Dec 11, 2018
What is your exit plan? Can you envision a day when you want to step away from your massage practice? Or perhaps you are moving and looking for a better option than just shutting down your business. Is selling a viable option?Listen to "E195: How to Make Your Massage Practice (More) Sellable (with Ryan Parshall)" on Spreaker.
What is your exit plan? Can you envision a day when you want to step away from your massage practice? Or perhaps you are moving and looking for a better option than just shutting down your business. Is selling a viable option?
Go deep into the intricacies of selling your massage practice with expert business broker, Ryan Parshall. This episode is an absolute gem and contains something for everybody even if you’re not necessarily selling your massage business right now.
Resources from Ryan:
- Contact me: firstname.lastname@example.org
- Link for a free 45 minute consultation
- Free Ebook, Top 7 Ways to Prepare Your Business to Sell
Sponsored by: The Jojoba Company.
Sponsor message This episode is sponsored by The Jojoba Company. I firmly believe that massage therapists should only be using the highest quality products, because our clients deserve it, and our own bodies deserve it. I’ve been using jojoba for years. Here’s why: Jojoba is nonallergenic; I can use it on any client and every client without fear of an allergic reaction. Jojoba is noncomedogenic, which means it won’t clog pores; so if you have a client that’s prone to acne or breakouts, jojoba is a great choice for them. It also won’t go rancid; it doesn’t contain triglycerides like many products; so it won’t go bad. This makes jojoba a great carrier for essential oils, too. And finally, jojoba won’t stain your 100% cotton sheets; so your linens will look better for longer. And since jojoba won’t go rancid, they’ll always smell fresh and clean. For more information and to get some jojoba, go to massagebusinessblueprint.com/jojoba. That’s massagebusinessblueprint.com/J-O-J-O-B-A.
Michael Reynolds Hey, everyone. Welcome to the Massage Business Blueprint podcast, where we discuss the business side of massage therapy. I’m Michael Reynolds.
Allissa Haines And I’m Allissa Haines.
MR And we are your hosts today. Welcome to today’s expert interview episode. I have brought my own expert to the table today. I’m trying to contribute to our podcast a little bit here, for the expert interview series. And my friend Ryan Parshall is here. Ryan, welcome.
Ryan Parshall Hey, Michael, Allissa. Glad to be here.
MR Glad to have you. We are so excited you’re here. I would be remiss if I didn’t ask Allissa how the weather was in New England because I know it’s cold and snowy and wintery. Are you buried under ice and snow? Is it sub-zero temperatures?
AH Let me just say this that — and I will not go on. I got myself out of bed at the crack of 6 a.m. to get prepared and get in my car and go to my very first networking meeting, and it’s like 25 degrees out right now.
MR Oh, that’s right. Today was your big networking day.
AH Today was my first time going to this networking meeting. And it was delightful. I will share that in another episode. But it was — the sun was not up and it was 20-something degrees, and that is where I’m at today. So now I cranked the heat up in my tiny little backyard office, and I am under a quilt and I have my winter hat on for this recording.
AH And I think it just got up to 62 degrees in my office out here. So that is my banter and my weather report from the northeast. How is everyone else doing?
MR [laughs] Well, my three-year-old was very excited to see a dusting of snow today. He was like, can I make snow angels? I was like, well, maybe. He was very excited about that.
MR So, Ryan, you’re in Kansas City, correct?
RP Yeah, so it’s been snowy, icy, cold; it’s been freezing most of the last two weeks. It’s been really different than we normally have, so I’m jealous of the warmer weather, yeah.
MR So there you go. So now you don’t have to have a weather app on your phone because we brought the weather to you. You’re welcome.
AH And I’m convinced we now live on [indiscernible]. It’s never going to be warm anywhere again.
MR Right, right.
AH So bring it, Michael. Let’s do this.
MR Well, Ryan, I am — I could not be happier. I could probably be a little happier, but not much. I could not be happier that you are on our show today because I kind of fought for this episode topic a little bit because the backstory of this is — I think a couple of episodes ago, maybe two or three episodes ago, Allissa and I were talking about closing down a massage practice, maybe moving it from one place to another, either relocating or closing down a massage practice. And I kind of went on a tangent at the end about well, what if you were to try to sell your massage practice? So I kind of talked about the possibility. Allissa was kind of a wet blanked, and was, oh, it’ll never happen and it’s probably not going to be a feasible thing. And I was like, well, I don’t know. So I kind of fought for it a little bit. So anyway, that’s the backstory about why I wanted to bring this up.
And I thought what better person to bring on our podcast than you, Ryan. You and I have known each other for many years. We’re both former marketing agency owners. It’s been like five, six years, I feel like, maybe more, that we’ve known each other. You owned a marketing agency that you actually sold earlier this year, correct?
RP Yes, yes.
