Features Finance Management
$elling Your Business

As the baby boom generation approaches retirement, an unprecedented number of workers will be leaving the workforce. According to Canada’s Urban Futures Institute, there are some 9.8 million Canadian baby boomers, people born between 1946 and 1964, approaching their retirement. By 2020, the number of Canadians retiring each year will be 425,000.

Statistics Canada said in 2005 that approximately 3.6 million workers were within 10 years of retirement age, composing 22.1 per cent of the total, up from 10.3 per cent in 1986.1

As retirement looms for many baby boomers, a considerable number of massage therapists will be looking to hang up their lubricant-harnesses and retire.   

The 2003 Collis and Reed survey of massage therapists practicing in Ontario indicated 25 per cent of RMTs were between the ages of 40 and 50+.2 

How will these therapists finance their retirement? Will they have a business asset to sell?

Entrepreneurial RMTs who have worked hard to deliver compassionate care may not be able to transfer the value of their business to eager new therapists looking to buy … unless the entrepreneurs have created a valuable asset in their business.

The business, inextricably meshed with the practitioner when the business is new, must eventually take on its own identity to be saleable and transferable.

Like any McDonald’s location, Ray Kroc needed to put systems and good employees in place so he could move on to open subsequent successful chains.

If you are your business, then your business’s life depends on your resources alone. It’s worth asking the question, “If I don’t show up for work one day, is there still a business?”

Melanie is an RMT that needed to sell her practice in preparation for a move out of province. The purchase price included a contact list of 500 clients, linen, office furniture and computer/fax. Melanie contacted me for information and I recommended several resources – including the discussion forum on my website – where Melanie explored the topic with several RMT business owners.

Instead of packing up and receiving nothing for all her hard work, Melanie acquired a tidy sum to help her in her new life.

From day one entrepreneurial massage therapists should be preparing for the day when they’ll pass on their turn-key operation over to a new owner…at a fair market value.  The problem arises when the RMT has toiled away at providing high service, but has not systematized the business – that is, set up systems to run the business automatically – or replaced themselves – that is, bring in highly competent service providers besides the owner/primary practitioner to deliver care. The primary practitioner/business owner has, in effect, made her or himself irreplaceable.  Good for the ego, but bad for the value of the business!

What do I mean by systematize? Michael Gerber in The E Myth Physician describes how the value of your business (equity) depends on how well the practice works. The practice must be designed to deliver service systematically and predictably every time.  (You can watch this in action next time you visit Tim Horton’s).

To Systematize, You Must:

• Honestly evaluate your business. How well is it working for you?
• Determine the most effective practices in delivering care, then document these – just like you see in manufacturing – the ISO designation from the International Organization of Standardization
• Replace yourself with competent people. Hire people equal or better at specific methods or modalities than you are!  They’ll be proud and you’ll have a valuable asset.
• Quantify the effects and improve the systems continuously
• Repeat this process for every aspect of your business

Remember to be the owner (work on your business) not just the employee (working in your business)

Questions To Ask When Selling Your Business
According to RBC’s The Definitive Guide to Retiring from Your Business3 there are a number of questions to ask when you are considering selling your business.

• Who will buy it – family member, employee/contractor or investor
• Can the buyer raise the necessary money
• Can the buyer successfully run the business? (Very important if you offer seller-financing for part of the purchase!)
• Will you partly finance the purchase
• Will the buyer offer personal indemnities to ensure the financing

The purchaser may be a new therapist starting out, complete with student loans and fears about taking on a large expense up front. Therefore, you may consider seller-financing (i.e. you loan the money and the buyer pays in installments with interest).

There are pros and cons to this so do your research and speak with your accountant.

Selling To Third Party

The purchaser of your business may not necessarily be an RMT.

Many entrepreneurs look for an industry that fascinates them but they’re not necessarily employed or experienced in – the booming winery industry, for example. Because the potential buyer will know even less about running a massage therapy business, there are some key points to consider:4

There are two types of buyers – Financial and Strategic. Financial buyers are interested in the company’s cash-flow i.e. “How much money can I make if I buy this business?” Strategic buyers are interested in businesses that fit in their long range growth plans, e.g., to secure supply chains or open new markets. Perhaps an existing physiotherapy clinic or spa would be interested in purchasing your business in order to offer multiple locations and expanding services.

You will need cash flow records and projections, listing of liabilities, information on new product development, and value of hard assets (property, equipment, intellectual property, customer lists and contractual relationships).

Caveat
Protect pre-sale details so the potential buyer doesn’t usurp your business information and become a competitor!

The RBC Definitive Guide further recommends you use an advisory team (experienced accountant and lawyer) to assist the buy/sell process, valuate your business, and ensure protection from errors and omissions/misrepresentation.

Caveat
RBC Guide recommends “Don’t test the market if you’re not willing to sell. Selling takes up valuable management time, makes the sale public (which can affect business), and limits maneuverability during the selling process.”

In part two of this article, we’ll explore valuation methods to determine what your business is worth.

Donald Dillon, RMT

About Don Dillon
Don Dillon is a therapist, speaker and writer.  His articles have appeared in over 50 publications including Massage Therapy Canada, Massage Therapy Today, Connections and the AMTA Journal.  Dillon is author of Better Business Agreements: A Guide for Massage Therapists and Charting Skills for Massage Therapists.  Contact him at www.MTCoach.com.

References
1. Boomers retire idea of Freedom 55, StatsCan analyst suggests. CBC.ca Wed Jan 25, 2007
2. Collis and Reed: Report on the Massage Therapy Census 2003, Membership Survey Report. Pg 6
3. RBC Royal Bank: Retiring from Your Business – Sourcebooks for Successful Small Businesses and Entrepreneurs, June 2002
4. ibid