Selling Your Business

By Ralph Montague / 23 Feb 2017

Aesthetic clinic managing director Ralph Montague provides an overview of the various options for those looking to sell their clinic

Ever worry about how you’re going to sell your business when the time is right? One reason why you may want to sell your business could be retirement, or maybe you feel that you need a fresh challenge. If you haven’t ever sold a business before then it’s certainly not straight-forward. 

Even if you are a few years off selling, putting the right systems and procedures in place, combined with speaking to the right people now, means that when the time is right, you will be in a position to leave when you want to.

The options

Trade sales

Trade sales, whereby you sell to another company in your industry or a complementary industry to yours, are great if you want a fast sale.1 You might be able to structure the sale of your business so that you can completely walk away from it when you exit (clean exit). 

However, typically if you’re looking for such a clean exit, you’ll get a lot less value for your company than if you’re prepared to do an earnout,1,2 which is where your final pay-out is based on hitting pre-agreed targets for the business (see below).2

If you decide to do a trade sale, you need to be prepared to do a lot of research to find someone who will buy your business. A list of things you may want to consider:

  1. Look at competing clinics both locally and nationally that are aiming to increase their presence in your area.
  2. NHS doctors and nurses might be looking to open their own aesthetic practice. Taking on an existing clinic with reliable staff, an established patient base and a history of success may be a good option for them.
  3. Similar businesses, such as a clinic more focused on injectable treatments compared to your laser offering, may want to expand and/or offer new services that your clinic has. It is far easier to buy an existing clinic, already setup, rather than to start from scratch.
  4. Consider friends or acquaintances that may be looking for a new challenge. Your clinic could present an exciting new venture for them.
  5. Research equipment and product suppliers. Some may be interested in running their own clinic without the hassle and cost of setup to showcase their products in a real-life clinical setting.

Advertising: you may choose to use free listing websites or business brokers for advertising trade sales. Business brokers are an option, but will take a percentage (often starting at 10%) of your business profits. After contacting a broker, which can usually be found by searching online, they will review and verify your business through looking at things like finances and tax documents. They would then advertise your business online and may research potential buyers, organise viewings and oversee the settlement and closing of the deal.

There are also some websites such as Businesses for Sale or Dalton’s Business, which allow you to upload your details and create your business profile for a fee. These can be very cost effective, but they very much depend on others finding you, so ensure you swiftly follow up any potential leads. 

The advantage of a trade sale is that it enables you to walk away from your business in a shorter time than some alternative options, such as the earnout option. The disadvantage is that you may miss out on extra profits, as explained below.

Earnouts

An earnout is when your final pay-out is based on hitting pre-agreed targets for the business.2 For example, you may want to stay with the clinic for two to three years. During that time, if you can take sales over a certain predetermined amount per annum, then the buyer might agree to pay you extra for your business. 

In my experience, many companies like owners to stay to help maintain the success of the business when they first purchase it, however, many sellers want to leave straight away, which is why such financial incentives exist to help meet both the buyer’s and seller’s needs. Earnouts may work well for someone who doesn’t want to leave the business just yet, but at the same time does have a suitable offer and would be happy to leave in a few years, plus, in the process, get a higher valuation for their business. 

However, if you’ve reached a point in your life where you’re sure you want to sell your clinic, then continuing to work there as an employee of somebody else can sometimes be challenging if you don’t agree or have little experience in their new strategies for the business. 

Competitors

Being approached by a competitor can work well as there is little work for sourcing buyers and getting the business sale ready. Similarly, actively approaching competitors can also be a good strategy. There will also be no agents’ commissions to be paid as you will be working with the buyer directly. 

Agents can be ideal if you are stuck for time as they do the majority of the work for you, and can be involved in many of the other selling options listed; however, it is often work that you can do yourself and may be a good way to save money.

 The challenge for many practitioners here is the fact that you may not want to sell to a competitor out of principle or may not agree with their strategies for the future of the business, which may affect some of your long-standing patients. 

