How to Buy a Med Spa
Chris Barrett
Introduction
In this episode of the ‘I Bought a Business’ podcast, Chris Barrett, CPA of Midwest CPA, interviews Dhruv Patel, a former Army Medical Corps officer who successfully transitioned into Med Spa acquisition entrepreneurship. Together, they explore Dhruv’s journey from military service to owning a Med Spa. Additionally, they discuss the steps involved in buying a Med Spa and the challenges Dhruv faced during the acquisition process.
Dhruv Patel: A Background Rooted in Service and Entrepreneurship
Dhruv’s path to entrepreneurship began in the Army Medical Corps, where he was first exposed to the healthcare industry. His military background gave him a unique perspective on leadership and operations, which later proved invaluable in his business ventures. However, coming from a family of entrepreneurs, he always knew that he wanted to carve out his own path in the business world.
After years of service, Dhruv faced a pivotal decision: continue his military career or transition into the business world. He chose the latter, pursuing an MBA at Washington University’s Olin Business School. Later, he worked in Fortune 500 companies. Yet, it wasn’t long before he realized that the corporate world wasn’t his true calling. Therefore, in 2022, Dhruv took a leap of faith and embarked on the path of acquisition entrepreneurship.
The Search: Finding the Perfect Business
Dhruv’s journey into acquisition entrepreneurship began in March 2022. Armed with knowledge from his research and insights from other entrepreneurs, he set out to find a business that aligned with his passion for healthcare. His focus was clear: he wanted to invest in a business within the healthcare sector, specifically in private medical practices.
However, the search was anything but easy. Dhruv quickly learned that finding the right business required patience, persistence, and a willingness to adapt. After months of searching and facing the disappointment of a failed deal, Dhruv finally found a promising opportunity—a Med Spa in Chicago.
Overcoming Obstacles: The Challenges of Buying a Med Spa
The process of buying the Med Spa was far from straightforward. One of the biggest challenges Dhruv faced was navigating the complex legal structure required for non-physicians to own a medical practice. He had to set up a Managed Service Organization (MSO) to comply with state laws – a structure that can vary significantly depending on the state.
Moreover, in addition to the legal hurdles, Dhruv had to address the practical challenges of taking over a business with limited staff and resources. Although the Med Spa was successful, it was a small operation with revenues under $1 million. Dhruv quickly realized that, to grow the business, he would need to invest in building a strong team and implementing efficient processes.
The First Few Months: Lessons Learned and Strategic Moves
After closing the deal in January, Dhruv’s immediate focus was on stabilizing the business. One of the first challenges he encountered was managing the transition of staff while maintaining continuity of services. The seller had been deeply involved in the day-to-day operations, so Dhruv had to step in quickly to ensure that the business continued to run smoothly.
During this time, Dhruv learned a valuable lesson: the importance of having a skilled and reliable team. Finding and retaining experienced injectors and aestheticians proved to be a significant challenge. Additionally, Dhruv realized the necessity of a strong support system, particularly in the form of a practice manager who could handle daily operations.
Looking Ahead: Med Spa Growth and Expansion
Dhruv’s ultimate goal is to build a network of successful Med Spas, leveraging his unique background and passion for healthcare to make a positive impact on the industry. His story is a testament to the power of perseverance, strategic thinking, and the willingness to take calculated risks.
Lessons in Resilience: What Dhruv Patel's Journey Teaches Us About Entrepreneurship
Dhruv Patel’s journey from military service to owning a successful Med Spa is a story of resilience, strategic insight, and unwavering commitment to his goals. His experience provides valuable lessons for aspiring entrepreneurs, especially those interested in acquisition entrepreneurship within the healthcare sector. As Dhruv continues to grow his business and expand his portfolio, his story serves as an inspiration to others navigating their own entrepreneurial paths.
If you’re considering a similar journey or if Dhruv’s story resonates with you, feel free to reach out to him on LinkedIn or via email. His willingness to share experiences and offer advice highlights the collaborative spirit that drives the world of entrepreneurship.Summary Transcript
Chris Barrett: Welcome to the first episode of the I Bought a Business podcast. I’m Chris Barrett, CEO of Midwest CPA, a firm specializing in working with acquisition entrepreneurs. Today, I’m joined by Dhruv Patel, who recently acquired a Med Spa in Chicago. We’ll discuss his journey into acquisition entrepreneurship and how things have been going since the acquisition. Thanks for joining me, Dhruv.
