceed. They were used to going to Mark for help, but now, there was little he could do. The management style of the new owners was different, unorganized even, and the employees struggled to adapt. When he was the owner, Mark always valued each one of his employees, but that employee appreciation seemed to vanish with the new owners’ arrival.

"They're not treating staff like a valued resource, but just more like a commodity.”
— Mark

Right away, there was a lack of respect for the staff at the clinic. Under the new management, staff would often not be paid on time, or receive the correct amount, or not have their money deposited into their 401k accounts. As a result, the trust that Mark had built up with his staff was damaged. On top of that, the owners would often change business procedures with no warning or instruction. They immediately implemented new methods of organization out of nowhere but offered no written instructions to follow. Because of this, staff was often left feeling lost.

"It's a hard process to transition when all of those procedures were in place when I was owning it, and now there's nothing like that. So, the staff feels kind of lost in the big sea a little bit.”
— Mark

Of course, Mark wishes things could have gone differently, but he’s not quite sure how. While the transition will always haunt him a little bit, Mark doesn’t know what he could have done differently. While he regrets the sale in many ways, he doesn’t necessarily regret trusting the buyer. Mark had always been a trusting guy, and he didn’t want to change that. At the end of the day, Mark knew that trusting someone who misled him shouldn’t be his fault.

"But I think when they say the right words, I have no reason not to believe that. And I'm a trusting kind of guy, and that's maybe why I've always had long-term staff with me, because we have that, you know, trusting relationship.”
— Mark

Having some experience with business transactions, Mark did not go into the transition alone. In fact, Mark had his financial advisors, his accountant, his lawyer, and his broker whom he had worked with for the past three years. However, to Mark’s surprise, his broker threw a wrench in the deal at the last minute.

Mark found out that he had several previous transactions with the new buyer, which Mark considered an obvious conflict of interest. Mark sat down with his broker and explained to him that he couldn’t represent him anymore. While Mark had a contractual obligation to pay his broker for his work, Mark decided to bring his lawyer into the role of representing him as the seller while they finished closing the deal. Mark was disappointed, but he was glad to have the right resources and professionals to help him navigate the issue. In the end, the logistical aspects of the transition still went smoothly.

Taking a step back

"If you bought a car, you would play with all the buttons, drive it, see if you like it, right? See, you know, does it fit your body type, right? How does it feel when you sit there? You know, what are the bells and whistles? They never once came in before the sale to watch how we function day to day.”
— Mark

Before the purchase, the new buyer looked at the books, the tax returns, and all the necessary financials. However, they never once came in to see the business. To Mark, this was the most confusing part of the whole deal. If he was in their situation, he would have had boots on the ground — not interfering but just watching how the business is run day to day. To him, this is the most important part of understanding a business — not just the paperwork.

If Mark were buying the business, he would have visited long before the sale of the practice and long before they even had a purchase agreement. Mark suggested that the new buyers come in and observe before the sale went through, so they could understand how their functions might fit with their plan. However, the buyer declined.

"They really didn't care how we ran the business, or what our procedures or our protocols were, or any of our paperwork or anything. In their mind, they had it all figured out, and they were going to just put all of that into place.”
— Mark

According to Mark, the buyers’ plan did not work out as well as they thought it would. While they had bought multiple clinics prior to this purchase, Mark’s clinic was at least twice as big as any other clinic they had purchased. Because of this, it often felt like they were fumbling through the changes.

Mark signed a contract to stay on as a chiropractor at the clinic for at least 11 months. However, while he continued to be employed, he was no longer going to be involved in the management of the business — or at least he didn’t plan to be. Mark took the approach that he was just going to be another chiropractor, and all he was supposed to do was show up and do his job. However, this was difficult when the new ownership was making mistakes, and the staff was accustomed to looking to Mark for help. Mark’s old staff, and even the newly hired staff, continued to come to Mark to resolve their issues. Mark told them to go to the new owner, but the new owner was difficult to speak to and rarely interested in addressing their concerns. And so, the problems continued to fall to Mark.