MR And I actually recently sold my marketing agency as well, and so we’ve both gone through that experience recently. And I know it was for you, and for me definitely, was an extreme learning experience, a lot of really rapid learning about this whole process. And I think you enjoyed the process so much that now you are a business broker working with Peterson Acquisitions helping others buy and sell businesses. That’s really exciting. I love to see how much passion you have for that type of work and the consulting and the service you bring to other business owners. And so it’s really exciting to see and I’ve learned a ton from you as well. That’s background on how you and I know each other and, of course, you have more to say about yourself, I’m sure, in terms of what you do. What’s the quick bit about what you do right now as well?
RP Yeah. No, thank you. I noticed a couple episodes ago, you talked about introverts. I’m not one of them.
MR [Laughs]. Right?
RP So I’ll talk, and tell me to be quiet if I overdo it. But I’ve always been in business and always loved entrepreneurship. I grew up in a family business in a small town, rural Missouri. It’s a farming community called Odessa, Missouri. And my dad owned a grocery store there. The grocery store business everybody thinks about is a product-based business. They go into the shop and buy the product. It’s actually a full-on service-based business. So I grew up learning how to be better than everyone else at the service side of business from my dad, actually, who owned the grocery store. Also learned how to work your tail off at the age of 14. So yeah, as I went to college and got [indiscernible], I was in design and then marketing and sales. So I’ve worked for small businesses for 14 years in working for others. I was always kind of like the right-hand man. I would start out as they hired me — the first job was a graphic designer, and then the next job I was art director, I was a marketing coordinator for a while, but I was always hired into this one job and then quickly became the right-hand man. Not necessarily in title, but as the business owner saw what I was capable of in the business side of me, they always brought me in really close to them to be a decision maker and somebody who could really change their company for the better and grow their company.
I’ve always been a change agent, a growth agent, and I’ve always been able to make that connection with business owners and that’s really what led me to decide one day, actually, it was actually in 2007. Recession was full on and I just told my wife, hey, we just had our second kid, how about I start a business in the middle of a recession. And I think she went cross-eyed and said oh, my gosh, what’s going on. But I did it, and I took the dive. And I just always said I’m going to grow up telling my kids that they should do what they’re passionate about, what the want to do and don’t let anything hold you back. And what better way to tell them that other than to show them. So I did it, just like you did, Michael. I grew an agency for over ten years, and it’s always what I wanted to do since college. It was my passion, it was my dream. And I found that as I hit that dream, you know — some people want to rule the world, some people want to grow a business to over a million dollars, you know, and I hit my goal probably year eight. And I found that after that, I had started to lose the flavor of what I was doing and really started looking at that time to start educating myself on how best to set my business up to sell.
I’ll talk about that today and basically, I now work for Peterson Acquisitions as a business broker, and I just started a side business which is helping business who aren’t ready to sell or they find that they’re not quite there yet, I help them grown their business or help them get their financials straightened out and get them prepared to have curb appeal so they can sell their business. I just started that side of the business and am loving that side of it as well. That’s where I’m at; any other questions, let me know.
MR So you’re a parallel entrepreneur like Allissa and I are as well.
RP Pretty much. I like to tell people I specialize in the entrepreneurial journey.
RP You’ve heard that a lot about “the journey”. But the journey is starting a company, growing a company, and selling a company. And I think a lot of us get into owning a business and selling the company is the last thing we think about or we never think about it until we’re already in the business for eight, nine, ten years. And then it’s like, wait a minute, oh, now what? So I really enjoy that whole process.
MR Great. So, again, this was prompted by — and about the topic of this — the official title of this episode is How to make your massage business (more) sellable. And I put more in parenthesis to kind of just allude to the conversation Allissa and I had earlier about a massage business is not like other businesses. It is often very difficult to sell, if not impossible to sell. It is very different from than, for example, a marketing agency like we’ve sold, or a software company or a manufacturing company or a local business or a flower shop. It’s a very unique type of business and so — Allissa, rightfully so, was the wet blanket saying this is not viable, selling a massage business is not something that people should really pursue. And maybe that’s the conclusion we’ll come to today, but I’d like to dig a little deeper and find out what the ins and outs are of potentially selling a massage practice. Because I know people have done it. And I would love your outside perspective from someone who has done lots of deals of all kinds kind of what the factors are in making your practice sellable and if that’s even worth doing if it just simply makes your business stronger overall.
So first off, why are massage businesses and similar types of wellness businesses so difficult to sell?
RP Well, I think it could be a lifestyle a little bit, maybe. It would be like — back to what I said about you get into business; a lot of people are doing it. I’m sure they were massage therapists. They got into it because they loved the business, they love the industry, and they love what they do. But, like me, going into it from a marketing and advertising aspect, I learned the business side of it along the way, but it wasn’t — for most of us, it didn’t go without hiccups or bumps. And I think the side of you that runs the business has to be there. And it is difficult and a lot of people lean on a partner or they’ll bring someone in to just handle that side of the business, but I think it’s a lifestyle. I go to spas — I love the lifestyle. It’s a peaceful Zen on that side of it. But then on the business side of it, I don’t think too many business owners would tell you that it’s Zen. [laughs]. That’s the stressful side of the business. We’re going to talk a little bit about that.
