Joe Sanok 00:00:00  I'm so excited to introduce you to the best website designers out there. We have a brand new partnership with session sites. It is where good therapy meets brilliant design, and they get your website switched over or built in less than two weeks. They fine tune your messaging, use science backed user experience methodology, and work exclusively with mental health professionals. In fact, new clients right now are going to get three free therapy marketing strategy calls with their creative director of session sites. If you book today, you're not going to want to miss this. Head on over to session sites.com/joe again that session sites.com/joe get the website of your dreams today session sites.com/joe. This is the practice of the practice podcast with Joe Sandbox session number 1143. I'm Joe Cenac, your host, and welcome to the practice of the Practice podcast as we wind down this year. we also wanted to think about when you wind down your practice. you know, many people, you know, get to the end of their career or just realize that they're done with it and they don't even think about selling.

Joe Sanok 00:01:23  which is why we're having ash, one of our consultants, really kind of talk through her journey of selling her practice. If you want to work with ash, if you want to work in consulting with her. She is amazing. She's so good with keeping kind of the heart of the practice within your practice to work on scaling and growing in so many different ways you can apply to work with her over at practice of the practice.com/apply. And we're going to be talking negotiations and due diligence and selling your group practice today. So here we go.

Ashley Mielke 00:01:53  Welcome to another episode of The Practice of the practice Podcast, I am your host, Ashley Mielke, and I'm really excited to. Today is part three of our seven part series on selling a group practice. And today we're going to be talking about negotiations and the due diligence process. Now, this is the first time that I've sold a business and a group private practice. So this is where I learned so much, so much. There is so much detail that goes into the due diligence process of the sale of a company.

Ashley Mielke 00:02:42  It actually blew my mind, and it can take quite a significant amount of time to be able to provide all of the data to your potential buyer so that they can make a well informed decision around whether purchasing your company is going to be a benefit to them. So this is why this is so important, this conversation, because it's going to give you a bit of insight into the different parts of your business that a buyer is going to be interested in learning about. It goes much deeper than some of those high level conversations and numbers like what is your gross revenue? What has been your percentage growth over the years? What is your net profit? What is your EBITDA? There's a lot of details that they're going to want to look into so they can really understand the intricacies of your business. So today that's what I'm going to be talking about, negotiations and due diligence. So that you can really go into these conversations feeling really confident about what you know your business is worth and also have all of your documentation ready.

Ashley Mielke 00:04:02  So because I was sort of flying by the seat of my pants, I really didn't know what to expect. It was very much a reaction mode. It was like, hey, can you send me data on these ten questions? And it was like, yep. And then I would spend 3 or 4 hours trying to gather this information or even trying to figure out how to get the information. So I'm going to share what a lot of those questions are today, so that you can have, so that you can prepare yourself if you are ready to sell now or you were looking to sell at some point in the future. So let's dive in. Let's talk about the negotiation process. This is where you want to have really great clarity around what your business is worth. How much money are you willing to sell it for? What is that dollar amount that is sort of ideal in your mind when you're thinking about, okay, if I am saying goodbye to this part of my journey, my career, and I'm moving into a totally different area, potentially, possibly even retiring from traditional practice, which is really my journey.

Ashley Mielke 00:05:20  It needs to be worth it to you now, what's worth what's worth it to me might look very different for you. You might be in a completely different financial situation than me, right? You might say, you know what? Maybe you have a partner that is already a breadwinner in your in your family. Or maybe you. It's not really important what that dollar amount is. And you've got the the cash flow and the resources to jump into something new. Or maybe you already have a side hustle that you're ready to dive 100% into. So you're really confident in this transition. So it's kind of like, you know what? You're really flexible. You're just happy to move on. Or it might be that you really don't know what's next for you, but you know that you've been called to say goodbye to this part of your chapter and your journey. Maybe your priorities have shifted. Maybe you're just tired and you're just ready for a change. So the financial aspect is really significant because maybe it's an opportunity for you to rest.

