Work On - Not Just In - Your Home Health Care Business - Partners31: Specializing in Health and Human Services

Work On – Not Just In – Your Home Health Care Business

Make exit-planning a priority in your businessThe purpose of exit planning is to leave your home health care business on your terms and on your schedule. Owners begin thinking about their exit process when two streams of thought begin to converge. The first stream is a feeling that you want to do something besides go to work every day—either you would like to be someplace else—doing something else—or you simply no longer get the same kick out of doing what you are doing.

The second stream is the general awareness that you are either approaching financial independence, or making significant strides toward reaching that goal, or can achieve financial independence by selling your business. When these two streams converge, thoughts flow inevitably towards exiting the business.
I encourage you to take time to work on — not just in — your business.

Have you thought about getting out of your business? Is your wealth locked up in your company? Are you wondering how to convert the value of your company into cash? Does the very idea of exiting your company seem overwhelming, yet exciting? You are not alone. Nearly 50% of successful business owners hope to exit their companies within the next five years. In fact, the SBA observes that “At any given time, 40% of US businesses are facing the transfer of ownership issue” and “the primary cause for failure is lack of planning.”

Step one–Identify objectives. Three key questions: Have you identified your exit path and/or successor? Do you know how much money you may need on an annual basis after you leave your business? Have you established the date you wish to stop working in and for your business? No owner can effectively leave his business without establishing each of these objectives. Remember, your objectives control all planning efforts and strategies.

Step two–Identify business and personal financial resources. Do you know how much your business is worth? Do you know what the business’s future cash flow is likely to be after you leave it? A universal ownership objective is to secure an income stream that you and your family will need to support your future lifestyle. Knowing the value of the business is critical if you are to undertake the planning necessary to successfully exit the business. Why? The business is usually the owner’s most valuable asset and financial security depends on converting that asset to cash. Knowing the current value will help determine whether your financial objective can be met at present or how much the business value must grow in order to reach your particular retirement objectives.

Step three–Maximizing and protecting business value. Do you know how to increase the value of your ownership interest? An inevitable by-product of a consistently well-run business is an ever-increasing value. There are numerous actions you as owner can and should take to maximize value, including maintaining and consistently increasing cash flow; creating and using efficient systems; documenting the sustainability of earnings and motivating and keeping key employees. This step goes to the heart of a successful business and to the essence of your role within the business: to enhance value.

Step four—Ownership transfer to a third party. Preparation for the sale to a third party buyer and the completion of the transaction require focus, planning and stamina. You may not realize the complexity and details involved in a third party sale until you are surrounded by it wondering which way to turn. Taking steps before your business goes on the market can reduce stress on both you and the business, while maximizing the likelihood of success of the transaction on terms satisfactory to your overall exit objectives. Have you been approached by a third party to sell your business? If you sold today, could you get all the money you want? Have you prepared your company for sale by completing a pre-sale due diligence? Have you conducted pre-sale tax planning? Inherent in the third party sale process is the need to use experienced transaction advisors. A significant part of their mission is to find a group of potential buyers and orchestrate a controlled transaction.

Step five—Ownership transfers to insiders. If this is your choice, it is important to be aware that the tools and techniques in the areas of business value, transaction timing, risk minimization and control of the business are not always obvious. You must be prepared to be in it for the long haul with this type of exit path because a sale to an insider does not end with the closing. It only ends when you get paid! Do you know how to transfer your business to family, employees, or co-owners while paying the least possible taxes and meeting your financial needs? Those brave owners who wish to transfer their businesses to family or employees must be aware of two fundamental conditions present in this type of transfer. First, the income tax consequences of the transfer must be minimized for both the seller and the buyer. Secondly, the departing owner must concentrate on acquiring maximum security for payment of the purchase price. It is imperative that the tax consequences to the business and to the buyer be minimized in order to preserve a greater part of the company’s cash flow for the departing owner.

Step six—Business continuity. If you are like many business owners, the thought of how your business will continue in the unexpected event of your death or disability keeps you awake worrying at night. Business continuity planning can protect your right to receive payment for your interest, provide certainty about what you may be required to pay for the interest of a co-owner and support the business after your departure so that it can continue to thrive. Do you have a plan for your business if the unexpected happens to you? Taking prudent measures so that your business can continue if you don’t is a natural consequence of the planning process. One of the benefits of developing an overall exit strategy is that you quickly appreciate how contingency planning forms an overall part of a living business plan.

Step seven—Personal wealth and estate planning. Protecting personal assets, managing wealth both now and in the future and promoting harmony in the family are all addressed in this step of the process to create a well-balanced plan. Have you provided for your family’s security and continuity should you die or become incapacitated? The primary objective of acquiring sufficient liquidity to meet financial objectives can be met through proper life and disability insurances.

With proper planning and skilled advisors like you’ll find at Partners 31 you can choose exactly when to exit and how much business value you’ll need after exit to meet all your goals and dreams. Take time to work on — not just in — your business. Why not begin today to plan for the single most critically important financial event of your life—the transition out of your business.


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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