But they’re not hard to sell when they’re ready to sell. I think that’s the challenge is most people wait until the ship is sinking or until they don’t have a choice that they have to get rid of it, sell it, close the doors or something before they do something about it when the signs were there along maybe that they should have. We can go in that a little bit further in the show, but I really don’t think they’re different than a lot of businesses other than maybe the percentage of business owners in your industry don’t have the strong business sense and they don’t want to focus 90% of their time on the business side of it; the books, the accounting. And I know I didn’t running agency; it wasn’t the fun part for me. And so I think that your industry has a lot of that in it and it’s just the nature of the lifestyle and the psychographic and the people that are in the — running businesses in that industry.
We’re going to go into that a little bit further, but yeah, I also think it’s misconception about what it is that the people would want to buy. I hear often, especially in this industry, we have a great location, who would not want that? And the answer to that would be basically anybody who is looking for profit first in a business. Location is an indicator that you could have good profits, but if you’re not being able to produce the good profits, then great location doesn’t matter to them. I think I’ll stop on that topic alone and see do you have any questions on that. Because I know that location is the first thing people tell me. They picked a great location, which by the way is the most expensive one, and that is tough for your overhead versus back alley type of outfit. [laughs]
MR Yeah, I think what you said about business inclination is fair in many industries including massage therapy. And I guess one of the things that I was really curious about, again, when the conversation was prompting about moving or closing down a massage practice, to me, selling a massage practice seems like a reasonable alternative to just shutting it down. Because if you’re going to shut it down and get no money from it anyway, why not try to sell it for even a little bit and get some money? You’re no worse off, you’re basically doing the same thing, but instead you have a buyer who gives you a little bit of money. To me, it seems like that’s a path worth pursuing. But yeah, those challenges are very real.
MR I have a list of things I know you’re probably going to share with us, but let’s say you are in this position where maybe you’re going to move to a new city, across the country, and you obviously can’t take your clients with you and you’re thinking of just shutting down your practice and relocating, or maybe you’re just on to doing other things now and you are in a position where you would like to try to sell your massage practice. What types of things can you do and how can you structure and run your business so that it becomes more likely to be sold, or more sellable?
RP Right, right. Well, one of the things that I had listed today to talk about was the recurring customers, and I think that’s what a lot of business owners tend to try to do. They want recurring customers, they want a good customer base that makes your customer more sellable.
MR Yeah, you say clients or patients in massage therapy.
RP Yeah, and I think that basically it is an indicator. It is a good thing that can determine what you do. Do you sell it, do you close the doors, et cetera. Because if you have recurring patients or clients and they come it all the time or you sell packages and you’ve got that listed and you can prove that you’ve got so much in outstanding revenue coming in, then I think that that’s also something that helps determine what’s next or what you’re going to do. And kind of going to the past question of what makes a massage business difficult to sell, it isn’t that you have recurring customers or do not — because, again, profit’s either there or it’s not, and so the recurring business is only as good as the profits those recurring customers are generating — and I’ll just finish up one more — I’m going to tell a story on this when recent customer comes to me or prospective customer comes to me and they want to sell their spa. They wanted me to see their place. So after quite a bit of conversation, I went to the location — and again, they had a great location, they had recurring customers, but their interior design they had spent over 100 thousand dollars on the design of their location — it was beautiful. But now he told me that they don’t have profits in the company. And so he’s got a loan to pay off for the interior and it looks great, but now he decides that he wants to sell it — he has other business ventures — and wow, that’s really tough. Because going back to what you think will sell a company, it isn’t those things first. It’s those things third, fourth, or fifth. It’s definitely going to be back to profits.
So let’s talk about that going into the question you just asked about what do you do? I agree with you, Michael, I think it’s always in your best interests to take this investment of time and money that you’ve made and try to turn something out of that. Sell it or, in a lot of cases if there not a lot of profit or no profit in it, then the best thing to do is to try to find somebody who either works for you or in the industry who would take it over and then make payments to you for that business. They may not even have 5 or 10 grand to give you, but they might be able to sign a personal loan agreement that they’re going to pay back over time. So that is a possibility if you don’t have profits in your company. If you’re showing profits, I 100% would tell you, let a business broker see it and consider listing it. Because if you think people don’t buy spas, you are wrong. People buy spas. If they’re profitable, they’re just like any other business in that area. There’s a few other things that make that even more sellable, which is things like do you have somebody helping you run the business? Is there somebody you can rely on if you take two weeks of vacation to run the business? If not, start training somebody today. Because I think that determiner — you could have somebody come in, but they don’t want to be there every second tied down, but they have the money to invest and buy it, and they think they can turn it into profit or make it more profitable than it already is.