Mark was not only frustrated with how the new owner handled changes with the staff but also with how they handled changes with the patients. When Mark sold the business, he suggested the new owner send a notification to current patients announcing the change in ownership. However, the new owner didn’t want to do that, even though Mark knew the patients would realize, nonetheless. Without that communication, Mark felt like he was letting his patients down.

"When you're making lots of changes, people are smart enough to know, patients start to clue in. They see different billings, see different names, see different faces, and that makes them a little uneasy, because they're so used to all the years when they knew what to expect when they walked in the office.”
— Mark

The loss of personal touch

The new owners’ cold, detached style of practice was completely foreign to Mark. Throughout the years, he had gotten to know each and every one of his patients. Not only that, he knew their families. Mark always felt this extra level of consideration and intimacy was essential to providing quality healthcare, but now, it was gone.

The new buyer seemed to have different goals. They had bought several clinics in the area and changed all of their names and branding to match. Mark says there’s a new wave of private equity entering the chiropractic industry, and when they buy in, they aren’t interested in buying just one clinic. While the new buyer was not a private equity firm, Mark said they are likely trying to position themselves to be attractive to private equity.

Once they acquire 10 or 15 clinics, private equity is far more enticed to buy them out. It’s a trend that Mark has seen take over many industries, from healthcare, to dentistry, and even HVAC. According to Mark, there is a personal touch that is lost when clinics are bought out by private equity. There is a quality of care that comes when practitioners know you — truly, genuinely know you — when you walk in. Nowadays, some may consider that old school, but it is how Mark built his practice.

"I always said that if I took care of my staff and I took care of my patients, everything else would fall into place. And 35 years later, it did.”
— Mark

According to Mark, caring for your staff and your patients does not just make sense morally, it also makes sense financially. Ultimately, it is a good business decision. Under his ownership, Mark’s practice grew year after year, and he attributes this success to the compassion he offered both his employees and his clients. Unfortunately, Mark doesn’t think this approach will continue with an influx of private equity in the industry. He says that when providers don’t own their own practice, they are less committed to going the extra mile for their patients. In the end, there is a personal element that is lost.

"I think there'll be a void in the community.”
— Mark

After

After the sale went through, Mark felt relieved. It had been a long road, and it felt good to have it behind him. However, it wasn’t long before his relief faded. A couple weeks after the sale went through, it all began to implode in front of him. Now, Mark was concerned about the future of his business, his employees, and his patients.

Today, Mark continues to work at the clinic as a chiropractor. Without having to wear all the hats required of a business owner, Mark works around 30 fewer hours a week–which has been a welcome relief. Initially, if all went well, Mark planned to stay on longer than the agreed upon 11 months. However, because of his conflicts with the new owner, Mark isn’t sure if this will be the case. It may be time to move on altogether, but Mark is not entirely sure what he will do next. At 60 years old, Mark says he is still full of energy. While he doesn’t have an exact game plan for what comes next, he knows he just wants to help other people like he was able to do at the clinic.

Looking back on the transition, Mark says the process was a lot more emotional than he expected it to be. He figured the transaction would be a relief, but eight months later, he still feels emotionally charged. Even though the deal is over, Mark is still concerned about the future of the business and of those involved. In some ways, Mark is weighed down by the feeling that the transition was a failure, despite the fact the sale went through successfully. He wanted to keep the mission of the business the same for the patients and staff, but it didn’t work out the way he had hoped. At the same time, Mark recognizes that when there is a transition, the business doesn’t stay the same.

The business belongs to the new owner now, and they can do what they want with it. However, Mark wishes that he was more prepared for this feeling. He wishes he had known the outcome of the sale may not look exactly the way he envisioned. Although it takes time, Mark is learning to let go of the vision he had for the business and accepting things as they are. He can’t do it all over again, but he can continue to help others in the next chapter of his life. Instead of dwelling on what could have been, Mark strives to be a valuable part of his community beyond the business.

"It's okay. We built something good. Now let's go out and build something else.”
— Mark

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