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In this episode, Barbara and John discuss:
-All about an exit strategy in business
-How to prevent a decline in patients and revenue during an exit strategy
-How to have a successful exit
“Once you know their win, then you figure out how to build a plan towards it.” – John Ovrom
Connect with John Ovrom:
Exit Consulting Group:
Connect with Barbara Hales:
Business Website: www.TheMedicalStrategist.com
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Dr. Barbara Hales: Welcome to another episode of Marketing Tips for Doctors.
I’m your host, Dr. Barbara Hales. Joining me for this podcast is the president and founder of Exit Consulting Group, which provides consulting and brokerage services for business owners to prepare for and execute their exit. He is the author of Exit and Answers: Navigate your Business Exit like an Expert. John is a specialist in creating roadmaps for business owners, who anticipate a transition, whether it’s transferring the business to family or employees or selling to a third party. Welcome to the show, John Ovrom.
Welcome to the show, John.
John Ovrom: Thank you. Thank you for inviting me.
Exiting of a Business Partner
Dr. Barbara Hales: Well, there is something really important that we are going to be discussing today, as you know, and that is an exit strategy. How do you promote the practice when somebody other than yourself has exited so that you are not seeing a decline in patients or a decline in revenue because of the exit strategy? So let’s start off with talking about the exiting of a business partner. How does that work? How do you make it so that you don’t suffer for it?
John Ovrom: So what we see in business partnerships is the most successful business partners are when one person has one skill set, and the other one has the other. One might be more sales, one might be more operational, and one might be more financial. When you lose a partner, one of the biggest challenges is that the YinYang relationship of a very healthy relationship partnership becomes challenged. When one person is kind of taken, I’ve got a full plane, and we’re going to cut it in half, it doesn’t fly the same. So our best advance advice on exiting is a well-timed, well-strategically planned, and particularly in professional services, like the doctor’s business, which is very much relationship-based with their clients.
Dr. Barbara Hales: So do you let your patients know? Listen, this doctor is going to be leaving at a certain time, but he stays on to make sure that the transition runs smoothly.
John Ovrom: No, most people don’t seem to like change, just human nature, right? People go to church and sit in the same pew. People go to the restaurant and order the same food each time. When they go to a doctor, particularly doctors, they want to see the same person who has that. Generally speaking, we see someone shadow and be part of that experience and then the doctor has a tendency to not make that next meeting. Then, they start to establish a relationship. So that’s why the more time they have with the client together and start shifting it out, the better it is.
The exit of a Partner in Medical Practice
Dr. Barbara Hales: Let’s say I have a thriving medical practice. My partner is exiting; whether it was a surprise or it was something that was planned, perhaps due to a disability or age-related or they just don’t want to practice medicine anymore. So how would I approach that? What would I actually do?
John Ovrom: When you have an unplanned schedule, whether it is through death, through a divorce, or from health either yours or your spouse’s, it becomes fairly quick. Being open and honest has always been the best practice. What your clients want is someone that they can connect with, and people that understand them. So usually the game will be is to bring somebody in as fast as you can or refer them out to those that you can and just be honest with them that this is probably someone who’s better for you. Because you don’t want to lose your own relationships with your current clients, and all of your current patients, you just have to be open and honest.
Ultimately, we all want to be taken care of. If we feel taken care of, regardless of whether it was you, Barbara, it was me, or it was Susie, or Johnny, ultimately if you’d called me up and said, “Hey, John, I know you have a particular style or case that I am not as strong in, I’m going to bring you to the best person.” I would trust you. I would be open to that person. But if you can hold me and keep me, I would rather stay with you as long as I know that you’re going to take care of me. It’s about trust. I mean, that’s all patients are really looking for, trust and honesty.
Dr. Barbara Hales: Okay, so now let’s say it’s with a partner who is going through a transition, they’re not leaving overnight. Fortunately, there’s no death that I’m worried about. I don’t have like another person that’s coming in to take their place right away. So how would you recommend that I make that transition, so patients want to stay and not just look to see where he’s going?