This could be the case for any buyer, so is an important point to consider before listing your clinic for sale. Ensure you weigh up the benefits of selling with the possible disadvantages and judge what is most important to you.

Initial public offering (IPO)

IPOs are when you float or list your company on a stock exchange.3 These are generally reserved for larger companies with sales greater than £5m per year. However, you will need a full-time staff member just to manage the complex and time-consuming process, combined with bank and legal fees, meaning even for companies of that size, the costs both financially and time-wise are often too overwhelming.

The advantage is that because the company is listed on the stock market, it will increase the value of your business and you can sell shares to the public. The disadvantage is that the company is more open to public and media scrutiny than a private company and your levels of accountability increase.3

Mergers and acquisitions

Mergers and acquisitions take place when two or more companies come together to create a new and larger company.3 By getting in touch with other clinic owners in the industry who may also be looking to sell, you can look at ways to create a larger business. 

This is often a lot easier to sell, due to it now being a bigger company and of more interest to the corporate sector, which is generally large clinics or other companies looking for a good investment who have £20m plus turnover and the money to buy your business.3

One challenge with mergers and acquisitions is that it can cause debates in things like the naming of the merged or acquired business as well as the titles of individuals working at the new company. For example, trying to determine who gets the director, chairman or managing director title and who has the power in the business may be debated.

What if you can’t sell?

When trying to sell a business, it is important to consider that not all businesses sell, or will not sell straight away. In my experience, the clinic should sell within three to 18 months if it has been marketed correctly and all the information for the sale is correct and complete. 

If you can’t sell within the time frame you had planned for, you may consider to continue to run your business on a part-time basis, while you focus on developing your other goals, be that a new career or retirement.

To achieve this two important aspects to consider are the systems you have in place and the reliability of your staff. Employ a clinic manager who will ensure smooth and successful management under your direction.

You could consider promoting an existing member of staff who knows the fine details of your clinic, or hiring externally. Look for someone who has experience in managing a clinic, managing staff and a consistent record of reaching sales targets.

For systems, I recommend referring to the book E-Myth by Michael Gerber, which provides some fantastic advice for businesses.5 A system is essentially a list detailing things that need to be done and having a clear structure on how to do them. Having a detailed system or checklist in place helps ensure that tasks are done in a timely manner and that they are done correctly every time. 

A simple example of creating a system to save time is for a clinic cleaner. Instead of sending in a cleaner to simply clean, have a checklist that has a systemised approach so that they can do the same things in the same order without the need to think about what they are doing – this will save them time and ensure the jobs are completed.

It is important to monitor key performance indicators to ensure all systems are working successfully. I recommend checking the number of sales, total value of sales, value and number of any purchase orders, number of bookings made and sales value of bookings made on a weekly basis, so you can deal with any concerns in a timely manner. 

For other clinic matters, set alert levels so your staff know when action needs to be taken and when to involve you in anything of concern. The benefit of continuing your business instead of closing it down is that you will receive continued income, instead of simply nothing at all compared to if you cease trading. As well as this, an active clinic can be easier to sell, and so by doing this you can continue to try to make your clinic appealing to potential buyers and eventually sell.

Summary

Like most things, there is no right answer to how you might go about selling your business and some approaches will work better for others. However, understanding your options will help to increase the chance of you selling your business successfully as well as how to manage your business in a way that allows you to work on it part time if you cannot sell. 

References

  1. Syndicate Room, Trade Sales, (2017) <https://www. syndicateroom.com/learn/glossary/t/trade-sale>Investopia, ‘Earn Out’ (2017) <http://www.investopedia.com/terms/e/ earnout.asp>
  2. Jeremy Harbour & Callum Laing, Agglomerate - From Idea to IPO in 12 Months, (2016).
  3. Simpson, N, ‘PROPERTY FINANCE: Putting a new business on the house’, Daily Mail, (2010). <http://www.dailymail.co.uk/ property/article-1329838/PROPERTY-FINANCE-Putting-new-business-house.html>
  4. Michael Gerber, The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do, (2001). 

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