How does one sell a mental health practice? What is the process? In my view, developing an exit plan is an especially wise investment of time as a practice reaches a level of maturity. Even if a sale is years away, a solid plan is critical to transforming the practice into a salable asset.
You cannot hit a target you cannot see, and you cannot see a target you do not make.Zig Zigler
Table of contents
- What are you selling?
- What continues after the sale?
- Steps to selling a mental health practice
- The next chapter of the organization’s history
Fortunately, there is no lack of knowledge on the process for selling a small business. Here are a couple of articles on what some options are:
- Small Business Exit Strategies: A Brief Rundown of Your Way Out
- How to Create an Exit Strategy for Your Small Business
And I have created my own set of articles that specifically focus on selling a mental health practice.
Let’s begin our discussion of how to sell a mental health practice with some general ideas about business.
What are you selling?
A practice is many things. For example, consider this list of aspects of what you are selling. A practice is:
- A money-making machine
- All the existing relationships with staff, clients, and community members
- A reputation that has value in your communities
- A set of processes for doing the daily business of the business
All of these are aspects of a practice. And significantly, each contributes to the value of practice. When assembled correctly, the whole package can be a valuable asset that will attract purchasers.
What continues after the sale?
An ownership transition from one owner to another is one of the riskiest changes a practice will undergo. And it is worth considering what continues once a sale has occurred.
Consider these aspects of what remains a part of the business and what changes after the closing. There will be:
- New ownership with a new financial structure
- Newly formulated team of leaders
And there will also be:
- A legacy that remains and a reputation from what was
- Many remaining employees who will carry on as before
That there remains so much from the original practice was adds value to the newly constituted organization. Otherwise, why not just start from scratch?
So we can see that while the organization is morphing into something new, it retains much that is familiar. That is why a purchaser cares so much about what has been there in the past.
Steps to selling a mental health practice
1. Build a practice that is independent of the owner
In other places, I have repeatedly said that the value of a practice increases the more it functions well without the owner making much active contribution. The real goal is a practice that runs on autopilot. Of course, that is not possible, but it is what we aspire to.
2. Explore potential buyers
I have written another post on who potential buyers might be. However, in this step, we want to nurture a relationship that might result in a sale. (For more on this subject, see: How to sell your practice: Finding the next owner of your practice.)
3. Explore potential financial structures
I have also written another post on various methods for securing the financial support one needs to make a deal occur. Certainly, a big part of the decisions here concerns the seller’s need for immediate cash from the sale. There are more options if the seller does not need a quick payout. (For more on this subject, see: How to sell: Figuring out how to finance the deal.)
4. Begin negotiations with potential buyers
The actual negotiations are the most stressful part of the process of selling a practice. Both sides have their self-interests at stake. Certainly, the goal is to find enough overlap in interests for a deal to occur.
Just one cautionary word about the use of business brokers-they have their own interests in a deal. A business broker gets a percentage of the sale price in most cases. That can influence the deal-making process in a couple of ways. Consider these factors:
It is in the broker’s interest to get the highest sale price possible.
- The broker gets paid less if a deal is only for part of the equity.
- A partial sale of equity may be perfect for the seller and buyer but not for the broker.
Negotiating a deal that appeals to all parties requires some flexibility and, in some cases, some stretching to uncomfortable places. Consequently, letting go of some hoped-for outcomes may be the only way a deal comes together.
5. Work out a contract
Developing a contract that structures the arrangement in suitable ways is essential. Attorneys often get a bad rap for the issues they raise that would seem to complicate the deal. In truth, most attorneys are not trying to spoil an agreement, but their job is to anticipate even the remotest risk and mitigate against that.
Reining in attorneys is typically essential to getting a deal done. In my experience, the seller and the buyer need to discern the level of risk each can tolerate. Holding up a sale over some slight possibility may insult the other party. But it will be the buyer and seller who have to sort out when to restrain the attorneys.
6. Close on the sale
The closing itself is often rather anti-climatic. All the heavy lifting has already occurred. While the closing could be emotionally powerful, the actual logistics of closing is just a signing of many documents which have been poured over several times before. Nothing new is happening except making official what was agreed to earlier.
The next chapter of the organization’s history
Organizations often endure beyond the leadership of the founder. And an organization transitions through many stages and changes. Recognizing these truths helps an owner see that they are a caretaker who superintendents all the changes throughout the organization’s long life. They only own it temporarily.