How to Build a Dietitian Business That’s Sellable (and Profitable) with Dan King
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[00:00:00] Dan, I am really excited to have you here and share your knowledge and experience with our audience. So first of all, our audience might be thinking an expert who helps people sell a business. I'm just not there yet. Can you talk a little bit about what you do and why it's important to start thinking about selling your business, even if you're not going to?
So we buy mental health practices. And, but I think a lot of what I do is applicable to people that are in slightly different spaces. And so if you are a dietician, if you're a nutritionist, or if you're a mental health clinician, there are a certain number of similarities.
So when you're thinking about the business that most buyers want, it's probably also the business you want. Most of the time in that it's a business that gives you a ton of freedom. It has systems that are functioning without you being there or with limited involvement, and it's a business that just has an excellent [00:01:00] reputation.
Probably in a local community, people know who you are. People will get a valuable service from you, and you have a team that can also provide that valuable service Underneath you. That team has been retained for a long time. They really like the uniqueness of working for you and in your business.
And all of those things to be able to make them function, are not easy, right? it could take some time and a lot of building and a lot of leadership to be able to become well-known, have a team and create systems, right? That could be, a large body of work. A hundred percent and there's no instruction manual for doing it.
So there's a lot of trial and error, and hopefully we can create some content here that can help people avoid some of those mistakes. But for most people, I know, speaking for myself, I used to run a practice too. There is a lot of trial and error. And, I appreciate all of the knowledge that you have from your personal experience and from helping mental healthcare professionals.
With your business Fireside strategic [00:02:00] and you helping founders, why do you think that practitioners should care mostly about leadership strategy and what does that even mean? So when I think about leadership, it's primarily about people. So certain businesses can scale with fewer people. There's some types of businesses out there, but a majority of them, and certainly the kinds of businesses that we're talking about, any kind of healthcare or human business is all about people.
So leadership is about how to create an atmosphere in which they thrive, in which they can come to you, in which they feel not just okay, but ideally excited to come to work. And for so many of us, that's an experience we don't have with work. Many of us become entrepreneurs because we didn't have that experience.
And so creating that for someone else's, when I think about leadership strategy, that's really at the core of it. Absolutely. And when you look at who's qualified to sell their practice, do you notice any themes in terms of, I know our audience loves benchmarks. Is it a certain amount [00:03:00] of time that they've owned their practice or are there certain milestones that they hit?
Like what are some of the patterns that you're seeing, if any, in some of the practices that are ready? Every acquirer is slightly different. So when it comes to the financial side of the equation, some acquirers are gonna want a bigger business. Some might be comfortable with a smaller business.
But generally the bigger you are, the wider variety of acquirers are gonna be interested. And there's a variety of reasons for that. in the whole world of business buying, folks believe that the bigger a business is, the more stable it's right. So if a business is small, you might think it's easier to manage and sometimes that's true because the systems are simpler and there's fewer people.
The business is generally less stable. Okay? It's generally gonna be perceived as riskier. in terms of patterns, I see someone who has mitigated risk, and at the core of mitigating risk generally is a bigger business. That said, there are other [00:04:00] ways to do it, with a smaller business, if your people have been with you for a while, that's risk mitigation too.
And so just like when you're serving a customer, you want to get, you wanna put yourself in their shoes. If you want to sell your business, you have to put yourself in the shoes of an acquirer. And at the core of every acquirer's MO is don't lose a whole ton of money. Sure. And so risk mitigation is absolutely vital for any acquirer.
In a human business, that means retention for us. And one of the first questions I will ask practice owners, tell me over the last three years how many clinicians have left and why did they leave? That's always a very interesting conversation. And when you say retention, I immediately think clients, not staff.
Do you also look, 'cause I've talked about benchmarks for selling a business in the past and I've heard it was 80% retention or more for customers. Do you have a benchmark for customer retention or more just team retention? We think so [00:05:00] much more about team retention. Interesting. And part of the reason for that, it's gonna be a little different in your space in mental health.
The demand is just insane. Everyone needs therapy, everyone needs prescribing, and so across the country, it's very rarely a challenge to get customers. Certainly a business that we're looking at.
