Why an Internal Transfer may be the Best Exit Strategy for Chiropractors

 As advisors, one of the most common questions we receive is: What is the best exit strategy? Should I sell my practice to an external buyer—someone I don’t know—or is it better to transition ownership to someone internally? The answer isn’t always straightforward, but here’s how we see it. While external sales are far more common and do have inherent benefits, they also come with significant risks, especially when financed through SBA loans or even seller financed. In most cases, an internal transfer provides greater advantages for the selling chiropractor, including more control over the process, flexibility in structuring the deal, and the ability to dictate valuation. On the other hand, external sales often lead to rigid financing terms, delayed payouts, and greater uncertainty. In this article, we’ll break down the advantages and challenges of both approaches—highlighting why internal transfers often provide a smoother, more financially sound, and legacy-preserving path for chiropractors looking to exit their practice.

The Pitfalls of an External Sale with an SBA Loan

Selling a chiropractic practice is a major decision, and many doctors look to external buyers as their primary option. However, using an SBA loan for chiropractors to facilitate this sale often comes with hidden challenges that are not widely discussed. Most brokerage firms in the chiropractic profession have relationships with SBA lenders and tend to make this as the default method, especially for medium to large-sized practices. While it may seem like a convenient and lucrative option, the reality is that an SBA-funded external sale is not always in the best interest of the seller—or even the buyer.

One of the biggest concerns with an SBA loan-backed sale is the financial and contractual obligations imposed on the selling doctor. Many sellers assume that once the sale is complete, they can simply walk away with their payout. However, SBA regulations often require significant seller financing with specific terms that may extend the financial risk of the seller far beyond what they anticipated.

Understanding SBA-Compliant Seller Financing

If an SBA loan is used to finance the purchase of a chiropractic practice, the seller is often expected to carry a substantial portion of the financing in the form of a seller note. The terms of this note are strictly regulated by SBA guidelines, which include:

✔ A standby period of 24 months – This means no principal payments are made to the seller for the first two years. Sometimes, the seller may receive interest-only payments, but no principal reduction occurs during this time. ✔ Amortization must match or exceed the SBA loan term – Typically, SBA loans are set for 7 to 10 years, meaning the seller’s note must follow a similar amortization period. ✔ Interest rates are capped – While seller financing interest rates usually range between 6%–10%, they cannot exceed the rate set by the SBA lender. ✔ No balloon payments – The entire loan must be fully amortized, meaning the seller does not receive a lump-sum payout at any point. ✔ Subordinated to the SBA loan – If the buyer defaults, the SBA lender gets paid first, and the seller takes a backseat, increasing the risk of nonpayment.

These restrictions can significantly limit the seller’s ability to access their sale proceeds, making it a far less attractive option than it initially appears.

The Internal Transfer Advantage

An internal transfer, where ownership is gradually transitioned to an associate or existing team member, offers a far more secure and beneficial route for both parties involved. Here’s why:

1. Minimized Financial Risk for the Seller

Rather than waiting years to collect the full sale price and being subordinated to an SBA lender, an internal transfer allows for a structured payout that can be negotiated to fit the seller’s needs. Many internal buyers are willing to structure the deal to provide immediate cash flow to the seller without the need for a two-year standby period.

2. Greater Likelihood of Payment

Because an internal buyer is already integrated into the practice, they have a vested interest in its success. Unlike an outside buyer who may struggle to maintain the patient base and revenue flow, an internal buyer has already built patient relationships and understands the practice’s operations. This continuity increases the likelihood that payments will be made as agreed upon.

3. Faster Transition, Less Disruption

When a chiropractic practice is sold externally, there is often a period of instability as the new owner takes over. Patients may leave, staff turnover can increase, and operational efficiency may decline. With an internal transfer, there is a seamless transition because the buyer is already familiar with the practice. Patients see a familiar face, and staff feel more secure in their roles, reducing the risk of revenue loss.

4. More Control Over the Terms of the Sale

With an SBA-backed external sale, the seller is bound by strict lender requirements. In an internal transfer, the seller has far more flexibility to negotiate down payment terms, interest rates, and loan length in a way that benefits both parties. For instance, instead of a rigid 24-month standby period, the seller can structure an agreement where payments start immediately.

5. Potential Tax Benefits

By structuring the sale as a gradual buyout rather than a lump-sum transaction, the seller may spread out their tax liability over multiple years, potentially lowering their overall tax burden. This is particularly advantageous for chiropractors nearing retirement who want to maximize their take-home income.

6. Preserving the Legacy of the Practice

An internal transfer ensures that the culture and philosophy of the practice remain intact. The seller has likely spent years—if not decades—building a strong reputation and patient trust. Selling to an internal candidate allows the practice to continue operating under the same mission and values, maintaining the legacy that the seller has built.

The Right Buyer Makes All the Difference

One of the common arguments against internal transfers is that an associate may not have the financial means to buy out the practice in full. However, creative financing solutions—such as profit-sharing models, gradual equity increases, and seller-held notes—can bridge the gap. The key is finding the right associate who is willing and able to step into ownership.

If an associate has been working in the practice for several years, they likely already understand the financials, patient base, and growth potential. With proper mentorship and a structured financial plan, they can take over ownership without the constraints of an SBA loan.

Final Thoughts: Internal Transfers Win

While external sales with SBA financing may seem attractive on the surface, the hidden drawbacks—seller financing restrictions, long wait times for payments, and increased risk—make them far less appealing. An internal transfer is the smarter, safer, and more lucrative option for chiropractors looking to sell their practice.

By working with an existing associate or team member, the selling doctor can ensure a smooth transition, immediate financial benefits, and long-term stability for the practice. Rather than navigating the complexities of SBA financing and hoping an external buyer succeeds, an internal transfer allows for a more predictable and rewarding exit strategy.

For chiropractors considering selling their practice, it’s worth exploring internal transition options before defaulting to an external SBA-backed sale. The benefits of control, security, and financial stability make this path the ideal choice for both the seller and the buyer.