Dhruv Patel: Thank you, Chris. It’s been a while since we worked on this, so I’m glad to provide a post-closing overview.
Chris Barrett: You closed in January, right? But we started the diligence back in October?
Dhruv Patel: Yes, officially closed in January. We did the diligence starting in October.
From Military to Entrepreneurship
Chris Barrett: Before we dive into the Med Spa, I’d love to hear more about your background and how you transitioned into this space.
Dhruv Patel: I began my career in the Army Medical Corps, which exposed me to the medical field. After a stint in the military, I transitioned into the corporate world, working for two Fortune 500 companies. In 2022, I realized the corporate life wasn’t for me, so I decided to pursue something entrepreneurial. I moved to North Carolina, reduced my costs, and one of my mentors suggested exploring search funds. That’s how I found my way into acquisition entrepreneurship.
Chris Barrett: Had you heard of search funds before business school?
Dhruv Patel: No, I hadn’t. WashU had a strong entrepreneurial ecosystem for startups, but not much on search funds. I first learned about it when I moved near Duke in North Carolina.
Finding the Right Acquisition
Chris Barrett: What was your strategy when you started searching? Were you still working full-time?
Dhruv Patel: No, I quit my job and focused full-time on searching. I learned from other searchers and used resources like searchfunder.com. My passion was in healthcare, particularly private practices, due to my family’s background in medicine. I focused on finding a good acquisition target in this area.
Chris Barrett: You’re not a doctor, so what drew you to this field?
Dhruv Patel: Although I’m not a doctor, I was passionate about healthcare and had a basic understanding of the industry. I spent the first month researching the legal requirements for non-providers to own medical practices, which varies by state.
Chris Barrett: How did you structure the acquisition as a non-physician?
Dhruv Patel: I formed a Managed Service Organization (MSO), which is essential in this industry. The MSO manages the practice while the physician retains ownership of their professional entity. This structure allows non-physicians to manage healthcare businesses legally.
Overcoming Challenges in the Acquisition Process
Chris Barrett: Did you face any pushback from brokers or sellers with this structure?
Dhruv Patel: Yes, especially since this structure is new to many smaller private practices. I also found that few lenders are willing to lend to non-providers, so I had to carefully explain the deal structure and my background to sellers. I emphasized how I could handle the administrative tasks, allowing physicians to focus on patient care, which made the deal more attractive.
Chris Barrett: When did you officially start searching, and how did you approach finding deals?
Dhruv Patel: I officially started in March 2022. I used a mix of broker outreach and direct contact with private practices. I also developed relationships with brokers who specialized in healthcare deals, which proved to be more productive.
Closing the Deal and Lessons Learned
Chris Barrett: How did you find the deal you eventually bought?
Dhruv Patel: It was a broker deal in Chicago, where I’m located. It was a small deal with around $800,000 to $900,000 in revenue, but the patient demographics and data were compelling. The business had high patient loyalty and an affluent clientele, which made it worth pursuing despite its smaller size.
Chris Barrett: Why was the revenue small despite the positive characteristics?
Dhruv Patel: The owner was nearing retirement and wasn’t focused on growth. The Med Spa I bought was a small, owner-operated business, which presented an opportunity for me to grow it by building a team and running it more like a business.
Chris Barrett: What was the due diligence process like?
Dhruv Patel: Financially, it was challenging because the books weren’t clean. Legally, I hired a law firm specializing in healthcare and MSO structures. Legal costs were higher than expected, especially since I was sourcing my own medical director, which added complexity to the process.
Solving the Challenge of Finding a Medical Director
Chris Barrett: How did you solve the challenge of finding a medical director for the Med Spa, especially since the seller’s medical director didn’t want to stay?
Dhruv Patel: I partnered with Guardian Medical Group, who took over the PC aspect of the business. They have a professional entity set up in Illinois, which expedited the closing process. Instead of finding an individual medical director, I entered an MSA with Guardian Medical Group, which worked out well.