That of course matters. That's risk mitigation and that's just the ethical due diligence that we need to do. But we spend much more time actually thinking about clinician retention than customer retention in spaces where it can be harder to acquire customers, that could be different.
So does that matter in terms of the specialty with mental health and if it's insurance or cash, or do you not look at those variables? Those things do matter. in the insurance space, in any type of healthcare, it's generally easier to acquire customers because you have insurance companies doing a lot of customer acquisition for you, right?
Yeah, exactly. So generally speaking, there is much more of your own marketing. You need to do your own business development if you've got a cash pay practice. And all that said, though, there are fewer rules right [00:06:00] around Cash Bank, so you can create your own systems and your own structures, both for treatment and customer acquisition that are trickier to do in insurance.
That said, there's so many interesting things you can do with insurance from an acquirer's perspective, right? generally most acquirers in healthcare, I'm gonna say prefer insurance. When I say insurance, government insurance is a whole other realm.
It's a whole other type of business. And there it's even easier to acquire customers generally, but it's more of a volume type business. Okay. And it's important to make that distinction.
You mentioned the freedom aspect, and I understand that you and I have both been in an entrepreneur's organization and we can understand some of the foundations of business, why you might wanna sell it, but the listeners might not get that. Can you explain why it's important to think about selling your business even if you don't and what the benefits are and just the mindset around building to sell.
Most entrepreneurs, it's very rare. There are exceptions. It's very rare that you [00:07:00] have immediate success. Most entrepreneurs experience various kinds of struggles, and one of the things that comes with entrepreneurs that struggle often is low cash flow, In a job you have the virtue of steadier cash flow. You may have less ultimate potential, right? But you do mitigate your risk to a certain extent. And so if you think about for many entrepreneurs, the cost of all that struggle financially, one of the ways to repay yourself and ultimately earn even more if you are able to sell your business.
And you're able to sell your business for a pretty high price. it's a way to think about both mitigating the risk of entrepreneurship and getting yourself to just a better place financially, right? A lot of people when they retire, like when an employee retires, it's very different than when an entrepreneur retires, right?
So we pay ourselves in a different way, and ultimately being unable to capitalize on something that maybe you've been building for 5, 10, 15, 20, even more years, right? [00:08:00] It's you're leaving some money on the table. in an ideal world. you may be able to sell to another clinician, right?
If you've really built something good that has some good systems to it, even if it's small. I would encourage people to actually think about selling to other clinicians, other practitioners. So to me, money just matters. It's reality of things. And so as an entrepreneur, that potential of selling a business is often crucial to building that worth and achieving financial stability.
Yeah. and it is an interesting way of looking at things or asking yourself these future questions. How do you wanna pay yourself? And I know you talk a lot about values. How do your values align in terms of how you wanna position the business to be sold to? And for a lot of clinicians, I'm sure in your space, they prefer to sell to another clinician, right?
I can assume that it's almost like a legacy. You're passing it down. A lot of us want our body of work to then be handed off to somebody who can keep the core of what we've built, because it's, for a lot of us, it means a lot. There's a lot of meaning behind the business and the systems.
[00:09:00] It's very emotional. Although I don't agree it should be a hundred percent, but I know it is for a lot of practitioners. People so often use the term my baby. I don't like that. I don't like that. But yes, they do. That's interesting. You have to tell me why. Yeah I think it, especially when it comes to selling, but in general, I think we have to learn how to take emotion out of what we're building, right?
So if it's a system and we're thinking about sticking with our boundaries, for example, I don't think we can treat a business like a baby because it's different. When we're looking at creating boundaries and we're looking at reaching bottom, we're looking at, Reaching some of our financial targets.
I think we have to really look at putting on our business, mindset and not necessarily relating it to how we would treat our family or our child. So I think we have to look at things very differently when it comes to our business. So many of our clients are very emotional when they make decisions, and it's important to channel that into the great customer service that we give our clients and our staff.
But I don't think that's the lens we have. To look at our financials and make decisions about hiring and [00:10:00] firing. one shift I've seen in the business world in the last, four to five years, is the increasing use of human language. There are pluses and minuses to that, but so often you'll see people talk about their team as family.
In my space, in mental health. most of the people that I'm speaking with are female founders who have human children, so it's interesting that they refer to their business as a baby.
