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Should I sell my business?

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summer_ceo

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May 6, 2018
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Could use some entrepreneurial advice...

I started my own company as a solo entrepreneur 8 years ago. We have grown substantially in the past 3 years to include 7 FT employees and an office location. We have 1.7 years remaining on our commercial lease and I am strongly leaning towards not renewing our lease for a number of reasons that I will go into. I would really appreciate your advice about whether we should get out and what our best exit strategy should be.

I own an behavioral therapy center for children with autism which is now considered a medical practice. I am a professional in this field with 17 years experience and have a masters degree and a license which allows me to bill insurance. Our revenue in 2018 was $508k with $100k EPITDA.

We rely on a small group of clients (generally 7-10 at a time due to our limited office space) and have only two funding sources (federal and state health plans). Having a small number of clients means our income fluctuates greatly when we lose 1 or even 3 clients at once, and we aren't always able to fill open spots as quickly as we'd like to. Having limited funding sources means widespread delays in payments usually once (sometimes twice) per year. For example, we had new medical code changes as of 1/19 that impacted all insurance payors and resulted in delayed payments for all of January and into February. We needed to put in our own capital to cover payroll and overhead at $30k a month. We have a lot of cash reserves, so it's usually not a problem overall--but just a stressor and something that is definitly a hindrance and concern with growing larger, where our expenses would eventually exceed our cash reserves.

Relying on insurance also means sweeping rate changes that can occur with little warning. For example, a few years back we were notified of a 20% rate reduction which was reseversed after 3 months. They never raise our rates, but each year find some way to cut it indirectly. All of this makes us feel unstable about the future of this business.

Insurance also has become increasingly stringent about their medical documentation. More and more our time is being eaten up by paperwork and documentation. The payors are not always clear about what information is needed in this documentation and it all very subjective and based on the auditor. We are required to keep medical records for 10 years which means we are always at risk of having any of our reimbursements for the last 10 years recouped if they believe that our medical documentation is not adequate. In other words, they are scarier than the IRS.

Overall I am just burnt out with my work and with being a business owner in general and with the constant stress about our funding. I don't have it in me to sign another lease at this point and so I am actively looking for a buyer. All the buyers I am talking with are big private equity firms (which are now beginning to take over a large part of our industry). Being such a small company, I am not sure if this is realistic and although there has been interest, we haven't received any offers yet (just began sharing financial in mid-October).

Ideally, I imagine the best case scenario to be selling to one of these companies, so we can earn some capital through the sale of our business as well as having the assurance that the business will likely be financially secure (for both employees and clients). The only con that comes with selling (as oppossed to just closing) is the non-compete. I assume I will be contractually obligated to work for the company that buys us for a certain period of time. I am okay with this--but ultimately, I just want to get back my freedom again.

If I am not able to sell the company to my preferred type of buyer, my only options will be to grow larger (some companies require a million in revenue minimum) to try to attract a buyer (which isn't likely to happen on a 1.7 year timeline since we have always grown slowly) or to give it or sell to my employees (which I don't consider ideal because they are all young women in their 20's just starting out in their careers with limited experience and no capital) or to just close up shop...which would mean no windfall from the business but also means I can have my freedom back and can go back to work as a solo entrepreneur if I ever get over my burn-out.

Considering the complexities of our type of business what would you recommend? Any idea I haven't considered yet?
 

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levijean

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You seem to be letting the prospect of a lease overly influence your decision making. Have you considered simply going month-to-month when the term expires?
 
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summer_ceo

New Contributor
May 6, 2018
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You seem to be letting the prospect of a lease overly influence your decision making. Have you considered simply going month-to-month when the term expires?
I was using the lease term date as my date to end the business one way or another. I am not sure if we will be given the option of a month to month lease (I assume we will not) or what the the cost will be for this or what would happen if someone else in the building wanted our space (the building does not have any vacancies). It's really not the pressure of the lease ending, as it is the earliest date I can legally be able to walk away without financial liability.
 

GoldBenjamins

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Feb 16, 2019
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Is it the cost of the lease that is stressing you out? Have you tried to find a cheaper renting property perhaps in a different area that isn't so 'high stream' and costing a leg-and-arm to be in that particular area; this would free up $ going with a better rental location. Just my 2 cents.
 

chuckypita

Bronze Contributor
Jul 16, 2017
71
124
124
Salt Lake City
Could use some entrepreneurial advice...

I started my own company as a solo entrepreneur 8 years ago. We have grown substantially in the past 3 years to include 7 FT employees and an office location. We have 1.7 years remaining on our commercial lease and I am strongly leaning towards not renewing our lease for a number of reasons that I will go into. I would really appreciate your advice about whether we should get out and what our best exit strategy should be.

I own an behavioral therapy center for children with autism which is now considered a medical practice. I am a professional in this field with 17 years experience and have a masters degree and a license which allows me to bill insurance. Our revenue in 2018 was $508k with $100k EPITDA.

We rely on a small group of clients (generally 7-10 at a time due to our limited office space) and have only two funding sources (federal and state health plans). Having a small number of clients means our income fluctuates greatly when we lose 1 or even 3 clients at once, and we aren't always able to fill open spots as quickly as we'd like to. Having limited funding sources means widespread delays in payments usually once (sometimes twice) per year. For example, we had new medical code changes as of 1/19 that impacted all insurance payors and resulted in delayed payments for all of January and into February. We needed to put in our own capital to cover payroll and overhead at $30k a month. We have a lot of cash reserves, so it's usually not a problem overall--but just a stressor and something that is definitly a hindrance and concern with growing larger, where our expenses would eventually exceed our cash reserves.

Relying on insurance also means sweeping rate changes that can occur with little warning. For example, a few years back we were notified of a 20% rate reduction which was reseversed after 3 months. They never raise our rates, but each year find some way to cut it indirectly. All of this makes us feel unstable about the future of this business.

