Selling: It’s a tough decision
A former owner gives tips for selling your agency
By Kathleen Bailey
Private Duty Consultant
Lancaster, PA
At some point every agency owner ponders the decision to sell his or her business. I was not an exception. I started a private duty agency and enthusiastically managed its growth. I enjoyed owning the business, but after 12 years, the fire within me that produced my enthusiasm was reduced to less than a spark. I grew tired of the day-to-day management issues and was simply going through the motions. I owed it to my loyal and talented staff to sell before my apathy weakened our market position and their future.
Selling an agency takes about nine to 15 months. This is the process and what you can expect:
1. Make the decision.
Why are you selling? The answer to this question determines whether selling is the answer or whether an alternative such as hiring someone to assume your day-to-day responsibilities and maintaining ownership is appropriate. Write down your goals and objectives and the pros and cons to selling. This clarifies your thoughts and can define your next step. Be honest with yourself; you must live with your decision.
Share your thoughts and feelings with your family or a close confidant. You will need their support throughout the process.
2. Identify strengths and weaknesses.
Again, be honest with yourself. We all like to think our business is strong and that we operate efficiently. But put yourself in the buyer’s shoes. Ask yourself the information the buyer needs to know. The following are examples of questions to ask:
• Is the agency certified by a credentialing body?
• Is the agency managed efficiently?
• Does the agency have a good reputation in the community?
• Does the agency have written policies and procedures?
• Does the agency have a variety of reliable referral sources?
• Is the agency profitable?
Think in terms of "the" agency, rather than "my" agency. This will depersonalize your thinking and help you determine what the buyer is purchasing.
3. Find a broker.
This is perhaps the most crucial step. Interview and get references from several brokers and talk to their previous clients. Ask about the brokers’ reputations and if they have been known to mislead or misrepresent their clients. Also, checking with the Better Business Bureau is a good idea. Choose someone with whom you are confident and comfortable. This person will know your financial picture intimately!
Once you choose a broker, he or she will offer advice, determine the value of your agency, market your company, screen interested buyers, and guide you step-by-step through the transaction. The broker’s commission usually is based on the final sale price; therefore, the broker will seek the highest fair price.
A broker can advertise the sale of your agency and keep your agency’s identity confidential until qualified buyers are identified. This will avoid concern (or even panic) by your employees and clients. If you lose them, you have nothing to sell!
The broker will request at least three years of financial information, including tax returns to back up your statements, as well as information on management, personnel, and marketing. And, just when you thought you told everything there is to know, your broker and the potential buyer will think of other questions to ask you. Answer as honestly as possible, even if you must admit some weakness. After all, your weakness may be the buyer’s greatest strength.
4. egotiations.
The agency may be "your baby," but the buyer is only interested in value for the dollar and future sales. There is no room for emotion during the negotiation process.
In most agencies, the hard assets are a fraction of the total value. You are selling your employees, your clients, your contracts, and your reputation. The broker is experienced in selling these nontangible assets and will negotiate on your behalf. During the negotiations, the prospective buyer signs a confidentiality statement, and the broker divulges your agency’s identity. He or she knows the proper timing for this to occur. You are the expert in home care; the broker is the expert in negotiations and closing sales.
5. Due diligence.
Just when you think your business life has become an open book, you move into the next phase due diligence. At this point the buyer will involve attorneys and accountants. Potential buyers may want copies of all contracts, insurance policies, job descriptions, history of office personnel, more detailed financial information, or specific information to assure themselves the transaction is fair. Your honest answers to earlier questions are now confirmed.
6. Transition.
Plan the transition to the new ownership before the deal is settled. Will you stay on to manage, phase yourself out, or walk out the door and never look back? You must answer these questions now if you did not make this decision in step one or during negotiations.
A well-planned transition of power creates peace of mind for everyone. Now is the time to tell your office staff. Unless the new owners bring their own management team, your well-trained and efficient office staff are perhaps the new owner’s greatest asset during this transition period.
7. Settlement.
All your efforts lead to this day. The sale is final when the documents are signed.
8. Final thoughts.
• You owe it to your employees and clients, who have been loyal to you, to sell to a reputable buyer who has plans in place to improve and grow your agency.
• Have your attorney read everything you sign, even if it has been thoroughly explained by the person asking for your signature. We can all be misled.
• Finally, even though you know selling is the right thing for you to do, separating yourself can be emotionally painful, especially if you started the business yourself. Allow yourself a grieving period. Then, begin your new life.
[Editor’s note: Kathleen Bailey is the former owner of Central Penn Nursing Care, a private duty agency in Lancaster, PA. Telephone: (717) 656-8131.]
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