Keeping an Even Keel in a Stormy Economy

Stormy Economy

When the seas are rough, batten down the hatches

Faced with an economy that won’t seem to recover, many home care business owners are struggling with their exit planning strategies.  Here at Partners31, our advisors know there is no single route through troubled waters that will help you meet your unique exit planning objectives.  We will look at three options facing home care owners:

*Batten down the hatches–waiting out the storm

*Build a stronger vessel–building business value in troubled times

*Abandon ship–knowing when to sell

Option One–batten down the hatches

To decide if this option is right for your business, our experienced advisors at Partners31 will help you answer three important questions.  First, how old are you and for how long do you wish to continue working?  Our mergers and acquisitions experts have found that if you have a good deal of time between now and retirement, this might seem like the best choice.  But let’s examine the others.

Second, to whom do you wish to transfer your business?  If your exit planning calls for your children to take over and they are approaching transfer age, you should consider pushing forward the transfer date.  In a weak economy, a lower paper valuation provides certain benefits–including reduced gift tax complications and lower income taxes–if you decide to sell part of your business to your children.  Additionally, there is no reason you cannot maintain your exit planning objectives while retaining profits.

These are also favorable times for business transfers to key employees.  A lower stock valuation means lower taxes in a well-designed transfer because more of your company’s cash flow can be paid to you–instead of being used by employees to purchase stock.

Third and finally, to meet your retirement or exit planning goals, you need to know what you can get from the sale of your business.  Naturally, this will vary widely among owners and their disparate lifestyle goals–whether than means travelling the world or something more domestic–as well as the owner’s other assets (real estate, retirement accounts, stock portfolios, etc.).  Given the uncertain market, you must also take into account the aggressiveness of your portfolio.  If you need to become more conservative, then you will require greater profits from the sale of your business.

Option Two–Build a stronger vessel

During bullish times, every home care owner is driven to build value.  But many owners don’t realize that bearish times can provide unique opportunities to build value as well.  In a recent study of 400 companies, Diamond Management & Technology Consultants studied the successes and failures from the previous recession (1998-2004) and found that over half of the businesses improved gross profit margins.  What they held in common included:  specific rather than blanket cost-cutting measures; intelligent automations, customer relationships, and investments; efficient management of vendors to reduce and variable costs; focus on core strengths.

Before you choose these options, consider these important questions:

*Is this the time to cut back on or commit additional resources to marketing?

*As your competitors downsize, is this a good opportunity to hire the talent they are losing?

Is this the time to acquire smaller, less adaptable, less capitalized or less well-managed competitors? In this buyer’s market we see not only lower purchase prices, but also much more attractive seller-based financing and earn-outs.

*Challenging and changing business environments calls for restructured incentive standards to support your exit planning goals.  Do your incentive plans reward long-term employees and short-term success with your bottom line?

Option Three–abandon ship

Some home care owners are deciding to sell now, but you have to ask if you have the desire to weather the storm or if you have enough current  business valuation to profit during the downturn and still meet your exit planning goals.  Our advisors can help you decide if selling now is right for you.

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About Risa Baker

Risa is Managing Director of PARTNERS 31. Her natural enthusiasm and years of industry experience will successfully guide your business, whatever its size or specialty, through every aspect of exit planning, from strategy to sale.

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