Every small business owner knows that eventually, you will want to retire or move on to another opportunity. Making that transition successfully requires planning. That’s where business succession planning comes in.
In a nutshell, business succession planning is a series of logistical and financial decisions you make regarding who will take over your company when you leave, for whatever reason. A successful succession plan starts with identifying the perfect successor to take over your business, then determining the specifics of the sales arrangement.
RELATED READING: 7 Steps to Successful Succession Planning
At JR3 Consulting, we specialize in helping healthcare businesses with business succession planning all the way through the change of ownership (CHOW). We have the expertise to help healthcare providers who are enrolled in Medicare navigate all of the rules and regulations to ensure a smooth transaction. Today, we will focus on the transfer of ownership.
Following are the 5 most common ways to transfer ownership of your healthcare business:
- Co-owner — You sell your ownership interests to a co-owner, such as a business partner.
- Heir — You pass ownership interests to a family member, most commonly an adult child or younger sibling.
- Key Employee(s) — You sell the business to a key employee or group of employees.
- Third-Party — You sell your business to an entrepreneur or company outside of your organization.
- Company Buyback — For a company with multiple owners, you might sell your ownership interests back to the company, which then disperses ownership shares to the rest of the owners.
Which of these 5 you choose depends on your business and who your chosen successor is. Let’s look at some scenarios.
1. Selling Your Business to a Co-owner
If you founded your company with one or more business partners, you may be considering your co-owners as potential successors. If you just want out of the business, a co-owner is the most likely person to sell your ownership interests to.
It’s also common for business partners to draft a mutual agreement that, in the event of one owner’s untimely death or disability, the remaining owner(s) agrees to buy their business interests from their next of kin.
A spouse or adult child simply may not have the desire, time, or experience to help run the business. This arrangement helps ensure business continuity while giving fair compensation to the family member.
2. Passing Your Business to a Relative
If your business is family-owned and operated, choosing a relative as your successor is a reasonable choice. This is especially true if adult children or family members work in the business. But handing over the reins to a family member can be tricky.
Emotions may run high. Sometimes it can help to work with a professional business succession planning firm when making these decisions. They can give you an objective opinion regarding the pros and cons of who you choose as your successor, and how to handle the process of handing your business over.
Schedule a consultation today by calling 760-270-1442.
3. Selling Your Business to a Key Employee
If you don’t have a family member or co-owner who is capable and has the desire to take over your business, a key employee could be the right successor. Consider top employees who are business-savvy, experienced, and have the respect of your staff. Your organizational chart and employee evaluations can help with this.
If you’re concerned about maintaining patient care and quality standards after your departure, a key employee is generally a better choice than an outside buyer. Sit down with the chosen employee to ensure that they are on board, and hammer out the details of the deal.
Your employee will need to agree in writing to buy your business on a predetermined retirement date, or in the event of death, disability, or other circumstance that renders you unable to manage the business.
With a key employee as your successor, you may need to agree to financing the sale, where the employee makes a down payment and then monthly payments until the purchase is paid in full. The terms of the purchase need to be negotiated and spelled out in your written succession plan.
4. Selling Your Ownership Interests Back to the Company
This option is available if your healthcare business has multiple owners. An “entity purchase plan” may be written into the founding documents. In this situation, when co-owners wish to sell their ownership interests, or a co-owner dies, the business as an entity buys back the ownership interests, and then redistributes them to each of the other owners. This gives everyone a larger share of the business.
5. Selling Your Business to an Outside Party
If you don’t have a business partner, family member, or employee who wants to buy your business, you may need to look to a third party. Is there a competitor or up and coming entrepreneur who would like to purchase your business?
To ensure that you sell a business for the proper amount, you will want to calculate the business value properly. Take steps now to maximize the value of your business, and update the valuation frequently.
Prepare your healthcare business for sale well in advance. Hire and train a great general manager, ensure your operating procedures are in writing and always up to date, and get all your finances in order.
Will it benefit the new owner to keep on existing staff? Make that part of the sales package. You want to make your business as profitable, stable, and turnkey as you can, so it’s more attractive to outside buyers.
If you own a chiropractic clinic that’s branded under your own name, selling to a third party could potentially be more complicated. Any potential buyer will see the need for rebranding and marketing, and as a consequence, may want to negotiate the selling price downward. You need to be prepared for that.
Professional Business Succession Planning and Business Brokers Can Help
Whether you’ve just started your business or you’re thinking about retiring, effective business succession planning is crucial to a smooth business transition. At JR3 Consulting, we specialize in helping healthcare-oriented businesses with succession planning and the eventual transfer of your business.
CEO Jennifer J Ramos is a Certified Exit Planning Advisor (CEPA) and can help you with all stages of selling your business, from maximizing value to business valuation to the actual sale.
While we’re based in California, we help clients across the country. Schedule a consultation today!