Ashley Mielke 00:06:28  Maybe it's to pour back into your family, to take some time off to explore what's next for you. So you're hoping that maybe the next five years financially could be covered, right? Paying you the salary that you're used to. So this is where your unique situation comes in. And for you to get really clear on what your priorities are and what's important to you? Nobody is going to know what that magic number is. But it's good to go in with a number in mind. Now, a great. As I mentioned in the last episode, you want to talk to your accountant about this. You want to get an idea of what they believe your company is worth in terms of market value, because you are naturally going to believe your company is worth more than what the market is going to say its worth because that's just the way it is. There's something I wanted to talk about today that was really inspiring, very uplifting and very, encouraging and just eye opening. Before I sold my business, I read the book by Annie Duke called Quit the Power of Knowing When to Walk Away.

Ashley Mielke 00:07:41  Brilliant book. Powerful stories about companies, that ended up selling. Or really, it was the demise of their company because they didn't sell. And one of the concepts that really stood out to me when we're looking at determining the value of our company, is the endowment effect, the endowment effect. This is where we tend to ascribe more value to our company simply because we own it, simply because we are the one that poured our blood, sweat, and tears into starting it, growing it, scaling it, taking all of the risk. And in many ways, at least for me, it feels like it's like my first born child. I started my company, the Grief and Trauma Healing Center, when I was 26 years old. And it was it was so meaningful because I started this business after my dad died and I went through my own healing journey, and I felt so inspired to serve other people. It was so purpose filled and purpose driven that in my heart and my mind, I'm like, this company is worth millions and millions of dollars because of what? What I've poured into it, because of the impact I've seen it have on the community.

Ashley Mielke 00:09:10  But that's not exactly how a potential buyer is going to view your business. It's very emotional for us. It's very close to us because our identity is so wrapped up into our business. It's who we are. So even when I said goodbye to the Grief and Trauma Healing Center again, this was like less than two months ago. It was a huge loss of identity. It was who I was. I was the founder and CEO of the Grief and Trauma Healing Center for 11 years. And, you know, a proud psychologist serving the community, through this business. So when I was thinking about, okay, what's the price in my mind, I had a certain figure in my mind. My accountant had a different figure, and that was good because I needed a bit of a reality check of, okay, that's great, Ashley, that's what you want to make in the sale of your business. But let's actually look at your numbers here. Let's look at your EBITA. Let's look at the market value.

Ashley Mielke 00:10:10  Let's look at the risk involved for a potential buyer. When they do buy a group private practice where all of your business is generated from your therapists. And what if your therapist even what if, what if, what if? So these are all things that are really needed to move out of that emotional space into the logical space, so that I didn't allow that psychological phenomenon of the endowment effect to stop me from selling, or to be this bias. Going into the negotiation, I had to be very realistic and accept that if I get this particular number, would I also be okay with that? What would that look like for me moving forward? And again, this is before I even really had invested or even planned what my next chapter would look like. Moving into the coaching world and continuing my consulting journey with the practice of the practice. so there was a lot of fear and trepidation for me around. Okay, that's great. I can have this large lump sum of cash, but what happens when it's gone? So not only did I have to consider the amount of money, I'd be okay with negotiating sort of my bottom line, and I had to have many conversations with my accountant, my lawyer, and my husband, even my mom and stepdad.

Ashley Mielke 00:11:32  Right? People I really trust to say what would be worth it to me? and that I could feel really good walking away. I also recognized that there was a lot of mindset work that I had to do, and this isn't really an area I've had to, explore before in terms of selling a business and walking away with cash, but no plans. Like, what do I do next? What is my future look like? I'm 37 years old. I'm not going to retire for the rest of my life. So what is that going to look like? So this is where I really had to dig deep. I'm a very spiritual person. I'm a faith based person, so there's lots of prayer and communication with God around what this is going to look like. Really praying for God's peace around a number. And really, again, just around is this the right decision? Now remember, when we start to have these conversations, we haven't even entered into a letter of intent yet, which I will get to today.

