This article was written by Dr. Erik Klein and published nationally in Canadian Chiropractor Magazine in October, 2019.
Franchising as a chiropractor is beginning to make more and more sense every year. Franchise models have exploded in the United States (the Joint, 1000+ units; Healthsource 250+ units) and are emerging in Canada as a model to consider.
The future of chiropractic, a constant discussion point in this magazine and others, need to center on how we can improve the lives of our young docs and veteran practitioners alike. Young docs as associates earn an average of $25,000 in their first year, which is unacceptable. Older docs are working harder and making less, subsequently delaying retirement, and abandoning practices when they can’t sell them. We need new practitioners to have good jobs coming out of school, and an opportunity to spread their wings. We also need to care more about those trailblazers and their retirement.
Franchising can be a way to provide solutions to many of these issues. Current political strategies, while helpful, are slow. Our associations are bogged down in constant internal philosophical dialogue, and our educational institutions like CMCC have produced excellent research. However, this takes years to resonate with practitioners and the public. Remember, utilization hasn’t budged in decades; currently residing anywhere from five per cent to 25 per cent, depending on where you practice. Unfortunately, Joe Public will see the most average physiotherapist first before the best chiropractor.
Practitioners control the image, and business branding is a time-tested, proven successful model in which to do this. Practitioners control the vision, not government, or associations, or regulators. Working together to promote the right message that connects with the public, and executing it in an organized fashion produces results – the results you want.
A primer on franchising
A franchise is where you buy a license to utilize a particular brand, its business systems, web strategies, SEO, social media support, supply chains, business and clinical training, intellectual property material, management support, and collaboration with other franchisees and the franchisor as a team. You also gain access to the organization’s reputation and those affiliated with the organization.
The financial requirements usually involve three to four consistent components across the industry. There is an initial franchise fee, which frequently runs between $10,000-$50,000. (A monthly royalty of between four to seven per cent on gross monthly revenues, and an expectation that a clinic will utilize between 1.5 to three per cent of gross revenues on promotions. At the start, there can be build-out costs depending on a location, meeting design requirements (colours), and purchasing equipment. This last part is consistent with however you’re opening your clinic.
Why would someone participate in a franchise?
Strategically, practitioners in a franchise system control the narrative of what chiropractic is within their community. By working with like-minded DCs and allied health practitioners for the same goal, the messaging is consistent, and the results are ongoing. Franchised-based branding has a solid track record of achieving this goal. While there are many unique benefits to participating in a franchise, such as business systems, management support etc., but let’s focus on the strategic elements here and how it applies to our profession.
The practitioner who wants to participate in a franchise will be someone who wants to work in a collaborative environment and own their practice, yet have access to time-tested strategies and branding that meet their needs.
Case #1 The doc approaching retirement: As I alluded to before, many chiropractors at retirement are closing their doors, referring out their patient lists and walking away with no financial compensation. A doctor at the end of their career may choose to join a franchise network to avoid this scenario and set up a proper succession plan using the resources available with a franchisor. Franchisors usually have a list of people interested in the right opportunity, be it another chiropractor, related professional, or as an investor.
Case #2 The young doc: A new doc two to three years out of school and gaining traction as an associate may choose to move out to start their practice, with the hope of building some form of perceived equity. Lacking a buy-in option to the existing business, or choosing not to, a franchise can provide that newfound ownership opportunity while maintaining access to clinical mentorship, and business coaching. All the while controlling the message of what chiropractic is in their community.
Case #3 The keen business doc: The keen business doctor has been in practice for 10-20 years, has maxed out their patient load, likely has one or two associates, a few massage therapists, and perhaps a second office. However, the daily slog of maintaining this corporate run operation alone is pushing them toward burnout. They want income growth, but they want to work smarter, not harder so they can spend more time with family. In this case, this doc may want to look at becoming a “regional master franchise.” Being a regional master franchise is the type of situation where the doc and the franchisor work together to develop a particular market (such as small province or region), and through sharing responsibility, the new master franchise will share in the income stream of the region. This doctor would likely involve being a leader on a team of five to 10 other franchises.
What responsibilities does the franchisor have?
Beyond the standard training programs and clinic models, the franchisor needs to be held accountable for what is offered. One of the essential parts of an agreement on the part of the franchisor is to maintain KPIs (key performance indicators) to ensure the royalties coming to the franchisor don’t exceed the value to the franchisee. While franchisees have to hustle daily for their own business, it’s crucial that belonging to the group comes with the highest value. Essentially, if the franchisee provides a monthly royalty of $500 (example), they should be receiving referrals or support above this amount.
In the health sector, franchisors should be providing consistent patient referrals to the franchised clinics, which may include contracts with third parties. Being omnipresent and attracting constant enquiries from the public to be provided to the franchisee is imperative. Further, a well-developed online network will develop referral streams from one franchisee to another. The franchisor should also offer access to its high-level list of contacts. Breaking into various organizations alone can often be difficult, but when you have a multi-skew format (a company that provides many services), it becomes much more manageable. A franchisee should be able to receive contacts and advice for sports teams, companies for lunch and learns, and reduced costs on continuing education benefits that elevates personal development.
Downsides to franchising
Like any business model, nothing is devoid of risk, and there has to be the right fit for both parties. Some franchisors can be extremely strict with every part of how the business operates, really handcuffing the operators. Sometimes this can become overly intrusive and lead to poor relationships and regret. Discussing potential partnerships with other franchisees in the organization is an excellent way to avoid such a scenario. While operational standards are essential, some leeway should be provided to operators to run their business in their market.
There are fees attached to this relationship. If it was just a bill, with no apparent value, that’s a significant negative. However, viewed as an investment, with each dollar spent, there is a $3 return. Any money spent as part of a franchise should have a high value attached to it, and there should be data to back that up. If the value is less than expected or not there at all, that is extremely problematic. These issues should be mitigated long before an agreement takes place, if at all. A franchisor should have data to show how their clinics grow versus the market alone.
Making significant changes to the legal structure of a franchise, such as selling it will require approval from a franchisor. Most contracts include a clause: “approval will not be unreasonably withheld.” However, this is very subjective. (What is reasonable?) Life changes: people get divorced, they move, or partners fall out of favour. Making changes to a contract can be difficult. If both parties are in different corners, it may lead to arbitration or a legal problem.
Some franchisors use brokers to grow. While rapid growth itself isn’t a negative, growth to such an extent where franchisors are taking anyone with a heartbeat and a credit card means they will not be able to maintain the level of care or standards promised to the franchisee. Using brokers to sell franchises, while not a show-stopper, should warrant further inspection.
Where do we go from here?
Moving the profession forward requires collaboration and teamwork, wrapped in the right form of consistent messaging. We need our docs to be successful from day one to retirement. The need in our community is great for chiropractic. We need to focus it. There are many ways in which this is currently happening, to various scales. Franchising clinics with a collaborative approach nationwide is just one method, and numerous organizations are there to lead the charge.