Yeah, and that might be an interesting conversation also in terms of when you interview and have conversations and ask them, what does that mean, right? Really getting under it, what does it mean with family and how do you create and hold those boundaries that also links to you? Still maintaining profitability at the end of the day.
You mentioned cash flow is important. That's the number one reason that our businesses fail, is because we just don't have enough money. So if my point of view is if that's the reason and we wanna maintain, then we also have to look at making some hard decisions and like taking that into the culture.
However that works for your business. That's how I see it. Of course, then you have to find a way to still be warm, but also still make sure that you're. Reaching your bottom line, which can be challenging [00:11:00] in a space where people are very heart centered. is sales really the biggest reason that people struggle from a cash flow perspective?
Yes. I would say initially it's sales and then it could be making decisions in terms of when you need to hire more, taking risks, in terms of your finances. So really being familiar with your profitability, learning when to expand and taking some risks And then there's this whole thing in our field.
I don't know if this is true in therapy or other similar practitioners, but a lot of dieticians hire contractors instead of employees when they need to. And it's. Not legal. And if they get caught for that's bad news. So best business practices, again, they might be doing it because they're trying to, save money.
but that's also not good down the long run. and so making those strategic decisions and putting on your strategic business hat, is really important. But you also have to balance that with kindness and empathy, which can be really challenging when you're in a heart-centered practice or heart-centered field.
Speaking of financials, I don't know if [00:12:00] it would be helpful for your audience to talk about some of the financial metrics Most dieticians, and I know most mental health clinicians have never read financial statements, so it's always an interesting journey when I'm speaking to them about their financials.
Yeah. I think the two most important financial statements if you wanna sell a business are your profit and loss and your balance sheet. And even more important is the profit and loss. Okay? So a p and l or a profit and loss can be for a year. It can also be monthly.
A balance sheet is a snapshot in time. So if I ask for a balance sheet, it's gonna reflect the business's assets and liabilities. In other words, what you have in terms of cash. Generally and accounts receivable. And then on the liability side, what you owe. Okay. And it's gonna show us or anyone who reads it where the business is there.
Profit and loss statement, which is most important. The three most important things there are gonna, in the p and l very clearly. It [00:13:00] shows, how much the business is profiting. The three most important numbers to look at generally are gonna be number one, revenue.
Okay? Your top line revenue, how much is the business generating before any kind of expenses? And then there's two kinds of expenses. There's what are called COGS and operating expenses. Now, within those categories, there's lots of other things, but the cogs generally is what does it cost to sell whatever you're selling.
Operating expenses, on the other hand, are gonna be your overhead, like rent, right?
Any licenses, any insurance. All of that is gonna come out of operating expenses. So we subtract from our revenue, our operating expenses, and our cogs, and we get a number. Which is called different things, but I'm gonna call it SDE. Okay. This is the second number you need to know, seller's, discretionary earnings.
And then the third number is gonna be called ebitda. That's a very fancy business word for profit, What we wanna do is subtract a market wage. We need to pay ourselves, we [00:14:00] need to eat right.
And if someone is buying a business and replacing you with someone else to run the business, someone needs to run it. So the ultimate number that matters most generally when you're selling a business is the ebitda. And we get that by subtracting a market salary for the owner or owners from the SDE.
And as an example, if the top line revenue is 2 million. Then we subtract the operating expenses and the cogs, and they total 1.4 million. Our SD is 600,000. And if you happen to be in Delaware, the typical market wage would be $150,000.
Then 450,000 is your ebitda, and an acquirer is gonna buy your business on a multiple of ebitda. Okay? So they're gonna multiply EBITDA by two, by three, by four, depending on the size of your business. When you sell a business, it's just like selling real estate, right? So the market goes up and down.
at any given point, it might be better or not so good to sell your business, [00:15:00] but depending on how the market values your business. EBITDA will be multiplied. So if there was a three x multiple, going back to our example on an EBITDA 450,000, that's gonna be 1.35 million. That's gonna be the value of that business.
Yeah. it was such a clear explanation. Thank you for sharing that. Really helpful with the example for our listeners. so there's quite a lot of work to do to get to that point. And what would you say would be the number one mistake or mindset block that you see that, practitioners, like the ones that you work with, that they make, either when they're close to or when they actually have sold their business.
