You Need to Know This Whether You’re Grooming for Sale or Grooming to Grow

November 16, 2015

Preparation. It doesn’t matter whether you’re grooming your practice or business for sale or grooming it to hold and grow. There are some elements in common that impact your chances of success no matter your goal and no matter how you measure it.

This article, the first part of a continuing series, addresses one of those elements, governance, from two perspectives: Who is in charge of the operation of your business? Who is in charge of approving the sale of, or other major change to, your business? Let’s look at each of those issues.

Who’s in charge of the operation of your business?

Let’s call them the Spring Group. It was clear that they needed to make a decision about the direction in which their business would head. So they met and met and met. The default position was to stay the same course, even if it were off a cliff, and default was all they were able to muster.

Some person or very small group of people must be in charge of the operation of the business. Either that’s a managing partner or other “strong leader” or it’s a corporate type structure whether or not your entity is a corporation: a small board or management committee which sets policy and a very limited number of officers who carry out that policy and manage the day to day business.

Putting this another way, if everyone is in charge, then no one is in charge: There’s no ability to make quick decisions. Decisions tend to be consensus based which is simply another term for weak compromises.

In terms of both ongoing operations as well as in the context of simply considering the notion of a sale, it’s enough that your business will have to negotiate with third parties and, in many cases, compromise with them — at least have a strong position coming into that negotiation.

Your business is a business, not a club. It doesn’t matter that you call it a “practice,” it’s still a business. If it can’t operate like one, it will soon be out of business.

Who is in charge of approving the sale of/change to, your business?

Let’s call them the Fall Group. The clear majority, in fact, nearly every shareholder in the group, wanted to sell the practice. Yet a very small minority of owners refused to consider it. The group’s organizational documents required a unanimous vote to sell its practice.

At a time in which practice sales, at least those generating high multiples of value, were rare, provisions requiring actual or near unanimity were less damaging. But today, their impact is equivalent to giving each owner a veto over any deal, even one ranging into the hundreds of millions of dollars.

That veto makes it very difficult to successfully sell your business. Buyers will be hesitant to devote the time, effort and money to consider a deal. So will you.

Just as there must be a streamlined, yet fair, way for your practice’s business to operate on a day to day basis, so, too, must there be a streamlined, yet fair, way for the majority, or even a slight super-majority, of the owners to effectuate the business’ sale or other major event such as a merger.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

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