John Ovrom: Let’s go with the assumption and the definition of a successful exit. For some people, some doctors, their best exit is just to shut down their practice. Because ultimately, that’s not bad. That’s not wrong. They got into the practice because they care about people. They care about making a difference. Trying to transition someone over to a younger doctor, bringing that younger doctor and their practice might be too small for that. Ultimately, in the end, they’re going to finish their ride, shut the doors down, and pass them to good people, but out not to keep the company alive.
Most people feel that an exit is about the transition of a company. The problem with doctors’ practices is oftentimes the doctors are the company. How do you transfer a company to somebody when you are the company? Ultimately that exit is, it’s okay, as a doctor to know, shutting your doors after practice for 40 years is a successful business. It’s not a failure by saying “I’m done, and I’ve checked my box.” So if that is an excellent foreshore, just closing your doors is excellent than passing them to some other people.
If you have a company and you want to transition a company, which is beyond you, then typically you have to bring in the younger doctors. We see it in dentistry, veterinarian, doctors, lawyers, and all of these professional services, particularly estate trust attorneys that have long-term relationships. You’ve got to have a long-term transition with someone coming in trusted. So typically, that’s what we see. We see a doctor or either join a practice, a bigger practice, and then they can start to absorb so they’ve sold their practice into a bigger practice, that practice then starts to bring the younger group in or has some space to pick up the extra patients. You’ll see that or they will bring younger doctors in and start transitioning those people over a period of time.
Dr. Barbara Hales: Well, let’s say I’m not ready to retire. I’m not ready to close the doors. I’m just getting rid of Dr. X for whatever reason. How do I make the transition with that person so that patients are firstly aware that that’s happening, and secondly, so that they are slowly transitioning into my care? How do you recommend going through that?
John Ovrom: When we have two partners and let’s assume you and I are partners, Barbara, and I’ve decided I’m going to leave if it’s an amicable departure, because not all partnerships end up amicably, right? If you and I are angry with each other, I just disagree. I want to go down a different path, partnership, divorce, legally and financially. How do you value the company? How do you value the patients? There needs to be some professional advisory around when I want to take my business with me, and you want to keep the business or we disagree. So leaving that approach aside, which was we call it a divorce, if it’s amicable, and I just want to be done. Hey, I want to help, then generally it’s up to the departing partner and doctor to assist in transitioning these over to you. If I’m going to leave, generally I’d have an agreement with you, Barbara. “Hey, Barbara. Let’s try it. Let’s look at all my clients.
Let’s see which ones you can keep.” I get a piece of that for a year or two. Whenever I get a percentage of something or oftentimes doctors will whittle down their hours and just come on one day a week or they’ll kind of be your backup when you’re on vacation. They work on this transition. But then we figure out which of the best patients you want to keep and which ones you don’t, and we talk about it from a patient care perspective and how much you can actually handle and keep that product up. If it’s amicable, it’s great, because you have two very smart people that put patient care first, that’s great then it can work. If it’s a divorce, or if it’s not timely, when it’s just because of an unfortunate situation, it becomes bumpy, for sure.
Dr. Barbara Hales: There are some people that say, practice does not really have any value when you go to sell it these days, because it comes down to the insurance that you are provided for mixed with your personality. It’s hard to have the patient transition over since they’re coming to you because they like you. As you say, you are the company so there is still value to selling a medical practice these days.
John Ovrom: There’s a very big haircut in the value. You definitely don’t get your fair market value. Because we know buyers know that there’s going to be a reduction, it can be anywhere from 30 to 50% reduction in your client base. If I was to take over your practice from you because it’s just kind of how it naturally works. So you don’t get as much value when you are a sole practitioner. What you’re seeing though is a big roll-up of doctors, and they’re all belonging to groups.
Physician groups are really what’s happening out there. You can cross-refer to each other and it becomes less kind of a solopreneur, survivor island, and you can be part of a group. You can still be your own doctor, but you are part of a group, you see this in professional services with financial planners and real estate. You see attorneys see CPA firms, and you’re seeing more doctors rolling into those types of practices.