Insurance also has become increasingly stringent about their medical documentation. More and more our time is being eaten up by paperwork and documentation. The payors are not always clear about what information is needed in this documentation and it all very subjective and based on the auditor. We are required to keep medical records for 10 years which means we are always at risk of having any of our reimbursements for the last 10 years recouped if they believe that our medical documentation is not adequate. In other words, they are scarier than the IRS.

Overall I am just burnt out with my work and with being a business owner in general and with the constant stress about our funding. I don't have it in me to sign another lease at this point and so I am actively looking for a buyer. All the buyers I am talking with are big private equity firms (which are now beginning to take over a large part of our industry). Being such a small company, I am not sure if this is realistic and although there has been interest, we haven't received any offers yet (just began sharing financial in mid-October).

Ideally, I imagine the best case scenario to be selling to one of these companies, so we can earn some capital through the sale of our business as well as having the assurance that the business will likely be financially secure (for both employees and clients). The only con that comes with selling (as oppossed to just closing) is the non-compete. I assume I will be contractually obligated to work for the company that buys us for a certain period of time. I am okay with this--but ultimately, I just want to get back my freedom again.

If I am not able to sell the company to my preferred type of buyer, my only options will be to grow larger (some companies require a million in revenue minimum) to try to attract a buyer (which isn't likely to happen on a 1.7 year timeline since we have always grown slowly) or to give it or sell to my employees (which I don't consider ideal because they are all young women in their 20's just starting out in their careers with limited experience and no capital) or to just close up shop...which would mean no windfall from the business but also means I can have my freedom back and can go back to work as a solo entrepreneur if I ever get over my burn-out.

Considering the complexities of our type of business what would you recommend? Any idea I haven't considered yet?
How much do you value your time? What do you want to do with your remaining time? Those answers should help you move in the direction you want to go.
 
OP
OP
S

summer_ceo

New Contributor
May 6, 2018
5
4
13
Is it the cost of the lease that is stressing you out? Have you tried to find a cheaper renting property perhaps in a different area that isn't so 'high stream' and costing a leg-and-arm to be in that particular area; this would free up $ going with a better rental location. Just my 2 cents.
No. It's not the monthly cost of the lease that's the problem. It's just the lack of freedom by being bound to a lease. If I wanted to close tomorrow it would cost $55k+ in rent for the remainder of the lease. I don't mind waiting the 1.7 months until the lease is up and just not renewing, but I am trying to time my exit of the business in accordance with this date. Mostly, for the reasons I indicated in my post (the difficulties and unknowns in working with insurance) and burn-out are the reasons I want to get out of the business... not so much financial reasons because financially the business is doing great. I just don't enjoy being a business owner.
 

GoldBenjamins

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Feb 16, 2019
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No. It's not the monthly cost of the lease that's the problem. It's just the lack of freedom by being bound to a lease. If I wanted to close tomorrow it would cost $55k+ in rent for the remainder of the lease. I don't mind waiting the 1.7 months until the lease is up and just not renewing, but I am trying to time my exit of the business in accordance with this date. Mostly, for the reasons I indicated in my post (the difficulties and unknowns in working with insurance) and burn-out are the reasons I want to get out of the business... not so much financial reasons because financially the business is doing great. I just don't enjoy being a business owner.
Understandable. I own a few storage facilities and even for me I get burned out.

I wish you the best in your decision and I'm sure you'll figure out the best thing for you to do.
 

Rabby

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I understand your problem. It's not the lease, that's just a date and a number. It's the increasing regulations, and most notably the lack of control over who pays you and whether they decide to do so. Control is a huge issue here, as is uncertainty. That taxes the mind a lot, I know.

I know a lot of people in medical professions suffering burnout like this. I can't say for sure what the best solution is, but I can offer some ideas.

First, is anything you're doing applicable to people who don't have/need insurance to pay? It seems like collecting the money up front from a person would be a lot less stressful. After all, individuals can't just let you render services, and then take the money back 9.5 years later.

Second, can you develop any product, course, book, service, subscription, etc., related to what your company does now? Small offices like yours are being crushed by regulations and bureaucratic BS from now-quasi-governmental insurance companies... they are suffering, but the people still need the services. How can you deliver it to them? That's the question I would be asking.

On the sale, it's worth trying maybe, but while you wait, maybe see if there are things about your business model that you can change.
 

NMdad

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Is it feasible that you could double the number of clients you have? For example, are there enough potential clients in the population where you're located?

What would you need to do to hire someone to do what you're doing in the business?

Agree with @Rabby about finding clients who are private pay. I've seen psychologists & other counseling professionals do this, since it dramatically increases their per-client revenue and virtually eliminates time spent on billing.
 

NMdad

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Also agree with @Rabby about adjusting your business model so you're not reliant on insurance payors and/or federal/state regulations. A couple ideas:
  • Provide training to other professionals & clinics. Offer training not just on the clinical methods/practices, but on how to run the business (recordkeeping/documentation, billing, hiring, client acquisition, etc.). Look at what training is already selling in closely related niches (e.g., outpatient surgery centers, medical practices, etc.).
  • Where else could you acquire clients--especially private-pay clients? Schools? Local support groups?
 

NMdad

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Another idea--a fastlane idea:
  • Create infoproducts (e.g., paid courses) for parents, teachers, caregivers, and/or practitioners. This way, you wouldn't be bound by geography or time, clients would all be private-pay, and earning $100k to replace your current annual EBITA should be feasible--without an expensive lease or even employees. Parents of kids with autism are often desperate for help, and often frustrated that they can't find it. Facebook groups and/or ads and/or Google Ads would probably be a quick way to validate interest.
 

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