Ashley Mielke 00:12:36  We're just having conversations. We have an NDA signed so no one can talk about it. It's kind of this big secret. And because you don't want people to know that this is something that you are potentially exploring. So it's a very isolating sort of experience. You can't really talk to a lot of people about. You have to really dig deep personally to make sure that if this is what you're doing, you're going to go all in and you have to really get clear on, do I have peace about this? And is this a number I'd be okay with whatever that number is, right? That might be 100 grand. That might be 500,000. That might be $1 million for everyone. It's going to look different. Like I said, in every situation is going to be different. So there's a lot of mindset work for me around my relationship with money and exploring some of the fears coming up around money, leaving or not having enough. Like a lot of that scarcity came up, which I really hadn't been conscious of before because, you know, I was operating this successful business.

Ashley Mielke 00:13:36  I had a very predictable owner's compensation every month. And, so this was sort of a new thing for me to explore, and I'm so glad I did, because I've learned so much about myself and I have grown significantly through this process already. Okay, back to the negotiation stuff. So you want to be aware of the endowment effect, right? The perceived value is likely going to be different than the market value. And this is very common. This isn't just us. This is everyone. And I'm talking like companies that are, you know, multi multi-million dollar companies, billion dollar companies. So we really just want to be aware of that bias so that it doesn't become the thing that gets in the way of us moving forward, if that is what we are being called to do. So the negotiation points are going to be your price point. So you want to go high, right? When the when the potential buyer asks you what's your number go high. You've got nothing to lose at this point.

Ashley Mielke 00:14:40  So let them know. Here's kind of a number I'm thinking about, and also have a conversation with your lawyer about what those payment terms would look like. Is this a one time lump sum up front that happens on the the closing day, or is it going to be a number of payments. So there's different ways that this happens. And it also depends on who your buyer is and what the cash flow looks like. Right. Like what is their financial situation. So for me it was one payment upfront and then another payment after the transition period was over. So we had agreed that there would be a three month transition where I would help support the business through that transition, and then there would be a final payment for some other companies. It might be one payment upfront now and another payment in 12 months with a one year transition, or might be a number of small payments. Again, it's going to depend on what the Capital. The resources they have look like what they can afford to do and what you'd be okay with.

Ashley Mielke 00:15:47  So it's okay to negotiate these things, right, to make the sale happen. So have a conversation with your lawyer around the different payment terms that you would want to present to this potential buyer. Other points of negotiation would be around what happens with the employment and contractor agreements. Do they want to terminate these agreements? Do they want to continue on with these agreements? What is going to help with the stability of the business moving forward? Ideally, they will take on the contracts so that you can maintain that stability and so can they. Right. That will really help with any fear or trepidation that the clinical team or your administrative team would have.

Joe Sanok 00:16:37  I am so excited about alma. When I had my private practice, I struggled building my caseload, attracting the right clients, managing the business side. And honestly, one of the reasons I didn't take insurance was it was so difficult to navigate. So many of my consulting clients deal with these problems as well, and almost supports clinicians in building rewarding private practices with simplified insurance credentialing in under 45 days, enhanced reimbursement rates, and guaranteed two week payback, plus a free profile in their searchable filter directory, making it easy for clients who are the right fit for your practice to find you.

Joe Sanok 00:17:17  Learn more about how alma could support your private practice at. Hello, alma. Com forward slash Jo. That's hello alma.com/jo to learn more.

Ashley Mielke 00:17:32  Other points of negotiation would be your non-compete and your non solicitation Clauses. So these are going to be things that are going to come up. It is very common for a non-compete to be put into place. So you're looking at a minimum of 3 to 5 years of a non-compete, meaning you can't just go down the street and open up another private practice, whether as a solo practitioner or a group practice. So you have to prepare to not be working as a psychologist or therapist counselor in your area for at least 3 to 5 years. Are you prepared for that? Are you already moved on to other things? So it's very common to go from, oh that's great, I'm I'm a consultant. Anyway, now I'm moving into consulting or I'm doing, life coaching so you can negotiate the exceptions that would go into the non-compete clause. So you would say, yeah, I'm fine to not work as a therapist, but I want to make sure that the exception is included in here, that I'm going to be doing life coaching and I'm going to be working in the same area.