Future Exit Strategy
Dr. Barbara Hales: It’s recommended, as you know that thinking about your exit strategy shouldn’t be when you’re at the end of the line. But you know, when you’re first starting out your strategy makes sense. So what do you advise doctors that are just starting out in terms of their future exit strategy?
John Ovrom: It’s been very hard to get doctors. Business owners as a whole are difficult to think about what’s going to be their exit, particularly in the professional services industry, because they’re doing something they love. I mean, you’re doing this because this is kind of who you are you the profession picks you, you don’t necessarily pick the profession, right? It’s hard for them to think, is there anything else besides me?
Our biggest challenge in exiting is the willingness of the owner to walk away. They get so much value in their business that they are afraid that if they walk away, they’re gonna lose their purpose. If there was anything that we could push out to your listeners, Barbara is going to understand that an exit is personal. It’s going to be harder than you think. It’s not like selling a house or selling your car, it’s not an asset, I’m just gonna go sell my business. This is you; this is who you are, this is your name on the building. These are people that have been calling you and have trusted you. People respect you because of who you are. Once you become just a normal common folk person employee out there or just not employed. There’s a significant gap in value that particularly entrepreneurial people get, and it is what we call owner readiness.
So there are three parts to exiting. One is the owner’s readiness. The second is business readiness. Then the third is market readiness, right? So those are the three areas we’re going in. By far, the biggest challenge is owner readiness. They say they want to leave, but when it comes down to it, they’ll say, “Well, that’s not enough price,” or “No, this isn’t the right time,” or “Maybe next year.” It’s because they’re scared, and they don’t know what they’re going to do. That’s a very big part of doctors, particularly because they get so much value out of helping people that walking away from it is scary and hard.
Ideal Number of Years
Dr. Barbara Hales: Is there something that you would advise them a certain number of years prior to them considering leaving so that they can fill that gap or so that they don’t have that emotional trauma regarding leaving?
John Ovrom: Everyone’s going to have emotional trauma. Some people have been able to fill theirs If they at least acknowledge it. If you acknowledge anything, then you can start working towards the other things that fill your batteries. This isn’t the only thing; it’s just this is all they know. The challenge in professional services is how much the owner is involved. Five years is a minimum in professional services to start planning your exit. When I mean planning your exit, it will take you five years to make sure that you’ve thought through the taxes, you’ve thought through the legal, you’ve thought through the emotional. You’ve figured out how you’re going to handle the issues identified by someone you’re going to try to work with. Once you consummate the close, you still got two more years, three more years that you typically kind of stay on to kind of transition. This isn’t a widget that you’re just going to walk away from the next day, these are relationships deep.
When I say five years out, it ends up being about a 10-year cycle, because it takes you five years to get to a place to transact, and then it takes you five years to get out and get paid out of the transaction. So the sooner that you can set that in motion. You can plan your exit, but then wait for five more years, and then do it when you want to. But if you don’t have a plan because most doctors aren’t going to plan ahead on their exit, they just don’t, then you need to understand this is a long process.
Dr. Barbara Hales: So that’s why we’re talking today. Most doctors are going to be resistant, and I’m sure you may have found your clientele to be resistant until they get to the end of their rope, and then they’re desperate. It’s like, I need to speak to somebody like that. So assuming that they haven’t, you know that they’re not standing on a ladder with the rope around the neck, then, you know, what did they do during those five years? How do you advise them?
John Ovrom: So I thought that I would be an exit strategy. You’ll always see financial planners out there putting out this exit strategy. I learned that we were 17 years into this now that there’s really not a lot of exit strategy. It’s exit consulting. They don’t strategize. The time they call you is when they’re ready. It happens every time. There’s no time to strategize, it’s time to actually put things in motion. Particularly, entrepreneurial people, just wake up that day or set a date. I’m gonna retire at 65 or 70. When you’re there like I’m gonna retire in December of next year. Really, you’ve been doing it for 40 years, and you just decided today that you’re going to seek months. Yes, that’s right. Okay, well, how do you want me to help you then? Because I don’t know how to help you. Except just sell it or close it on, you know, here are your options.