MR So I’ve got two questions that popped up in my head as you’ve been talking. And one of them is — I want to make sure I understand — so to me, I’ve always been told that recurring revenue — like for example, a lot of our listeners have membership programs in their massage practice. People pay a monthly membership for a reduced rate, and the massage therapist will change the credit card every month kind of like clockwork that’s this ongoing recurring revenue. And so me, that’s always been an indication of revenue stability that can help make a business more attractive to a buyer. But you’re saying that’s actually less important than just raw profitability on the balance sheet or on the P&L. You’re just saying as long as the business is profitable, that is the most important thing when it comes to weighing those two factors.
RP Absolutely. Let’s take an example if you have a large client base and they’re repeat customers, but what if your prices are too low and that’s how their buying those packages and that’s how you’ve started your business to get that repeat traffic. And so if you’re priced too low, on the bottom line you’re not showing profits, then what happens when somebody comes in and buys it and then bumps the price up to make profit out of it to pay back their loan for the company or themselves? Then you start losing that customer base pretty quick. I think the average they say in the first year on the low end is 15% — that you’ll lose 15% of that business. And so that automatically sometimes can turn the tables on what somebody perceives what somebody can turn into profit and revenue for that business. That’s one example. And let’s say your overhead’s too high, you’re paying your therapists too much, you’re running into that. Well, the first thing that’s going to happen when somebody buys it is they might come in and change that or let one or two go, change the environment, and now the therapists you have on board are now working way more hours than they were working and you know that doesn’t work in this business — just complete burnout. That environment basically set up in some ways to go the wrong direction. And so if you now start working on the profitability yourself and you’re in control of that change in environment to make things good — and we’re going to talk about that here at the end, what does that look like from a financial standpoint — then now you’re not going to lose your therapists; you’re not going to lose clients because you did it from a strategic way over time.
MR Okay. So the other question that popped up in my head was there’s obviously a difference between — you mentioned that spas sell all the time. But there’s a difference between a spa and a solo massage practice or in between you’ve got a solo — or not a solo, but a massage practice that has maybe a couple employees, you’ve got the owner and then a couple of massage therapists as team members. Is there a big difference in being able to sell, maybe, a spa with ten team members and a solo practitioner and in between?
RP Yes — there’s kind of two answers to that, Michael. It would be the fewer employees, the more risk there is. A lot of times because it’s a relationship built between the current owner and those employees and that’s why they’re there. And so that would be where the potential buyers would come in and really maybe want to interview them and talk to them to make sure they wouldn’t go anywhere because obviously if they buy it and the therapists take off, they have nothing. They might want to come in and write specific contracts for those individuals at that point. And that is done at times. And then, if you have a larger practice and you have one or town key people or mangers, then they’ll want to focus in on those managers mostly. Later down the road as they get it closer to actually making the purchase, they will ask you more detail about the individual employees and therapists, but they’re going to focus in on the managers and they want them intact so that nothing else crumbles as they buy the business.
MR And a lot of this seems to go back to making the owner replaceable. Making yourself replaceable.
RP It is, it is. And I think if you’re like me, over the years when I was running my company, I thought well, I can’t do that. I can hardly find somebody who does what I do, who has the different versatile skill sets. And I would tell you there’s ways to do it, and you can do it and it can be as simple as instead of trying to find that one main person to do what you do, spreading out your duties amongst several people to do it. Or maybe hiring out for the accounting and what have you. There are lots of ways to do that. I can talk to people individually if they had interest on that. But there is a lot of ways to stabilize your business to where it’s not 100% reliable on you.
Michael, you had mentioned something about the different options. I know that one option I hear a lot of times is somebody that can’t — they need to sell it or they want to move to another state and they think about all their options and one of them they often think about is well, can I just have my current manager or managers, can I have them just run the business and I’ll still take a smaller profit out of it and I’m going to move out of the state. I would tell you my experience is that I would consider selling it before I would do that. Or getting out of it what I could. Because typically that person doesn’t have, again, your versatile skill sets, and if they do, they don’t have the financial interest in the company to ensure its success. And I’ve talked to a lot of people about this and they’re like, you can set it up to where they do. At the end of the day, they don’t have the risks that you have in owning the business. So to move out of state and have somebody run the business and consult from out of state, it is the most difficult way to continue running a business. It’s very hard to do it. Rarely do profits stay the same. I would say well over 90% of the time, those profits, they decline. If you’re in a position where you’re not highly profitable or making a profit, it’s going to get worse if you try to go that route. So I always recommend selling it, put it on the market. Moving a practice is — it’s nearly impossible since it’s the customer-based location and those elements that are there that keep it going. You can obviously move your corporation location, but it doesn’t move any part of that business. You’re almost starting from scratch again.
