Developing a robust exit strategy for the owners of a health care business starts with the realisation that one day you will want to wind down and spend more time with a fishing rod in your hand or travelling or any number of other reasons. Importantly, planning your exit should be started earlier rather than later in the life of your business.
Planning an owner’s succession that will end up in the business being sold to a new owner is the focus of this article rather than, as an example, “Keeping the business in the family.”
Whether an owner/operator or larger closely held private provider, preparing an exit strategy well in advance of the actual exit is critical. This ensures better control of the process and the likelihood of a far better outcome than needing to rush for some unknown circumstance.
Yet a 2018 study by UBS Global Wealth Management on exit strategy findings found that over half of the respondent’s wanted to sell but almost as many, 48%, had no formal exit strategy.
I have adapted an article by Xero’s Sue Pak called “Your business exit strategy in 9 steps” on the following page as I think it provides an excellent guide.
The Nine Steps for Planning an Exit Strategy
- Pick a target – There are likely to be different priorities in an exit strategy dependent on who the target is. It could be to a competitor including one of the larger corporates known for acquiring aged care or GP businesses. Or someone new to the market looking for a business up, running and successful and without needing to go through difficult barriers to entry.
- Decide when you want to out – Some purchasers will want key managers to stick around including the current owner(s). You need to factor this timeframe in to the exit strategy.
- Ensure all of your accounting records are ship shape – During due diligence the purchaser will want to see at least the last three years financial statements. It is a good investment to have those financial statements externally audited. This will provide the very best independent proof of financial accuracy.
- Make yourself redundant – This may be a significant mind shift for a business founder who has toiled for years to achieve the business success they are now looking to sell. This mind shift is critical. Become less available to senior managers and resident/patients. Delegate big decisions. Go to work less often. And most important, do not under mind your successor or you WILL risk a potential sale falling through.
- Ensure the business is a well-oiled machine – You may need to spend a bit of money getting technology up to date, the right people in the right places and formal and efficient processes working well. Aim for at least a couple of areas in your business that highly impress. They may have an indirect contribution to the business value but from the purchaser’s point of view, this will be an important value addition for them.
- Write down how everything works in your business – Of course to be fully accredited in most health care businesses clinical processes and policies need to be thoroughly documented. It is the non-clinical areas such as the administration team that need well documented processes. The purchase may include the administration team remaining with the new owners but the documented processes will be a comfort should members of the administration team resign.
- Figure out how to drive up the valuation of your business – Fundamental to the whole plan is getting the best outcome and that will be value. Ensuring the business is operating as optimally and efficiently as possible including maximising all revenue opportunities and managing all costs thoroughly. Anything missed will become upside value for the purchaser which you do not want.
- Get a guideline business valuation completed – This is a minimum requirement and should be completed at least twice before starting a sales processes. Ideally three years before a sale to assist with identifying areas to drive up value and then just as you go to market. If at this stage your business value hasn’t increased significantly then your financial advisor needs a kick up the backside.
- It’s time to work on a sales pitch – It’s now time to get the market excited. Tell them the story of your business, how it started, how it has grown, important milestones, how you navigated crises like Bird flu, SARS and Covid 19. Then excite them more with the future you see the business going and growing and continuing to be successful. Provide facts, data on growth demographic and why your business is better than the nearby competition. This will support the story.
It is critical to invest time and money in a well prepared and planned exit strategy that will maximise your desired outcome and that is the best value possible. If you no longer have that luxury of time, get an advisory to assist and be an independent sounding board for you.
We can help:
You have worked hard to make a successful health care business but there will come a time when you may want to retire or try something different. To get the very best out of your business it is critical to start planning and maximising profitability long before looking to sell. Your profit is a key factor in your businesses value. We can assist and ensure you are not giving away your hard earned value to the next owners.
Stuart Bilbrough
Peak Care Advisory
Mob: 021 252 5778
Email: stuart@peakadvisory.co.nz
Website: www.peakadvisory.co.nz
