The average baby boomer today is approximately 63 years of age, and in seven years, all of them will be over the age of 60. Obviously, this has implications on the number of veterinary practice owners exiting their business.
Baby boomers are unique. Unlike generation Xers who value time, traditionalists who value community/family, and millennials who value individuality, baby boomers value success. They are also known for their 60-hour work week. These two attributes—working hard and being successful—should also play a role in how baby boomers approach their exit strategy.
The Exit Planning Institute (EPI) estimates 50 per cent of business exits are involuntary, meaning they are unplanned and/or unexpected. If you are fortunate, you will experience an unplanned exit because you received an offer for your practice you did not expect; if you do receive an offer, we would advise you not accept the first offer without seeking professional advice. Why’s that? Well, it is likely neither the only offer available nor is it likely to be the best offer. The reality, however, is most involuntary exits are due to death, disability, divorce, or disputes.
Avoiding regret and preparing for an unexpected exit
Engaging in an exit planning process can help prepare owners for an unplanned exit at any time. Consider EPI’s “value acceleration process,” which highlights three areas that are integral to a successful business exit:
1) Maximizing business value
2) Personal financial planning
3) Life after business planning
The value acceleration process focuses on value growth across all areas and aligns your business, personal finance, and personal goals for life after business. It takes what can be a complicated and often overwhelming, three- to five-year business strategy and turns it into a manageable 90-day process. The process also answers the question, “What can I do in the next 90 days to move in the direction of my long-term exit strategy?” Repeating the 90-day cycle can lead to continuous improvement.
The value acceleration process involves three phases:
- Discover—This phase focuses on exploring where you are currently in your business and personal life, and what actions are needed for you to get to where you want to be in the future.
- Prepare—This is the phase where you implement the action plan.
- Decide—Now that you have more information, you are better prepared to decide whether to sell or keep the business.
The first step in the ‘discover’ phase is to have your business valued by a qualified business valuator who is experienced in the veterinary industry. Owners need to know the current value of their business and what the potential value could be, should they act and make improvements based on what they learn in the valuation.
Value considers the risk of continuing to be able to generate revenue and income in the future, which is extremely important. When you go through a business valuation process, you identify business risks affecting your future revenue/income stream. Once you identify the risks, you can create action items to remove risk from your business. A business valuation also identifies the value drivers that can be acted on to improve value and in turn, improve revenue and income.
Success in exiting a business and avoiding regret involves more than just maximizing value and price. It involves creating conditions to enable personal financial and emotional success after the sale. What is the owner’s financial requirement post-sale to support and maintain his or her planned lifestyle? There are some practices that don’t sell; is the owner still able to exit and enjoy the same lifestyle as when owning the business? If the practice is salable, is the current value enough to support the owner post-sale?
Engaging the services of a qualified wealth management professional can assist owners in analyzing their current financial status and future needs to ensure the next chapter of their life is as enjoyable and successful as possible. Also, it can be an emotional shock to go from being an integral part of a vibrant business to waking up in the morning and wondering how you are going to fill the day. It may sound appealing, but the reality of a life without purpose can be devastating. Some exiting business owners struggle with self-worth issues after a sale. Days need to be filled with meaningful experiences, whether it is with family/friends, philanthropic endeavors, hobbies, another business, etc.
The next step in EPI’s discover phase is to analyze your weaknesses and areas for improvement resulting from the assessment of your business value, as well as financial and personal goals. Pick three to five items pertaining to your business value and three to five others concerning your financial goals and plans to spend your time after the sale. Create an action plan around these items.
If you focus on value first, income and revenue will follow. If you focus solely on revenue and/or income, value does not necessarily follow.
It’s all in the preparation
Once you’ve created an action plan, you are ready to move to the “prepare” stage to begin implementing the action plan. By that I mean remove risk from your business, work on value drivers, implement plans to ensure you can meet your post-sale financial needs, and prepare for the emotional part. The process can result in a more informed owner who can then decide whether to exit or keep the business and repeat another 90-day cycle. Robert Baden-Powell’s Scout’s motto: ‘Be prepared’ is particularly relevant to this discussion. As founder and first chief scout of The Boy Scouts Association, Baden-Powell wanted to equip young people with the ability to act quickly during an emergency and to be physically and mentally ready for challenges they would face. The same principles apply to practice owners exiting their business. Are you prepared?
Elizabeth Bellavance, DVM, MBA, is a certified exit planning advisor with the Exit Planning Institute and is a Simmons & Associates’ practice valuator and practice broker representative. She can be contacted at 519-383-4438.