If they’re willing to plan it, you always start with what’s your win? What are you trying to achieve in your exit? Is it that you want to keep the company going, and you have a key employee that you want to transition it to? Do you have a family member? Sometimes you have children that are coming up the line, and they want to transition it to their children or, or child? If you want to be partners, you might have a child or I might you know, how’s that going to work do we have? What is the definition of when? Is it a liquidity event and I need a certain amount of money in order to retire? Is it a time I want to be done by the time I’m ex old or do I want to hand it to my kid or do I just want to keep doing this? I just want to keep doing what I’m doing and when I’m done, I’m done. We call it the Viking Funeral. The Viking Funeral. I’m going to die at my desk, John, that is my exit strategy.
Dr. Barbara Hales: Absolutely, yeah, I actually was told that but by a colleague of mine back in the day they said, Well, you know, I mean he was in his late 70s, early 80s. I said you know, now is the time for you to get out and do the other things that you dreamed of doing. You know, go out and have some fun. His response was, You know what, I don’t have any hobbies. I love doing this. I’m devoted to this. This is the only thing that I enjoy, and I do enjoy it. Success to me is doing it until I just like drop dead in the OR, or you know like in the office which is pretty dramatic, but he was serious about it.
John Ovrom: That Is an exit Barbara, and it is scary. How many people truly and as long as you own that bar, I’m completely fine. Here’s my advice. If that is your plan, and you want to have a Viking Funeral, then just get enough life insurance. Make sure that we can hire the right people. So your widow, or your children, or your trust, has to figure out that they have enough money to figure it out the right way.
Because if you’re not going to figure it out, you’re the best person to do this, the doctors are the best owner, figuring out, don’t leave it to your widow, don’t leave it to your kids, don’t leave it to the state and probate to figure this stuff out. But if you’re going to then just leave, get half a million bucks, so I can pay, so your wife doesn’t have to deal with it, your kids will, they can pay someone to kind of figure out how to close out the company. Forget all the accounts on a final tax return. Transition a company over to somebody else, get your patients like Just leave me money for the kids. That is an exit, I’m still okay with it because it is an exit. But that’s what I mean by defining their win. Once you know their win, then you figure out how to build a plan toward it.
Dr. Barbara Hales: Can you give us some success stories? People would love to hear some stories. Of course, anyone that you know talks about without being personal is great, because people can identify whether they say, “oh, yeah, that’s me.” If they’re successful, then you could make me successful, too. So could you give us maybe a story that somebody that you helped?
John Ovrom: Sure. So we had a family practitioner, who’s been in a small town. We’re in San Diego. It was actually considered a small town, even though it’s not but unfortunately, they named their company, their business, their name, so we’ll call it Dr. John Ovrom, right? So, of course, John Ovrom was the doctor. So everyone’s been coming there. They’ve had grandparents, parents, and kids. They’ve given been at all the births and done all this stuff. They decided at 70 that they would design an X, like, this is about time. Okay. Sure. I mean, seven days is better than never.
For that individual, we went through the process of what do you want? What is your wind? The wind was? No, I don’t want to die at my desk. I would love to get some liquidity out of this. Okay, great. All right. So you want to liquidity event? Do you want to hand it on an internal sale to a key employee? Do you want to bring a doctor in? Do you have a family member, I don’t have any family. I don’t really have the practices big enough for me to just hire someone to come in and take that over. I don’t really have the patience. So we said, Okay, if you’re going to have a liquidity event, then you’re going to have to probably sell it to a physician group. If you want to be out in five years, why don’t we just start interviewing different physician groups, find out what group you could participate in, that could go into bringing your practice into theirs, and find out what the buyout agreement would look like in the transition?
It worked out splendidly because there are different physician groups that are looking for different kinds of practices. That ability gave him all of the control that he was still running in his practice, but there was a willingness for them to buy out. They knew that they were gonna buy out, so they were willing to invest.
