Nothing in this world is more difficult than building up a successful practice. Until, that is, it comes time for you to retire and pass it along to someone else to run. Then it can be even harder to let go of what you took decades to establish.
Compounding the problem is the fact that there are several difficult questions you then have to ask yourself: Is there someone in the family who is ready and capable of stepping up and leading the practice the way you have in the past? Or would it be better to find an outside buyer to pay you for the business, even though that would dissolve your connection to the work that has given you your identity for so long?
In this installment of our newsletter series for professionals, we will talk about one of the toughest moves you'll ever have to make: leaving your life's work behind. It would be unreasonable to think you could do so without any emotional displacement. While it's important to look at the situation objectively, you should realize it will be a bumpy road no matter what you choose, and you should be prepared for that. The best way to accomplish what is most important to you, both in terms of what you leave behind and the retirement you are building for yourself, is to create an exit strategy—a solid plan for the transition.
IN THE FAMILY
Perhaps the primary variable is whether one of your children is ready to take over your practice. If more than one of your children fall into that category, all the better. The most important thing is to start the process early. Your children have the right to know what could be coming to them, and you can't wait until the moment of your retirement to decide whether they will take over. You also want to start early to help with the continuity you've established, both with your employees and with your clients.
It also helps from a purely financial standpoint to get the transfer process started early. There are many ways to perform such a transaction, with differing tax implications, liquidity issues, and effects on your estate planning. I recommend that business owners have a plan in place at least five to seven years in advance of retirement, in order to make the transition as smooth and financially advantageous as possible. In fact, I recommend that professionals adopt some kind of succession plan as soon as the practice has any value, if for no other reason than to protect the family against the loss of that value in the event of an untimely death.
At the same time, there are advantages to transferring ownership outside your family. If you have a key person to transfer the practice to who already works with you, selling to that person isn't even really selling it to someone on the outside. While you might receive more from a purely independent buyer, selling to an insider eases the transition, not just for everyone who works in your business but for your clientele as well.
You may want to get a professional valuation of your practice before you do anything. There are those so-called rules of thumb to calculate its value, such as using twice the amount of its yearly revenues, but these are about as accurate as the phone-in polls on the TV news. A good business valuator can give you a much better idea of how much your practice is worth, keeping you from either jumping on an inadequate offer or having unrealistic expectations of how high those offers are going to be.
One more thing: Keep your books as clean as possible. You don't want to have something the least bit funny-looking, such as a company car that your practice owns but that your nonworking wife drives most of the time. Make sure any potential buyers know what a clean, well-organized company you have and how easy it would be for them to run it themselves.