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How to Sell a Private Practice or Counseling Center

My counseling practice was my baby. From the time I founded Urban Balance in 2004 to when I sold it to Refresh Mental Health in 2017, it grew to over 100 therapists working from nine locations in two states. Selling my practice was a very big decision. It was a thoughtful process; one that required much research and consultation. I’d like to share with you all that I learned about how to sell a counseling/mental health private practice (solo or group) and the key components to consider.

It’s important to have an exit strategy even if you don’t plan on selling, why?

  • It takes time (sometimes years) to prepare your practice to sell. It’s never too early to become informed about your choices.
  • Sometimes the unexpected happens and it’s best to be prepared rather than to make a “fire sale” out of urgency.

Why do people sell their practices?

  • To reduce liability and responsibility
  • To cash out and lower/eliminate risk
  • To be freed to pursue other opportunities
  • Relocation
  • Retirement or to have more work/life balance

How can I find out the value of my practice?

  • Businesses are valued according to their EBITDA or “yearly profit.” Your accountant or a CPA will be able to calculate this after reviewing your tax returns.
  • Businesses often sell for anywhere from 1 to 10 times EBITDA, with mental health practices averaging more like 1-3 times EBITDA and the rapidly growing tech companies being the type that can sell for 10 times EBITDA.

Which factors which affect value?

  • How much salary the owner was drawing and how that affects profits
  • Quality of staff, staff retention, morale, and if the they will stay if the owner sells
  • What’s the value without the owner’s contributions if they plan to leave after the sale
  • If there are there good leases with low rent and multiple year terms
  • Strength of the referral stream and if referrals coming from multiple channels
  • The amount of contracts and the contracted rates with insurance companies, EAPs and other referral streams
  • If the branding goes beyond the owner’s name as a recognized entity in the community
  • If the business is growing or declining
  • Compliance with professional, ethical and legal standards of practice
  • If you own assets such as equipment or commercial real estate
  • Web presence, Google rankings and online reviews

When is a good time to sell?

  • When your business is at a high point
  • When you are starting to burn out
  • When you are ready for a change in your life

Who buys mental health practices?

  • Some people sell to their staff. Generally, this is a lower priced sale.
  • Venture Capitalists will often buy behavioral healthcare practices at a lower rate. They often work with people who are moving into retirement and average around 1x EBITDA.
  • Private Equity firms are sometimes interested in mental health practices, just as they have been buying and corporatizing dental, chiropractic and physicians practices in recent years. I chose not to go in this direction because these professionals were often missing the mission driven and relational components of a counseling practice. I was concerned the focus would be on growth and profits and the quality of care might be compromised.
  • Other larger practices, hospitals and EAPs may be interested in buying practices. The reason I did not choose this option was because I wanted to preserve the branding of Urban Balance and did not want it swallowed up by a larger brand.
  • I chose Refresh Mental Health because they are experts in behavioral healthcare, own and operate practices throughout the country who maintain their own branding, and are focused on clinical excellence and quality of care. Refresh is actively seeking partnerships with solo and group practice owners across the country.

What if I’m not ready to retire or leave?

Your role is negotiable. There are many ways to make a deal and people can choose to leave completely or they can choose to:

  • Stay on as a full or part-time employee or consultant
  • Work as a full or part-time employee or consultant for the parent company
  • Stay on as an investor in the practice or the parent company
  • Keep in mind that you will likely be asked to stay in your current role for a transitional period from anywhere from one month to one year and that you will likely be asked to sign a non-compete agreement (which is standard business protocol)

Who can help me with the sale process?

It’s important to have a team of advisors including:

  • A good accountant or CPA who will explain things like closing costs and taxes related to the sale.
  • A corporate attorney, possibly one who specializes in mergers and acquisitions in smaller businesses in the service industry.
  • A business broker can be very helpful throughout the process, although they do receive anywhere from 5-10% of the sale price. I was very happy with my broker, Mike Adhikari, and would recommend him highly.
  • It’s wise to keep your interest in selling close to the vest so that staff don’t get nervous or competitors don’t take advantage. I chose to tell my leadership team because I wanted their help in making a good choice for all of us.

How long does it take to sell a business?

  • My broker told me that, on average, it takes a year to sell a business. It took a year and a half for me to sell Urban Balance, but I took my time and considered multiple offers.
  • It’s possible to sell your business in 1-3 months if you choose a simpler process, like selling without a broker.

What is the process like?

  • The sale is a process that starts with a Letter of Intent (LOI) which includes the offered sale price. Once the LOI is signed, the seller is under “exclusivity” and can not talk with other prospective buyers or anybody else about the transaction. This phase is similar to being “under contract” when selling a home.
  • The next phase is a period called “due diligence.” Due diligence is a process where the prospective buyer verifies that all is as presented. The length of this depends on the complexity and organization of your business. Depending on the findings during this phase of discovery, the initial offering price may be renegotiated. This phase is akin to the inspection process of selling a home.
  • The final phase is “attorney review”. This is when the purchase agreement and any other applicable documents such as employment agreements, consulting contracts, earn-out plans, non-compete clause, or shareholders agreements are signed.
  • From beginning to end, this process can take anywhere from a month to several months depending on the complexity of the transaction.

How does it feel to sell?

Many people, including myself, wondered how I would feel after selling my “baby.” I feel proud, relieved and freed. I have peace of mind in knowing that the staff and clients of UB are in good hands and I’m enjoying doing the work that I most love as VP of Marketing & PR for Refresh Mental Health. I’m grateful that I continue represent Urban Balance as the Founder through my writing, speaking and media work and am extremely happy about this next chapter of my career!

For questions or further information about Refresh Mental Health, please contact Will Hartje at [email protected] or Jeff McNeill at [email protected].

How to Sell a Private Practice or Counseling Center

Joyce Marter, LCPC

Joyce Marter, LCPC is the Founder of Urban Balance and public speaker. You may find her at her personal website here, or you may follow her on Twitter.


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APA Reference
Marter, J. (2018). How to Sell a Private Practice or Counseling Center. Psych Central. Retrieved on November 15, 2018, from https://blogs.psychcentral.com/success/2018/06/how-to-sell-a-private-practice-or-counseling-center/

 

Last updated: 20 Jun 2018
Last reviewed: By John M. Grohol, Psy.D. on 20 Jun 2018
Published on PsychCentral.com. All rights reserved.