MR Um-hum. So I think I know the answer to this — it’s kind of a softball question, but how important are good accounting records in — how critical and important are good accounting records when it comes to selling your business?
RP When people ask questions about your financials, if you have to go into your books an you have to spend days trying to figure it out or if you have a manual process and you’re not really using QuickBooks online or other online software, then you’re not going to sell the company. They’re going to want to know — and the longer you take in giving them answers, the longer their — the more they’re going to think you’re making the numbers up or that you’re not 100% sure about the numbers you’re providing them. So good input into a financial system like QuickBooks or other software means good output and you can quickly access that information. And they will ask for a lot of information. But primarily what they’re going to look for is your P&L, they’re going to look for your cash flow, and they’re going to look at your balance sheets. They’re going to try to figure out what does this look like on a monthly basis.
MR And P&L is — just to kind of clarify in case anyone is going to be — P&L is profit and loss statement.
RP Right, right.
MR Some listeners may have different levels of familiarity with accounting terms.
RP Yeah, and it’s a standard report out of QuickBooks as well. So I recommend spending time making sure that that’s done. I know there a lot of firms out there that that’s what they’ll do. If you don’t feel like it’s in good shape, they will, for a one-time fee, go in and make it what it’s supposed to be. They’ll work with you, they’ll do the bulk of the work, they just ask you questions and then they’ll educate you on what needs to happen moving forward to keep those books straightened out. But yeah, that’s highly important. What they’re looking for — so kind of to backtrack a minute. From a potential buyer — the buyers — over 95% of people who go to buy a business, a spa, you know, they are going to use a loan. They’re not going to use their own money. They’re going to use a loan. So they’re going to go to the bank and the first thing the bank is going to ask for is these statements, and they’re going to want to see what your cashflow looks like. And so if you think bout that, what their interest is is that it’s a low-risk situation. So your location, your assets, your tables, product, everything that you have in the spa isn’t as important to them as the profit. They don’t care — the bank doesn’t care about your assets. They don’t care about your interior design or your location. It’s — again, later they may ask those things as a final determiner whether or not they’re going to give a loan to a buyer. But they will look at the profit alone on the bottom line and they will say is this company, is this business making money? And if it’s not making money, they’re not going to get a loan. And so that’s why hearing this podcast today, I hope business owners really think about that and don’t try to take too much out of your business or don’t write too much off because the first thing they look at are those income tax returns. They want to see those first and foremost. If they don’t have profit in the last two years, you probably will have to sell this on your own and will have to do a personal loan to do so. So that’s kind of where looking in the mirror you go oh, shoot. I’ve been writing everything off and taking a loss every year. Well, that can hurt you when you go to sell your company.
MR Makes sense. What about brand? So a lot of massage therapist are thinking okay, I’ve got a great massage practice, I’m making money, I’m profitable, and I’ve got a really strong brand. I’ve got a good name, I’ve got a good reputation in the community, I’ve got a well-designed logo, a well-designed website, my marketing is really polished. How important is a strong brand when it comes to selling and valuing your business as a massage therapist?
RP Yeah, I kind of break this into two different people There’s the bank, we just discussed, if they’re doing a loan. And all those things, the bank will ask well, what did those things do for your profitability? The business owner — or the one who’s going to buy the company, they really are interested in that and this is what will make them say yes or no to moving forward. They do look at the recurring revenue. They will look at that next after there’s profits. They will look at is there a website? Is that website ranked? Is it up to par or do I have to build a new website? What does their marketing plan look like? How do they get new customers? Do people know the brand in a couple mile radius? Do they come across town to go to your spa because it’s really well known? So they do look at market share, they look at your brand, and what have you done to get your name out there. All of those things are asked; they are important. I don’t want to tell you that it’s only profit and that’s it. But profit first, then all these other indicators come into play as soon as they get past the profit side of it. That’s the companies that decide to buy or not buy.
And so I would tell you that I could sell spas all day long if they showed profit and they had some of these things queued up, I could sell a spa every month. It’s not an issue. It’s mostly about are you running a good business? And this is really why I started doing this side work is because the same things it takes to grow a healthy business, are the same things it takes to sell a healthy business. So things like do you have written processes in your company, how to do things, even if it’s a checklist on closing up at night or opening up and how you conduct your business. Recurring revenue and repeat clientele. All the things that make a company a great company are the things that you should be doing every day in a business. And then when it’s time to sell, you don’t have any work to do. It’s done. So it’s easier said than done. Being a business owner, I know that. I always heard people say stuff like —
MR Yeah, it’s a ton of work.
