What is a Business Exit Strategy?
What is a business exit strategy? It is a strategic plan for selling ownership in a company to investors or other companies. The owner may exit for different reasons, depending on how the business performs. If practice is successful, an owner can make a substantial profit from the sale, especially in the current veterinary consolidation boom. In the case of business difficulties, an exit strategy may help to limit losses and allow the owner to focus on the clinical side of things leaving the business aspect of it to others.
In the veterinary space, selling a practice is a process that requires planning ahead. Ideally, your exit strategy should be ready before you open the practice as it may influence many business development decisions down the road. We will address types, components, and the importance of the business exit strategy.
Types of Exit Strategies
There are internal and external types of exit strategies for businesses. You can choose what best suits your practice depending on the goal you establish. Here is the list of the most common exit strategies in veterinary medicine for you to consider when planning and executing your departure:
- Merger and acquisition (M&A). You can sell your practice to a corporation or practice broker or merge with another clinic to form a network If you decide to merge with a bigger corporation, keep in mind that it most likely has a centralized management system, and your practice will need to adapt to culture and policies.
- Sell your practice to an individual. This approach is not a part of mergers and acquisitions as it does not combine several entities into one. This may be one of the more preferable solutions for owners who care the most about the cultural values being retained after the sale. You can choose an individual who is more interested in the operational side of the business and can scale it. Quite often, a newly minted DVM joins the practice after graduation, and in a few years, make a deal with the current owner to take over the practice.
Why a Business Exit Strategy is Important for Your Practice
For practice owners, liquidation of the practice is a difficult choice, considering the effort and time that is dedicated to growing a business. When you decide to retire or to sell the practice, it is important to know who you can trust. Knowing where you want your practice to end up, and choosing an appropriate organization or individual who will run it, is crucial.
The most optimal way to achieve this is to find a buyer who shares the same culture and philosophy. This will ensure your practice ends up in the best hands, and the transaction process will cause only minor disruption to the practice,
In addition, the exit strategy for your practice helps to secure your financial future. A well-planned exit strategy can bring numerous benefits, including optimization of the sweat equity invested in the practice and minimization of the tax burden
Whatever reason you have for selling — business or personal — having a playbook beforehand will keep your mind at ease, even if your “playbook” is just half-a-page of text. If you are forced to quickly sell your practice and do not have an exit strategy planned, the valuation of the clinic can be jeopardized and the chances of your legacy ending up in the wrong hands are greater.
Components of the Exit Strategy
To ensure your exit strategy is successful, you should consider the following exit strategy components:
- Define the goal. Understanding what you want to achieve as a business owner is essential. You should think about yourself, your heir(s), and the practice when you decide to extricate yourself from it. Clearly-defined goals will help you to choose the best strategy.
- Optimize the value. Future buyers will be interested in financial statements and other documents. However, EBITDA is the number that buyers pay the most attention to, as it reflects the most accurate profitability of your practice. Try to maintain EBITDA that will leave you with a profit and employ tactics to optimize it in advance. One of the most significant stages in the sales process is its appraisal and preparation for the sale. Both of these steps are crucial if you want your practice to succeed and yield the most profit for yourself. If you don’t want to do all of this number-crunching yourself, talk to your account or attorney. Discuss your long-term goals with them and let them help you set up a succession plan.
- Target exit date. Selling a practice is not a short process. Keep in mind that it can take up to a year for a sale to go through, so make sure to plan an exit in advance. Having a timeframe in mind will minimize the stress for you, your family, and your team.
- Sufficient time to execute the plan. Unforeseen circumstances can force you to sell the practice, so planning and preparedness for a sale will help you to end up with more profit.
Make a priority to develop an exit strategy that will protect you and your practice in the future. As we live in uncertain times, anything can happen. Being prepared will put you in an advantageous position and will minimize the stress when you decide it is time to sign one of the most important deals of your veterinary career.
Exit Strategy Summary
So whether you decide to sell your practice to a consolidation group or a new private owner, you should keep your attitude as professional as possible, even though it’s your “baby.” Consider the real reason behind your decision, and make sure it’s the right one for you. A common question that potential buyers will ask is, “Why are you selling your clinic?” When you answer it for yourself honestly, the rest will just fall in place.