A lot of times technology, older business owners, stop investing in technology, particularly in billing and processing. They can often take a lot of the stuff off of him from an administrative side and bring in all the new processes and just let him be a doctor, and then eventually start bringing people behind and it worked out splendidly. Really, really well. But he was smart enough to think far enough ahead, and then evaluate what did he really want? Then, process it because there are a lot of different choices. It’s okay to do whatever there is no right answer, whatever the doctor’s exit is, can be the right answer. Liquidation is an option, just shutting it down as an option inside the sale, outside the sale, run until you die. They’re all options. None of them is wrong. Just make a plan and understand that the family is going to have to deal with it if you don’t and you’re the best-qualified person to do it with the professionals around you.
Determining the Value
Dr. Barbara Hales: How do doctors decide or figure out what the value of the practice is?
John Ovrom: There are two different kinds of valuation methodologies: You can hire a professional business appraiser. They are certified licensed and stamped and they follow basically a GAAP (Generally Accepted Accounting Principle) process. It’s typically used when it comes to divorce or death, for estate planning purposes, or you can hire a broker, which is what we are. We do what we call a broker’s opinion of value. We will go out and look at sales, comps, and market comps and understand who the ideal buyer would be, and kind of how involved they are, and how much their equipment is. We deal with it and both appraisal processes are talking about a type of buyer without taking it to market.
Dr. Barbara Hales: Well, this is all been very interesting. What is one tip that you could give or two that you could give to our listeners regarding how they would decide to formulate an exit strategy? If they’re not the ones that are immediately leaving, how they could promote that to the role of patients so that they don’t lose them?
John Ovrom: Sure. Advice. My advice is to all business owners, and doctors, actually, particularly, it’s not an easy process. This isn’t exiting your business is not easy, because they are the business. The sooner they get educated, the sooner they surround themselves with the right kinds of advisors to help them get educated, and the better chances they’re going to get the result. I can only beg on behalf of their spouse on behalf of the children on behalf of their patients that they prioritize the future of the business beyond them. So there is a plan in place. It’s just really, really hard for solopreneurs not to think about what’s going to happen when they no longer get to do what they love to do. You just don’t like to pick up on it.
Dr. Barbara Hales: Sure. Well, I would like to highlight all those that may have missed the beginning. John Ovrom is the author of Exit and Answers: Navigate your Business Exit like an Expert. I assume they could get that on Amazon.
John Ovrom: Yep. Yes, ma’am. Yes, it is. It’s available?
Dr. Barbara Hales: For our listeners that are saying, well it’s not something that I thought about or I may have just thought about it fleeting, but like it’s sort of like buying a plot. It’s not something that anybody really wants to face. So they say, Well, now you’ve convinced me. So how can they reach you?
John Ovrom: Best place is our website, www.exitconsultinggroup.com. That has all of our information. It is an easy way to find a lot of information about the exit process, different stories, different ways, and different solutions. A lot of different articles. It’s our goal is to be an educator. All business owners want to know is what are my choices, like, just be honest with me, don’t sell me just told me my choices. I’m smart enough to figure it out. That’s why we started this I’ve always been a business owner. I’ve taught and I sold my company. I was really disappointed in the availability of just honest, independent advice. It was always someone trying to convince me that I should sell, or I should take, and I just want to know my choices, which is what we’ve set
Dr. Barbara Hales: When it comes to an end, that’s what everybody wants. That’s something that may be like keeping them up at night. By giving them the options they can then move forward. They know what the choices of future steps are. So it takes that agony away.
John Ovrom: Yeah, and every one the business owners are generally, I got to figure it out myself and do it myself. Good people around you know how to do this. Don’t try to do it all yourself. This is a once-in-a-lifetime experience. It’s better to not hike Kilimanjaro by yourself just because you think you can get a Sherpa. Let them help you. It’s going to be a much better experience.
Dr. Barbara Hales: I think that that’s probably the best advice going. Well, thank you. Thank you so much for being on the show today.
John Ovrom: Thank you, doctor.
Dr. Barbara Hales: We’ve been talking with John Ovrom and this is another episode of Marketing Tips for Doctors with your host, Dr. Barbara Hales. Until next time.