RP I’m like oh, that’s a lot of talk. Great, well, you should try to be a business owner. But what I found is it’s exactly true. And two years before I sold my company, that’s what we set out to do. We changed the website, we changed the name of the agency even. We set it up with great curb appeal. We started straightening out the financials. We boosted the recurring revenue. We had a plan to do it. And that’s the part that I’m helping people focus on now is can we get that plan together if you’re not ready to sell now or if they just want to grow their company in a healthier way.
MR Now, you’ve been talking a lot in terms of “spa,” which I want to make sure I reiterate — when you say “spa,” most of our listeners are either solo massage practitioners or they have maybe a couple team members, either contractors or employees. So when you say “spa,” are you — is it fair to say that these same principles apply to the massage practice owner who has maybe two or three employees as well.
RP Absolutely. And this is what I found to be true is that it’s easier to sell sometimes a three-person massage practice than it is a 15, 20-person full-blown massage.
RP Full-blown spa. Because, guess what? The three-person massage therapist, they have more profit in it and showing more profit on their tax returns than the larger spas. So it really is about the profit. I mean, are you running a good, clean business? And if you are, then, you can sell it. I can sell that three-person massage practice and get more money for it than sometimes the 15, 20-person spa. And people would say well, what about my location, what about the assets, all the equipment that I’ve got? At the end of the day, I’ve seen people have to liquidate that equipment, sell it on Craigslist, and not be able to sell their company because of what I just said. And so it’s a very sad situation; I do see it all the time. I love to help people do the opposite and really get set up to sell at a higher dollar. Or you just don’t know. I think a lot of people think about this as a planned basis. But some people get sick, unfortunately, and they get to a place where all of a sudden they can’t. Or they get in an accident and they can’t run their business. And all the hard work and everything they’ve done, they can’t reap the benefits from. I would say set yourself up to be able to withstand some of these things by just taking a few steps now — and I’d be happy to help anybody. It doesn’t cost anything to have an initial call with me. Take a few steps to go the right direction and try to really take kind of an insurance policy out on yourself, you know? Start doing these things you need to do. It’s easier than you think.
MR So I’ve been steamrolling the conversation for a while here, so I should probably stop and ask Allissa if you have any questions as well.
AH Yeah, so let me jump in and be super wet-blankety.
AH Since that’s how Michael has decided to label me for this episode. Anyway, here’s my beef. Like Michael said, and you certainly have clarified, a spa is very — a large facility — is very different from a small business with just a couple of employees. Which is also dramatically different from just a single person business owner. And I’m totally going to use myself as an example here. I am one massage therapist, I treat an average of 60-some — 60-ish clients a month. But massage is as much an art as it is a science. And it is not a tangible product or service. You’re not coming in and buying something that you take home. Nor is it the kind of service where — like housecleaning where the cleaner comes into your home and cleans and leaves and you can see the tangible results of their service. For many of us, massage is much different from that. There’s always tangible — there’s usually some kind of objective tangible result: a client feels better, they have less pain, in the case of my specialty, they have decreased anxiety, improved sleep, better behaviors in children, whatever.
But the work that I do is so incredibly individual and it is based on how a client feels. My profit is directly related to how a client feels after I provide that service. And a huge portion of that is not at all about the hands-on work. It is about the therapeutic relationship that I have developed with any particular client. So it’s really hard for me to fathom — even if my business is beautifully branded and smoothly run, and my expenses are real clean, and I’ve got a real consistent schedule, and my profit is very regular, I still have a very small client base. If I’m seeing between 60 and 70 clients a month, that takes about a base of 200, 250 clients based on people who might come weekly, every other week, monthly, or just people who come a couple of times a year. It takes about 200 clients, a base of 200 clients, to make a business, a massage practice that has 60-80 massages being performed every month. I did the math based on 80 because if you’re doing 20 massage a week, that’s definitely full-time. That would gross an average rate of 100 bucks an hour, which is high for some areas of the country and low for others. You’re grossing $96,000 a year. And if you’re smooth with your expenses, if you’re good with your deductions, you’re going to maybe bring in about $50,000 a year net. You’re going to take that home.
But that $50,000 is based on a really esoteric concept of the therapeutic relationship and my clients who have been seeing me for the tenure of my career — 5, 10, almost 15 years — are not going to just go see another therapist. And even if I can convince them to just go see another therapist once, there is no other therapist on the planet who does the work that I do. Because the work we do is so subjective and individual, I have a really hard time fathoming how I sell that. And even if I could, even if, say, I had a super structured practice that specialized in say, TMJ, jaw disorder, and people came to see me to fix their jaw pain, and I found another therapist who’s really good at helping clients fix their jaw pain, massage therapists in general — many of us come to this career because of the flexibility — because the fairly low barrier to entry — you don’t need thousands of thousands of thousands of dollars of equipment; you need a table and some lotion and some sheets. It’s got a real low overhead, especially at start up, in comparison to a lot of other businesses. I cannot fathom, even if I had a really solid business, even with a more tangible version of massage as the service, specific pain relief for a pathology, who the heck would buy it? There’s — I don’t see a pool of other massage therapist waiting to pay me whatever amount someone would pay for a business that nets about 50k a year. So I’d love to hear what I’m missing. What don’t I know that would make something like this possible? Okay, that’s the end of my example.
