But succession planning is an orderly process of winding down, phasing out and passing the practice to a partner or employee, or selling to an outsider, and requires some time and organization. Most therapists have no succession plan at all.
Regardless of whether you are ready for it or not, the day will come when it is necessary for you, as a therapist, to depart. There are several options, one of which is to, on a given day, simply close the door and gallop off into the sunset. However, as any goodwill developed is lost by such an act, this seems a waste after a long and successful career. Also, it would be most disconcerting to your regular clients who must now find an equally skilled replacement massage therapist. To ensure continuity and an orderly transition, succession planning is not something you can postpone indefinitely. Being unprepared will have long-lasting negative effects.
In short, you can never start too soon.
When and how to start
First, you must determine when you intend to step down. Then, you must be proactive. Planning should start a minimum of five years prior to this date, but the longer the time frame, the better. What you seek is an orderly transition, one that preserves your wealth and your health and makes it easy for a successor to take over. This governs the actions to be taken, the critical path and the timetable.
You start by laying out the ground rules while your practice is still thriving, long before your clients have gone elsewhere. Without this organized framework, the process can become haphazard. The germane issues revolve around the time you want to leave, personal health in the event you will not be able to continue until then, family considerations, financial concerns, your needs after disposition and procedural matters.
It is important to develop a strategy that includes contingencies. You never know when circumstances will change.
The planning steps
- Determine your personal goals and objectives. Uncertainty creates ambiguous results.
- Establish a timeline for your departure.
- Develop a financial plan that considers contingencies and protects your capital.
- If you are going to offer financing for the purchase of your practice by your successor or structure a buy-in, establish what you will expect from your successor.
- Create a divestment strategy.
- Determine the most expedient way for an orderly transition.
- Formulate a critical path timetable. Decide what comes first, second, third, etc.
- Develop a contingency plan.
- Consider all of your options.
- Determine which professionals’ help you will require – these may include specialists in the areas of legal, accounting, professional practice appraising, etc. Employ the required help.
- Resolve your legal and income tax problems.
The Taking Over and Phasing Out Drill
Your successor should commence assuming a major part of your responsibilities, in phases. In time, responsibility for the management of the therapy practice passes to the successor. Then, when all is in place, you depart.
In a single massage therapist practice there is no employee to take over. This could also be a problem in multi-therapist group practices, as it could be that no one is interested. This creates the necessity of selling to an outsider.
Two options present themselves. The first is to attempt to self-sell and the second is to enlist the services of a professional practice broker. There is no hard-and-fast rule that applies to all on this conundrum. If you choose to self-sell, you will probably find that an extensive amount of time is required, all of which is taken from your professional duties with a loss of revenue that is probably greater than any commission you might pay to a broker. On the other hand, there are not that many professional practice brokers around and still fewer who are really qualified. My only caution is that, if self-selling, understand what it is all about and the direct costs involved. That you are the world’s best massage therapist does not mean you have the skills to sell your own practice.
Selling Out For All-Cash
A common failing among sellers of professional practices and businesses is that they think their firm is the jewel to others that it is to them, and if offered for sale will be immediately snapped up. Unfortunately, this may not be the case. When attempting to sell, you must contend with buyer uncertainty and reluctance. So much of the value is goodwill, simply defined as the probability that the same clients will return, no matter who is in charge.
The difficulty in arrange financing through banks and debt lenders makes obtaining all-cash for the sale of your practice a challenge. Thus, some form of seller financing is usually a prerequisite. Still, any arrangement whereby you receive only a down payment, followed by regular payments over an extended period, could be frightening. In a business that has a high percent of its value in tangible assets, they can be repossessed if necessary.
Unfortunately, the goodwill included in professional practices is a somewhat nebulous intangible asset that is easy to destroy. If this is done, it could leave the seller with little security to recover the unpaid debt. Accordingly, the best procedure, and often the only procedure, is some form of more assured seller financing such as a buy-in/buy-out. This necessitates a more protracted exit, which is what you want anyway.
The common term “buy-in” refers to the purchaser whereas “buy-out” refers to the seller. Both mean the same thing. With the buy-in/buy-out, your practice would be purchased over an extended time frame, usually not less than two and seldom more than five years.
The major difference between this and an outright sale, or traditional seller financing, is that you remain active and in control as a transitioning seller, or partner, until the full debt owing to you is retired. However, there is no typical template to fit all situations. Even with the best-structured buy-in, there should be a down payment of sufficient size to ensure that the buyer/partner does not walk. As there are several ways to accomplish this, the best of legal advice should be obtained.
The Last Words
Develop an integrated approach to succession management. Professionals with a planned phasing out/exit process fare better than those who do it at the last minute or when forced to.
It cannot be said too often: phasing out/winding down/transitioning from an active massage therapy practice must be a planned exercise. It can never be a case of saying that, on an appointed day somewhere in the future, you will gather up your fixtures, box your supplies and with a wad of money in your jeans walk out the door. An exit whereby your health, your wealth, and yes, your reputation, remains intact requires meticulous planning and methodical execution.
Start now: not someday when it becomes a do-or-die situation, when for some reason you must get out. Consider all of your options, select the one that works best for you, get the best of legal and tax advice – and do it.