Golden Years
Is your current business plan charting a path to your retirement?
By Ingrid Sparrow, PT, CMPT
You want your business to be a success, both clinically and financially. And while not every decision should be made with an eye to retirement, the reality is that there is significant overlap between succession planning and solid business functions.
The details of prepping for and negotiating the sale of your practice are addressed in several other articles in this issue of Impact. This article will focus on the aspects of practice management that create a solid business that is appealing to buyers, as they will be assured the business will continue when you are no longer at the helm.
To get what you want, you must first know what you want. If you haven’t already done this, it is good to define your goals for yourself and for your business. This usually starts with the goal of having a clinic that provides good care and is a good place to work. But you then need to refine this with the details: How many hours do you want to work, and what income would you like to generate? How much of your time would you like to devote to patient care and how much to running the clinic? Are you interested in having employees, more than one clinic, or buying property? Will this be your primary business, or are you a serial entrepreneur? These are the important questions that will define the complexity of your business plan and thus your succession planning.
In addition, taking the time to truly define your company’s mission statement, as well as your vision and values, will clarify the company culture for you and your employees. And these will then help to guide decision making as your business matures and when it comes time to sell.1
Illustrations of how a growing and thriving niche outdoor manufacturing business met some of these challenges are shown in italics in the following text, which is based on conversations with the president of True North Gear, Steve Misano.
When the company was small, the two company principals referred to themselves as the Ringleader and Mission Control. While these titles do not fully outline the job duties, they do give insight into the good-humored company culture as well as give broad job designations. The goal of the company’s founder was to allow him to creatively contribute to his company while providing a stable income and time to spend time with his family. He recognized that for this to happen he needed employees with complementary skill sets, and he needed to grow the company.
As the company has grown and matured over the past 15-plus years, the company has decided that it is not interested in positioning itself for sale but rather wants to continue to design and oversee the manufacturing of their product lines while providing a rewarding place to work. To achieve these goals and stabilize the depth of the company’s employee base, it was estimated that the company will need to grow to about 40 employees and that more processes will be needed to support and stabilize this growth.
As you plan your growth, include plans to sustain your growth.
If your business has more than one owner, or there are several business entities, it is important to have a written document that defines what will happen if there is a planned or unplanned change of ownership for each business. This is often a Shareholder Agreement and should include among other things: percent ownership, job responsibilities, how you will value the business, and a buy/sell agreement.2, 3 You will be amply rewarded by the work you put into crafting the plan if there is an emergency and when you retire.
After you have identified the job responsibilities and operations of your business, it is time to train and mentor motivated and talented employees for these positions. This will not only increase your skill set but it will also stabilize your business by increasing the depth of your employee base.
It is also helpful to evaluate if your business would benefit from knowledge or skills that could be added on a contract basis. This will bring greater breadth and perspective, as well as allowing you to be more mobile depending on how busy the clinic is each month.
To achieve and then sustain desired growth, it was decided that four managers were needed, one for each of the operational areas. The company president meets twice a month for 90 minutes with this group of managers. These meetings were initially more educational in nature, but as the group has matured now focuses on creating effective work strategies and examining how the company evaluates information and makes decisions. This has helped stimulate conversations on when independent decision making is encouraged and when collaborative decision making is recommended. The managers and then the employees are brought into the discussion on how to create work pathways that keep work interesting and engaging.
It also became apparent that for the company to function in the face of an emergency, employees other than the owner needed to have fiduciary powers, and this has been put into place. A question under discussion: For which additional employees should the company carry key person insurance?
A recent valuable addition has been that of a part-time chief financial officer (CFO). He has a background in outdoor products and thus has good perspective on the ups and downs of this particular industry. He is generally at the company two hours a week, but this fluctuates depending on need. The CFO’s role is to help with account management, bank negotiations for items with things such as lines of credit, and to help plan strategic growth. He is employed by a contract agency, and the company pays him hourly, which allows them to flex as needed.
Review, revise, and discuss these key points on a regular basis.
With the ever-changing landscape of health care payment and delivery, it often feels like you are conducting business on a bed of lily pads. Reviewing the work you have done helps you stay true to your values and culture so you are prepared when it is time to make decisions regarding transitions. It may be necessary to make changes to your business plan, but it is best to do this from a good point of reference and with the confidence that these changes are in line with your long-term planning. And at every opportunity communicate these values, decisions, and goals with your staff.
Changing course and making difficult decisions can be tough. It can be helpful as a clinic owner to belong to a group of other physical therapy clinic owners in your areas, the PPS Peer2Peer,4 or to an executive mentor group. This allows you to hear different perspectives, learn of new opportunities, perhaps avoid costly mistakes, and learn how others have charted the course of their business.
Product development and sales, while wildly different than health care, has its own challenges of product and production cycles as well as payment of revenue streams. Recently, a change in sourcing of a key material led to a stressful product cycle for the company. The company’s culture of transparency and open communication allowed employees to discuss the situation and thus ease some of their concerns. And participation in an executive coaching group prevented what is left of the president’s hair from catching on fire on a daily basis.
When you have decided it is time to move on…
Many factors will go into the decision to sell, merge, or liquidate.5 But until that time comes, it will be hard to know which will be the best choice for you. The good news is, that if you have done the work described here you will be better prepared to make this decision. You will be able to articulate your clinic’s culture and values, and will have your documents and financial records in order for a business valuation. And you will have the people and processes in place to allow the business to continue and thrive during the time of transition.
So you can smile as you drive away, as your rear view mirror will show enthusiastic employees providing good patient care waving you a warm goodbye. Pay it forward and you will be rewarded in the end!
References:
1 http://help4nonprofits.com/NPLibrary/NP_Bd_SuccessionPlanning_Art.htm. Accessed May 2018.
2 www.tmlawyers.com/importance-shareholders-agreements-business-prenup. Accessed May 2018.
3 www.jonathanlea.net/2013/8-reasons-why-companies-should-have-a-shareholders-agreement. Accessed May 2018.
4 www.ppsapta.org/events/peer-2-peer/2017/index.cfm. Accessed May 2018.
5 www.webpt.com/blog/post/exit-strategy-succession-planning-vs-liquidation-vs-buyout. Accessed May 2018.
Ingrid Sparrow, PT, CMPT, is a PPS member who interviewed Steve Misano, president of True North Gear, a family owned and operated company that develops and manufactures packs and bags for firefighters and SAR (search and rescue) and a broad range of fire-resistant clothing.