Are you seeing patterns at that point that can help us learn? That's a very good question. I think probably the number one mistake a lot of folks make is. Very numbers focused, and it's good to care about money, of course, but when you're selling your business, what matters even more is who you're selling it to.[00:16:00]
So someone who promises you X amount of money, that if that promise is no good, if they don't have a history of actually being able to deliver on that, what does it really matter? And even if they do deliver. What is the experience like of working with them? Are they gonna treat you like a human being?
And so when you sell your business, it's a bit like a relationship. You're getting married to someone, especially if it's a transaction where you are staying, right? You're selling all or majority of the business, and you stay and run it, which in our space happens, even if you're leaving. You still have to work very closely with the person that's buying, the people that are buying your business, and it's a very emotionally intense journey.
What will happen is if you find a potential buyer, they will most likely have you sign an letter of intent. And that LOI spells out the broad terms of, the agreement to sell your business. And that LOI also gives that buyer an exclusive right, to buy the business and conduct very thorough due [00:17:00] diligence.
During that thorough due diligence period, which is gonna be around four-ish months, if it's a small business, they're gonna ask you everything about your business. they're gonna verify all of the claims you've made. And that process is gonna vary significantly depending on who the acquirer is.
And one of the things we like to really do is give our sellers a very human experience. So that partnership, right? You really have to value the people on the other end of the table. They're not just writing you a check.
They're partners. They're people that you're gonna work with very closely. And so you should ask yourself, would I marry this person? In a business sense, you should ask yourself that because that partnership is gonna be very important. Those are a lot of variables to think about. I just want the listeners to understand it's not only setting up your business to be sellable, but also really thinking about who the buyer is and understanding the terms and the deliverables of that relationship as you, undergo the part where you have to still work in the company thereafter, which can depend,
It's different [00:18:00] every time per buyer and per situation. an owner might be on for a little while. years or less than that. it can vary. So I see what you mean about the marriage. there's a lot of things that need to fall into place correctly for this to work out.
I'm sure that can cause some headaches and a lot of fear in owners because a lot of great owners that have built their practice to be large enough to be sellable have so many skills. Not only leadership, but also they obviously have great clinical skills to an extent, even if they're not operating in that role anymore.
So it's gotta be a big learning experience for the owner to sell and put themselves in that situation. It's a really deep journey that the sellers that we work with, we get to know them extremely well. There's 10 bajillion phone calls, it should be fun.
It usually isn't, to be honest with you. part of what we try to do to distinguish ourselves is really give people as human and experiences as possible. And can you just explain what you mean by human? do you mean going out to lunch together or having some time for icebreakers.
So [00:19:00] when I talked about a Proctology exam earlier. one of my partners, he's a really accomplished psychologist. He grew his business to 25 million in revenue. Incredible. he uses this term proctology exam and it doesn't exactly inspire fun, right? It's not something people generally wanna do.
And what he's getting at is the thoroughness with which a professional acquirer will investigate the business, right? To make sure they know what they're buying, to make sure the things that you've told them are true. So there's a way in which that process can be super transactional. There's a way in which, especially for, the very human and relational type of people who run a dietetics or a mental health practice, these are human beings with big hearts usually.
And if the process is too transactional, It'll really be a problem, especially if it's a partnership type deal, right down the line, we're gonna be working together. In our case, it's for five years. Generally, we will buy a majority of the business and retain the founders to actually run it. What we support with expertise that generally they don't [00:20:00] have.
And so that partnership process is super human. You really have to get to know one another. Again, I'll use the marriage analogy. You gotta get to know one another and you gotta be super honest about your strengths, your weaknesses, what as risks in any potential partnership. And if that proctology exam is too much of an exam, if it becomes too transactional, you strip the fun from it all right?
And if you do that, there's an energy of super transactional. I don't care about you. And the reality is, in our space, we just have to care. there's nothing more important than mental health, and there's nothing more important than our health writ large. And so if you try to bring two transactional approach to the work here, when you are buying a healthcare practice, then we lose our humanity.
And then what's the point of doing all of this, right? We're here to make money. But by the same [00:21:00] token. I think we have to be doing good as well, and we have to care about the patients and the clinicians in our practices as well. Just to paint a picture of what that looks like, where you're not so transactional, but you also are moving forward.