Ashley Mielke 00:18:44  Maybe you have clients in the same area, or maybe they say, yeah, you can work in here, but you can't have clients no matter what. They are in our area. These are all things you're going to have to to think about and consider. And then your non solicitation clause as well. So you're not going to be able to hire the therapists administrative staff or any of the third party relationships that you had unless you have exceptions built into your non solicitation. So that's again going to probably be at least five years where you cannot hire or work with those people, which is a very normal part of a sale like this. So just sort of prepare yourself for what that might look like. And then again, the timeline for the transition. I mentioned this earlier and in the last episode a little bit, you want to think about kind of what you're willing to do post-sale to support. So you might be totally flexible and say, I'm available for 12 months if you need me as a consultant, as a support to the team.

Ashley Mielke 00:19:41  They would simply just pay you an hourly rate to consult and support them. If they have questions about the transition, your clinical processes, your operational processes, where to find things, how you do things. Like that's all going to be a part of the post-sale stuff, which I will have another episode on that because there's just so much to talk about. So those are going to be your key negotiation points and things for you to start to think about. And again, these are things I did not think about like a non-compete non solicitation. I'm like what's that like why do we have to have that. And then of course it all makes sense right. They don't want you to buy your business. Then you just go open up shop down the street and start over. So you're going to have to think about for the next 3 to 5 years, what is that going to look like? You might also have built into that non-compete that you can work for the company. So you might decide that you sell and you stay on as an employee or a 1099 contractor, which is great.

Ashley Mielke 00:20:37  Maybe you're like, I just don't want to have the I don't want to do the heavy lifting of the management side anymore. I, I just want to work and and see clients. And they can just hire you as an employee or a 1099 contractor, and you can just continue on building your brand and working for your own company, just in a different capacity. So that is also something you can do. So some things I'd mentioned earlier, instead of reacting the way I did, it's really important that you have your key documents ready to go. Right. And looking at what are the areas that you're flexible in. And you want to consider some objections that you might face, which is totally normal, right? This negotiation is a back and forth. The buyer is going to want to get the best value. They're going to want to get the best number for your business, and you're going to also try and get the best number for your business. So really negotiating and feeling confident going in is really important.

Ashley Mielke 00:21:41  So they might have objections around the price. They might have objections around staff. So be really clear about your numbers like your therapist retention. What is your client retention with this staff? What are their skills and training? How long have they been with the team? What is that unique value proposition that you bring forward? If they do continue and sort of just take over, after the sale? And then of course, in terms of your profitability, really leverage your successes. So if you've had significant growth year to year, your profit margins, looking at different contracts and leases that you're in as some negotiating power. And I'm also going to talk about some of that in the due diligence as well. But you might have really good marketing. You might have great SEO and brand awareness, so we'll go beyond just the number figure. But what else does your company bring to the table? That is going to make it a really smooth transition for them, and a worthwhile investment for them. Another thing is when you are experiencing some objections, you have a lawyer, so use your lawyer.

Ashley Mielke 00:22:52  It's really great that you can have a lawyer to communicate with the buyer's lawyer about any questions concerns. They can do the negotiating for you as well. So really lean on your lawyer during this process because that's what they're doing. That's what their job is, is to help you and make sure that you're making a well informed decision. So lean on your lawyer. Other things, you know, just really go into it with a win win frame of mind. At the end of the day, you both want to win. So how can you meet in the middle and if you need some time to think about things, maybe they come back with a number and you're not really sure about it, or you need a bit of time to reflect. It's also okay to take a little break. It's okay to say, you know what, I'm just going to take a week and think about this and I'll get back to you. Have some conversations with your family, with your lawyer, with your accountant. Because this is such a big life decision.