RP No, I love your question. It’s great. I love it because I can relate to it. I’ve been in all kinds of situations where I had that person. And a lot of times — sitting at a desk, a lot of my career I’ve had bad back problems and I’ve got a chiropractor that I go to. He’s awesome; nobody’s ever going to replace him and then he retires, or he leaves or moves or something. You know, the truth is, I do find, eventually, not always easily, I do always find somebody else to go to. But I think it’s important in this situation — if you’re going to sell it to somebody, they would have a longer transition term. Usually the way you arrange a deal is you have transition terms. And so it’s a longer transition term. It could be as much as six months or a year. In that transition, it just depends on your scenario. If you can transition out of it and it’s a health issue and you need to — and you can do that slowly, then that’s one in which they can start to pay you as they make money versus here’s a lump sum of money. The reason why I’m saying that is let’s say that they are either relatively new or they want to take it over but they want to take it over slowly to take care of existing patients that they have, so that kind of allows that to happen. So it’s very situational. If it’s something that I’ve got to move right now — let’s say the husband gets a job out of town, or significant other, and I’ve got to move today. Those scenarios are tough because you don’t have that transition time.
Now, I hear you. You’re the only one that does the exact thing you do because it’s who you are. It’s not that you’re saying you’re putting yourself ahead of others, it’s just saying that my patients love me. I’ve seen this. So it’s a harder thing to find that buyer that is closest to you. But know that the other option is shut the doors down and make nothing. So do you shut the doors down and take the table, take the lotions and towels and go? Or do I want to try to find somebody who wants to start a practice or wants to expand their practice to a couple locations, and I find the right person that’s closest knowing I’m going to lose patients, I’m going to lose them — a certain percentage of them or half of them or more — but it’s better than starting from scratch. And that not starting from scratch is worth something. And I think maybe if that — I don’t know if maybe that was something Michael said in his conversation with you, but it’s always worth something and I always prefer taking something away other than owing or making nothing. So that’d debatable. If it gets down to low enough amount, you have to determine is it even worth it — my time — or should I just close the doors and go? Those are the types of questions that come into play and the things that I’ve seen at this level. Does that make sense?
AH I absolutely — it totally does and I absolutely agree with you that something is better than nothing. And I do think a lot of therapists close their business without exploring the options of what they could get for it even if it’s an arrangement for referrals or — and I want to see more, especially independent massage therapists, really build a structured practice that they can show somebody. Because I think many, many therapists, I can walk into someone’s office and say oh, how do you regularly communicate with clients, and they don’t. They don’t have email marketing set up. They don’t have a bulk text messaging system. They don’t have — the number of therapists that don’t even have a current master list of clients and client contact information is startling. And I think that if nothing else, if this conversation and this episode shakes a few indy therapists at least to get some more structure to their business, it’s totally a win. So thank you for answering my pointed wet-blanket question.
RP Yeah, I think a lot of new therapists, they come out and they’re starting from scratch and they have to build it. There’s a value there to be able to start, to take over, and to start at your location. Even if you shut down 100% and they come into the same location, they’re going to reap the benefits from that because the traffic will come by and they’ll see it and they’ll walk in and get massage. So there’s a lot of benefit and there’s a lot of value in going ahead and finding an arrangement where you can sell it to somebody. There is always a buyer out there; I will tell you that. There always is. You think who would? The buyers are everywhere. A lot of times they’re working for other companies or other practices and they say to themselves why am I working here? I could be doing this on my own and be my own boss. I think there’s way more of those than people realize.
MR Interesting. I wish we had two more hours because this is an amazing topic and I’m learning a ton. Unfortunately, we have a few minutes left and so I do want to make sure we do get this topic covered in just a few minutes, hopefully, and that’s client consent. We had a debate about this, Allissa and I did, and some of our community members had a debate about this. And I don’t know that we had, necessarily, a big epiphany or anything, but there’s this issue of client consent. So let’s say you do successfully sell your practice and you transition over to a new owner, what do you do about those clients? I know that medical practices sell all the time and this happens in other other similar types of businesses. But do you simply turn over the database to the new owner and they market to those clients? Is there consent that has to be taken care of legally? How does that work?
RP So I assume you’re talking about the database and doing email marketing —
MR Yeah, client records. Either full client records or limited client records that the new owner would use to market and serve those clients from the existing business.
AH And we’re also taking here about protected health information. So names, dates of birth, records of client health information.