So for us, we're a boutique acquisition firm, and by that I mean we're not trying to buy a thousand businesses across the country. We could, because in our space there's a lot of businesses, but we have a boutique approach where we're really looking for three major businesses to buy and then potentially some smaller acquisitions underneath those.
And so what that means is our leadership team are intimately involved in every transaction. There is no ginormous team of 25 year olds with Ivy League degrees who are doing the work. We are doing the work. We're all slightly older, we're all slightly more experienced, right? And so every seller knows they're dealing with us, they're dealing with the central decision makers.
And as a result, there are fewer layers. There's less of a [00:22:00] bureaucracy, right? And I think it is truly more human than if I hired, a 25-year-old with an Ivy League, MBA. He may think he's smart and he may be smart, right? But he isn't gonna provide the same touches as a leadership team would. there just needs to be a certain level of humanity to the Proctology exam. Thank you for adding some context. There's so much to look forward to as a practitioner who owns a business that can be sellable and it's really achieving ultimate freedom and thinking about how you want to pay yourself when you retire.
And I think it's such an important conversation for any business owner. And I love the work that you do and how you have, These three points that your potential buyer has to meet, right? So you're really clear about who you serve, which obviously makes your process a lot more seamless.
that's great. Are there any other last thoughts or reflections that you wanna share with the listeners? We'll have all your information in our show notes, but absolutely let people know where to find you as well. That would be great. The big thing that [00:23:00] I wanna leave listeners with, and this is an idea that I've been playing with a lot, so I was just speaking at a conference for mental health group practice owners, and I met this amazing clinician who has a great practice, and she came up to me and she said, I wanna sell it to another clinician.
And we have, she and I really get along. We're not gonna buy her business in part because she wants to sell it to a clinician, and most people assume that if you're a dietician or a social worker, you know you're a frontline clinician. You can't afford to buy the business you work in if you happen to work in a group business.
But the reality is through SBA financing, There is a specialized kind of acquisition loan that you can qualify for, There's some complexity to it, but the reality is that 80 to 90% of the purchase price could potentially be covered by that loan. And so you don't need to have a ton of money.
You don't need to go raise money from professional investors in order to buy [00:24:00] the business you work in if you're a clinical professional. Possibility is that very few people even understand that this is a possibility. consider the possibility if your business is on the smaller side. Consider the possibility of a succession plan where one of your employees could buy the business.
It just makes a lot of sense in a lot of cases, and so working with us, you're working with professionals, it's very different. We're a fit only if the business is larger. So when I talk about the EBITDA calculation earlier, we're generally buying, if it's one of the three kind of large businesses we're looking for, then it's gonna be a million of EBITDA and up.
if you have a smaller business, but you really want some liquidity in a retirement, you've been working on it for 10, 20, 30 or more years, you owe it to yourself to sell that business. And so selling to another clinician is so possible and no one understands that it's possible.
this is one of the ideas I'm playing with in my head, maybe helping facilitate some of these transactions down the line. Businesses that [00:25:00] have been built over many years, they deserve to be passed down and the owner deserves to get. Money in the bank.
Absolutely. this is, to me a very natural way to do it in a lot of cases. I would assume there's a lot of fear and just knowledge gap of being aware that it's an option because it is a very business mindset way to go about. it's a great angle. I and it ties in with what you talk about, values first and treat
Retention of the team even more important than retention of the clients. it's a natural progression in everything you've been saying in today's episode. So you really come full circle with that. great way to wrap things up. It's been such a pleasure, Dan. As I say I'm exploring the possibility of helping people because there is some complexity to doing this, but it is very possible to do. if you've heard this and it seems interesting to you, if you wanna explore the possibility. selling to one of your clinicians, you can write me an email at dan DA [email protected].
Libby will probably put that in the show notes. Absolutely. Just write me an email. And again, no, I haven't done this yet, but I think it's a very real [00:26:00] possibility and I could see us helping in some way facilitate this kind of thing. So if you'd like to just explore that possibility, feel free to write me an email.
Excellent. Dan, it's been a pleasure. Thank you so much for being on air. Thanks so much for having me, Libby.
