Generally speaking, healthcare practice owners are woefully unprepared when it comes time to sell their business.
In fact, only 16% of owners who plan to sell their business in the next 12 months have a succession plan. And that number drops to 11% for owners who are 2-5 years out from a sale.
Despite this, 70% of small-medium business owners in Canada will sell their business within the next 10 years, which equates to 3 trillion dollars of assets exchanging hands over the next decade. That’s a lot of money on the table, making it important to start preparing today. The succession planning journey should commence well in advance of the sell/transition date. In my experience, the optimal planning time is 2-3 years out from the sale. This timeframe affords practice owners time to create a tactical business exit plan with manageable goals and timelines.
In my video, Grow My Healthcare Practice: Understanding the Rules of the End Game, I speak to the importance of always beginning with the end in mind. What matters to you today might not be the same things that matter to special interests buyers down the road, who are generally interested in EBITDA$, tangible assets, intangible assets, and goodwill.
As a first step, it’s critical that a practice owner understands which elements of their business contribute to value and, equally important, which need to be cleaned up, eliminated or enhanced to maximize value.
Practice owners must be able to validate value to the end buyer in order to command the highest price. Value is always future-looking and the buyer will require a tactical plan for how the existing maintainable earnings will hold/grow post sale (1-3 years). This usually comes in the shape of a proforma budget.
*Disclaimer: the information provided herein is intended for general informational purposes only. The information should not be considered a substitute for professional legal or financial advice. You should always consult with a qualified expert in these areas before making any decisions or taking any action.
There are many ways a business owner can maximize the value of their practice via the sale of shares.
Here are three of those ways:
1- Create an exit strategy:
- At a minimum, create accurate profit and loss statements on a quarterly, and annual basis. Same year quarter on quarter trends (e.g., Q1 2023 v. Q2 2023) are equally important as year on year quarterly trends (e.g., Q2 2022 v. Q2 2023). Accurate and timely data is essential to business navigation.
- Remove all personal spending from your business account.
- Remove all other expenses that do not enhance the client experience (Box 4 expenses). In other words, cut costs to grow stronger. Always look to automate tasks that are transactional in nature (no human contact required).
- Create a forecasted annual plan for the next two years. Highlight opportunities for revenue growth, but more importantly, opportunities to further maximize net profit.
2- Reduce reliance on the practice owner:
- Train and empower key employees. Identify key team members who can assume critical roles and responsibilities in the absence of the practice owner.
- Document and systemize your practice—things like operational tasks, customer interactions, financial management and any other critical aspects.
- Ensure all employee contracts are updated with non-compete and non-solicitation agreements.
- Outline components of a transition plan for the practice owner.
- Diversify your customer base where it makes sense. Always remember, there is such a thing as BAD revenue. Find new services that offer high net profit opportunities paired with a high volume reload (repository of clients). This could a B2B contract with an insurance company or hiring complimentary team members that are experts in areas like vocational rehab, disability case management, chronic disease management or health coaching.
- Prepare a great story/pitch deck for the prospective buyer.
3- Assemble a team of trusted advisors:
- Seek professional tax advice. Selling a business involves complex tax considerations that can vary based on your specific circumstances, the type of business entity, and applicable tax laws. Engage the services of a qualified tax professional who specializes in business sales and can help you navigate the tax implications of the sale. They can provide personalized advice based on your situation and help identify additional tax-saving opportunities.
- Remember that tax planning should be done well in advance of the sale to maximize the available strategies and minimize tax liabilities. Consulting with a tax professional early in the process is essential to ensure compliance with tax laws and optimize tax savings while selling your business.
- Understand the opportunities/risks associated with the two most common business deals:
- 100% share sale at date of close.
- A fixed/contingent share sale where seller/buyer agree upon a % of sale price to be paid at the date of close (fixed) and the % left in the business as a growth incentive over a set time period (i.e., 2-3 years).
- Get advice on how to navigate the Lifetime Capital Gains Allowance, which is $971,190.
Want more information on this topic? Stay tuned. I’ll be posting three new Sell My Practice videos to the ‘Watch’ section of my website in early Q3 2023.