Ashley Mielke 00:23:54  It's not something you want to rush. And that's why a sale doesn't happen in 30 days. It happens in 12 months, sometimes 18 months, because it is such a big process for both parties, right? The person buying and kind of taking that risk and and you selling as well and looking at what your life is going to look like moving forward. So now let's say you reach a negotiation point where you feel really good. You've discussed a number that you both feel settled, that this feels good. You've got peace around it. you've discussed the non-compete and the non solicitation. You've considered the terms of the sale, the payouts and sort of what is going to happen with your employee agreements or your contractor agreements. You kind of have an idea of like what this transition would look like. You've even picked a sale date. So okay, you know, we're maybe it's 90 days from now that they're ready to say, yeah, let's close on this. Use the example of maybe the business will close on January 1st, 2025 as an example.

Ashley Mielke 00:25:03  You have all of those key points in place. Now what happens is the potential purchaser. The buyer is going to create a letter of intent with all of these key details. What it does, it's sort of this non-binding agreement that that outlines those key terms that you've agreed upon. Right. Your price, payment terms, timeline, all the contingencies. They're going to draft this for you and they're going to send it to you. Right? It sort of sets the stage for the next process, the due diligence process, where they really dig in to the nitty gritty parts of your business to just kind of clarify everything. You've already talked about high level, but then they can really make sure that everything you say is true financially, operationally and so on, in terms of your marketing and all of that stuff. And it just kind of sets the stage for the next process. And it really, emphasizes the seriousness of, of them in wanting to potentially buy your company. It doesn't mean that they're going to.

Ashley Mielke 00:26:14  That's why it's a non-binding agreement, but it allows you to enter into the new phase with, in good faith, right, in good faith. So then you move forward and you have a good understanding of where you're both at and you're ready to go. So before you assign that letter of intent, you just want to make sure you feel good about everything. If you're not sure about something, you can have your lawyer connect with their lawyer and update. There's little tweaks. I mean, this is going to happen. It's not going to be a perfect process, but it's going to be, hopefully as smooth as possible, especially if you already have these things in place and you're already kind of thinking about what you would like this to look like. And if you're connecting with someone that's just not on the same page as you, you will know that you're not you're not even interested in signing this letter of intent and moving forward. And you can just say, thank you so much for your time, and you can move on knowing that the right buyer is coming.

Ashley Mielke 00:27:15  Okay. So then you sign the letter of intent. If all of that is feeling really, really good and then it's the due diligence part of the journey. So this is really important for the buyer because they're going to need to verify everything that you've shared and go beyond maybe just those kind of corporate year ends that they've looked at. They're going to want to verify all your business financials. They're going to want to look at all of your employee details. And they're going to look at, you know, all sorts of numbers in your business and in your operations as well. And they're going to look at your liabilities. They're going to want to say, okay, what what debt do you have? What does this look like? What do your third party contracts look like? and all sorts of things that I will get into so that you can kind of have an idea of what that would look like. This matters because it protects both of you, and just ensures transparency in the process and then identifies any red flags early on that may derail the sale or impact the value of the company.

Ashley Mielke 00:28:21  So that would be for more of the protection of the buyer. But hopefully when you go into this conversation, you are being completely forthright and honest because why? Why wouldn't you be? They're going to find out anyway. If you are, you know, why would we lie about a liability that we have a debt that we have or some concern in the business? So we want to go in, fully honest about everything. So the key documents that they're going to be looking at financially are going to include, firstly your tax returns, as I mentioned, going as far back as possible. since you were incorporated, they're going to want to look at your profit and loss statements and look at your expenses. And they're going to ask questions about your expenses. Hey, what was this expense for? Or hey, I noticed that you spend a lot in this area. What's this about? So if you could start to plan this out early years in advance, you can start to operate, very efficiently and not just toss all your money away.

Ashley Mielke 00:29:19  They're also going to be looking at things like your lease agreements, they're going to want to see what you're paying in rent and how long you've been there and if they want to stay or go. So in some ways, it's really great if you've been in the same location for a really long time, because that's great for brand awareness in the community, but it's also great if you're coming to the end of a lease and the new buyer has an opportunity to decide for themselves if they want to stay or go. So those are the kinds of things that they're going to want to look at. And as well as intellectual property, maybe there are particular books or products that you've developed through your company that would also be an asset for the sale. So anything if you are doing a share sale, they buy everything in your business. So they buy on the contracts, they buy all of your assets, they buy everything. So these are things as well that they're going to want to know about. So any intellectual property, including, workshops, groups, presentations, things that you've created or your therapists have created on behalf of the company will also become their intellectual property.