RP Right. So in most cases, when you have that type of information available, you usually have an opt-in process when you first buy it so they know and they’re aware of who now has access to that information. But you do need some type of checks and balances here to make sure that if they have opt-in on that. A lot of times that can be when they first come in, they’re filling out paperwork that says that, they understand that it’s a new ownership and you’re giving them permission to access the records, et cetera. So that’s just very typical. The legal side of it, you have to get permission. If you take it over and start working with people’s information and they were not aware of the sale of the company, you are opening up yourself to a lawsuit. Unfortunately, it’s just one of those things that has to be done. Now, you can do that in several ways. You can do that through email, but typically I see it handled as they come in: here’s a notice I need you to sign before we do anything else and before we access your records, here you go. The truth is you already have the records and access to the records, but before you go in an physically see them and review them, you typically want to get a sign off from that patient. That’s pretty normal. I don’t know, Michael, if that’s what you were asking about.
MR Yeah, there was just a debate about protected client information, HIPPA, medical records, things like that. So just curious what your take on that was. It sounds like as long as you get consent, then that usually works itself out.
RP It’s different from a lot of companies where you’re buying purchasing information that’s unregulated or you’re buying just general contact information. That’s not a problem. I mean, somebody buys an ad agency and they get a client list and contact information, there is nothing they can’t have access to 100% at that point. But because of the HIPPA compliance and the protection of your information, your health information, you’ve got to do that. It’s a must. We run into that in a lot of different areas, dental, there’s all kinds of areas where you’ve got to get that sign-off on.
MR So it sounds like it’s okay if you — let’s say you purchase a massage practice, you take over, today’s the day you take over, you can — it’s okay and perfectly legitimate to say hey, take the first names, last names, and email addresses and send an email out saying hey, come in to meet the new owners, come in for a whatever. It’s perfectly okay to use that information because it’s just basic contact information. It’s the personal health information that you have to get consent for. Is that correct? Am I understanding that correctly?
RP Yeah, and a lot of times it’s still on paper. You’d be surprised how many people still have the files there in the office —
MR Oh yeah. We have a lot of stuff on paper.
RP I mean, it’s all there. There’s nothing to hide. It’s there. It’s how you use that information and what you do with it once you have it. Do you just open up and start going through it and getting all that information or not? And that’s really risky. I would never do it. I would actually seek the approval from the whole client base as quickly as possible to continue doing business as it had been done.
MR Thank you for clarifying that.
RP Yeah, that does go back into the drop off. You will have a certain amount of people who, oh, it’s not the same ownership. No, I don’t want anything to do with it. Well, there is a percentage of people that won’t and they won’t continue. So that’s something that the banks consider if you go to get a loan. They know, depending on what type of business, they already know what percentage is going to drop off in the first year. It’s an average of use based on how many different companies that they help get loans for in that specific industry. They have a lot of great data and if you are considering buying a spa or a therapeutic business of any sort, go ask them. Go to your bank and find out what are the things I need to consider, what are the things we look at, and start building that relationship with the bank, and you’ll find real quickly the things that you’re going to run up against.
MR Cool. Well, before we wrap up, Allissa, what else is on your mind?
AH I think you guys pretty much covered it.
MR This has been incredible.
AH It’s a lot of info.
MR Yeah, really good stuff. Even if it’s only interesting to maybe two of our listeners, I’ve been really interested and it’s really good information. So for those who may be on this path, I think it’s been incredible.
Ryan, let’s go ahead and make sure that we get your contact information available to our listeners. First, I want to give you two things to wrap up. First is anything else you would like to say to our listeners that maybe we haven’t covered or that you’d like to clarify. And then following that, let’s tell people where they can contact you in case they have questions about selling a business.
RP Sure, sure. I think we’ve covered the big bullet points. I did create an e-book that helps small business owners with the things that are important to do in your company before you sell or things to consider ahead of time. Hopefully we can put that link in the show notes —
RP — and people can go there and download that information. If they want to contact me, they can contact me through the website or they can email me direct at email@example.com.
MR Beautiful. Thank you very much, Ryan, this has been phenomenal. I really appreciate all the deep conversation information about this topic. It’s been a real pleasure.
RP Great, well thanks for having me. I appreciate it. You and Allissa didn’t fight too much over this topic. [laughs]
MR It’s been fun, it’s been fun.
AH Thank you, Ryan.
RP No problem.
MR And thanks, everyone, for joining us today. We appreciate you being here. A reminder that our website is massagebusinessblueprint.com. Check us out there. Ton of information there as well as our exciting premium member community, which has a ton of value in there including free stock photography, the best Facebook group for massage therapists on Facebook, a ton of premium content as well, office hours, just lots of good stuff there. Check that out. Give us a review on iTunes. If you enjoy what you’ve been hearing, we love reviews, we read those, and enjoy them all the time. So thank you for that. And again, thanks for joining us today. We will see you next time.