Developing an Exit Strategy for
Your Private Duty Home Care Business
When most of you started your Private Duty Home Care business, you weren’t
thinking about retirement. You weren’t thinking about the end of your business,
you were focused on the beginning.
Over the past three or four years, we’ve noticed an increasing trend among
owners. They are now starting to think about the transition out of the
daily operations. Unfortunately, many of them have struggled, and their
businesses have suffered during this transition.
The best time to be thinking about the end of your business is at the
beginning. The second best time to focus on your transition out of the
business is TODAY. You can make significant strategic decisions to create value
and secure a comfortable retirement for yourself.
There are four basic exit strategies for private duty home care companies.
- Close up shop.
- Give your company away.
- Keep ownership, but turn over the reins.
- Sell your company.
Having a clear exit strategy, even decades before you plan on leaving, will
dramatically improve your business model.
Closing Up Shop – I’m an optimist by nature, so I’m not going to focus
much on the first option. When you started your business (7-10 years ago for
many of you) this was a reasonable option, but the market has changed and these
companies now have market value. The only time you should consider closing is if
the business is experiencing severe financial difficulties.
Give It Away – We frequently see this in family run businesses. An owner
operator will frequently pass ownership to a daughter or son. Occasionally we
see this when an owner passes ownership to an administrator or other current
employee. This strategy typically works best for small businesses where the
owner operator takes a majority of the profit in personal income.
Three
factors are critical to success with this exit strategy.
Save aggressively toward retirement. Take as much income out of
your business as possible, and save aggressively. In this model, your long term
comfort level depends on aggressive saving. Some day you may need the same care
you provide to your customers today, and we all know how expensive home care can
get.
Get great tax advice. There are many tax benefits to owning a
business. Create retirement plans, purchase company cars, and pay for cell
phones through your business. Consult your CPA for advice on ethical business
expenditures. Every dollar your spending of your personal income that could be
considered a business expense is reducing your overall tax burden.
Finally, groom your successor. Think about your personal and
professional growth the first three years in business. Chances are your learning
curve was steep and stressful. Imagine if your company was the size that it is
today. Your successor will experience a bumpy transition, but creating a clear
exit strategy and spending time grooming your successor
will improve this transition
Retaining Ownership after Retirement – Turning over operations to another
individual and retaining ownership, or at least partial ownership is quite
common. It allows you to retire from day-to-day operations while retaining the
right to collect income or sell the company at a later date.
In this model, a certain percentage of your retirement income will come from the
company. Unfortunately, once you are no longer at the helm, you lose some
control over that retirement income. We still recommend saving for retirement,
only slightly less aggressively.
In this model you will want to leave some revenue in the business for long term
growth. Finding the balance of personal savings and company reinvestment is
critical.
Selling Your Home Care Company – Private Duty Home Care companies can
have strong resale value. Selling prices vary greatly from market to market, and
are often influenced by the motivation of the buyer.
Three things influence the selling price.
1. Financial Performance. Any buyer will want to see balance sheets and
income statements. You want to show that your organization can demonstrate
consistent profitability, consistent profit margins, and consistent growth.
Owners who are seriously considering the market value of their company should
take salary, but avoid bonuses.
2. Reputation. Your reputation in your community can positively or
negatively influence the price. Increasing your public exposure, both personally
and for your company, can improve your value. You prefer buying a used car from
someone you know and respect their driving habits. The same is true for a
company. The public perception of your leadership is important. Additionally,
appearing that you are a significant player in your market is more important
than actual market share. In most markets, only a handful of Private Duty Home
Care companies are using mass media to promote themselves. These companies often
are perceived as the most prominent. Spending money on marketing may help
attract buyers.
3. Staying Power. The new owner will be interested in the ability to
sustain and grow the business. This will depend on the people and processes you
have in place so that the business will continue to operate successfully when
you are no longer there. If the business can grow and be profitable without you
being there, it has greater value.
When considering selling your home care company, high profitability and
capital reinvestment are critical. While reputation in the community is
important, ultimately, buyers are purchasing profitability and assets.
The preceding article was adapted from the
March 29, 2006 issue of Private
Duty Today, by Jason Tweed. It was updated and edited May 1, 2008 by Jason
Tweed.
|