Ashley Mielke 00:30:37  They're also going to want to look at what EHR system you use. Ideally, they use the same system that you do. So it's a really smooth transition. They're going to want to look at your intake processes. They're going to want to look at call logs like how many phone calls are coming in a day. How many new intakes are you getting. They're going to want to review your policies and procedures, your employee handbooks, your contractor agreements, your employee agreements, your pay structure, like they're going to they're going to need to know all of the intricacies of your business so they can make a well-informed decision. They're probably also going to want to know about your marketing strategies if you have Google ads and SEO and you're performing optimally, that's a great asset for you in your sale. If you can talk about having a high click through rate, right, how much are you actually spending on your ads and what's your return on investment? How many conversions are you getting from your ads? so any kind of Google statistics that you can share that would help leverage your sale, that would be great.

Ashley Mielke 00:31:44  Including how many website visits do you get each month? Right. Where are a majority of your intakes coming from? Is it Google? Is it an organic search? Is it social media? Google my business? Is it personal referrals? Doctor's offices? So you'll want to look at the data in your business as well that where are your clients coming from so that you can leverage that. And also be really clear on who your main demographic is for your for your clients as well, so they can really understand the, the psychographics and the demographics of your ideal clients so they will know best how to serve them and continue to grow this amazing business that you've started. And they'll want to know if you have any partnerships in the community, whatever that looks like, and just anyone else that's sort of involved in the company. Also, if you're working with third party teams, like a marketing team, a social media team, and any contracts, say you have a, a phone system, like, what does that contract look like? They want to know what kind of they're buying into, and then they're also going to want to know what your liabilities are.

Ashley Mielke 00:32:51  Do you have any outstanding debts? do you owe money to the IRS or the CRA for taxes? Are your taxes all paid up? Are you having any legal or professional issues? Say, you know, issues with your college or, issues legally that they need to be aware of? That's really important because they need to know of any potential risks that may affect the sale, so be prepared to be an open book about this process, because everyone needs to know everything before they're going to be willing to pay you money to buy your business. So the best way to protect your interest during this due diligence is to work closely with your accountant, your bookkeeper, and your lawyer. And if there's anyone else in your life that has gone through a similar sale process, or just friends or friends of friends that you can trust to, have conversations with, that's great too, right? It's it's whoever is going to support you in making that decision is really important. And then I would say, I don't imagine you would do this, but you wouldn't want to avoid disclosing liabilities or any significant risks that may be present for the buyer.

Ashley Mielke 00:34:07  We really have to be transparent and honest through this process. And that's going to that's going to really fair. Well, when it comes to actually finalizing the deal and closing the deal, which we are going to talk about in our next episode. So I hope that you found this valuable. Hopefully you've been taking notes these last three episodes on things for you to start to think about. If you are preparing for a sale soon or in the future. And if you are looking for any support directly from me. I love being a consultant on the practice of the practice team. It's amazing when I get to dive in with my one on one consulting clients and support them in their businesses at whichever stage of growth they're at. So if this is something that you're looking to work with me on in terms of just preparing your business for sale and exiting, I would be more than happy to connect with you. You can reach out to us at the practice practice team for more details on that. And I am really excited to continue this conversation in our next episode.

Joe Sanok 00:35:24  We are so excited to bring these types of things to you as much as we can, so that you can level up your practice in a way that's just amazing. Head on over to Alma's website. Hello alma.com/jo, if you want help with credentialing, if you want help with reimbursement rates and a guaranteed two week payback again, that's hello alma.com/jo. Thank you for letting me into your ears and into your brain. Have a great day. I'll talk to you soon. Special thanks to the band silence. Sexy for that intro music. And this podcast is designed to provide accurate and authoritative information in regard to the subject matter covered. It is given with the understanding that neither the host, the producers, the publishers or guests are rendering legal, accounting, clinical or other professional information. If you want a professional, you should find one.