Chris Barrett: You were under LOI in August and closed in January. Was there anything unique or important others should know about that process?
Dhruv Patel: The original lender we were working with realized the MSO/PC structure wouldn’t work for them, so I had to find a new lender that would fund a deal with this structure. That was a big challenge at the 11th hour, but we managed to resolve it.
Transitioning and Managing Staff
Chris Barrett: What were the first few days like after closing on the business?
Dhruv Patel: The first few days were focused on introducing myself to the staff. The staff didn’t know the seller was selling, so it was a surprise for them. However, the owner agreed to stay on for six months, which helped smooth the transition. I also spent a lot of time scheduling calls with vendors and transferring accounts under the new medical director.
Chris Barrett: How did the initial conversation with the employees go? Did they take it well?
Dhruv Patel: They took it well, though they were surprised. It helped that the owner was staying on for six months, working up to 25 hours a week, which made the transition smoother for the staff.
Balancing Another Job with Business Ownership
Chris Barrett: You did something unique by maintaining another job during your search and after acquiring the business. How did you manage that?
Dhruv Patel: After the Phoenix deal fell apart, I considered searching full-time but decided to take a remote position with Accenture. It allowed me to continue searching part-time while having some income. Even after buying the Med Spa, I kept the job because it was remote and flexible. I go to the Med Spa almost every day, taking calls from the office there. It’s been tough, but manageable.
Chris Barrett: Was there anything unexpected that you had to deal with in the first few months after acquiring the business?
Dhruv Patel: The first two months were smooth, but I learned a lot through staffing challenges. It’s tough to find experienced injectors and aestheticians in this industry. Illinois doesn’t have non-compete agreements, so you invest in training someone, and they can leave. In May, I lost a nurse injector we had onboarded and trained, leaving me without an injector for a month. It was a painful experience, but I learned a lot from it.
Reflecting on the Acquisition and Future Plans
Chris Barrett: How did you manage without an injector for a month? Did the seller backfill that position?
Dhruv Patel: The seller did help backfill, but her commitment was ending, so I had to reschedule a lot of appointments. It was a rough month, but I eventually found an experienced injector and two more to train.
Chris Barrett: So overall, was this Med Spa a good business to buy? Are you happy with your decision?
Dhruv Patel: I would definitely do it again, but I wouldn’t buy a sub-$1 million revenue business because it’s a lot of work, especially when you’re relying on others to generate revenue. I’d focus on a business with more staff and established systems to avoid getting bogged down in daily operations.
Chris Barrett: What’s next for you? Are you planning to grow this business or acquire another?
Dhruv Patel: I’m focused on growing this one organically, but I’m also looking at other Med Spas. I’m under LOI for two practices in California, with due diligence already completed. The physician is staying on board and rolling over 10% equity, so it’s looking promising.
Advice for Potential Med Spa Buyers
Chris Barrett: You’ve mentioned the $1 million threshold a few times. Why is that so important to you?
Dhruv Patel: The $1 million threshold is crucial because it allows you to attract and hire experienced injectors by offering competitive compensation and benefits. Smaller entities struggle with this. Additionally, businesses above that threshold usually have established systems and processes, allowing you to focus on growth rather than daily operations.
Chris Barrett: Great points. Is there anything else you’d like to share with anyone considering buying a Med Spa?
Dhruv Patel: Make sure your legal structure is solid from the start, and ensure the business has strong support systems and processes in place. This isn’t an industry where you want to be bogged down in daily operations if you’re not a provider. Look for a practice where the owner has already set up efficient systems and where you can focus on growing the business.
Chris Barrett: Thank you so much for your time today, Dhruv. If anyone found this valuable, can they reach out to you?
Dhruv Patel: Absolutely! Feel free to reach out to me on LinkedIn or email me at info@caramiamedspa.com. I’m happy to have a conversation and answer any questions.
Chris Barrett: Awesome, thank you so much. I really appreciate it.
Dhruv Patel: Likewise, thank you, Chris.
Disclaimer
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, or investment advice. You should consult a qualified legal or tax professional regarding your specific situation.
