One of my favorite stories about creative business succession planning comes from Ben Feldman who was one of the top insurance agents in the history of the industry. In his book “The Feldman Method” he spoke of a situation where a business owner did not have a partner but wanted to ensure that his clients were taken care of in the event of his passing. Thinking of solutions, you may have thought that they would look to someone in his business…but they didn’t.
Instead, Ben and his client sought out a competitor who was newer in the business and had developed a good reputation. With the help of their lawyer and some creative insurance tools they created a one-way buy-sell agreement which would be triggered by the older owner’s passing and likely disability. Money from the insurance would go to the business owner’s estate and the new business owner would acquire a second location.
As the aesthetics industry is reaching a stage of maturity, we are going to see that more sophistication is needed in developing plans for the future. You may think that you don’t care what happens if you are not around, however what you do or do not do has a direct impact on those you have supported with salaries and the family you may have which depends on your income.
Here are some steps to sell your practice with a one-way buy-sell agreement:
Determine the value of your practice: It is important to determine the value of your practice before you sell and this can be done by hiring a business appraiser or by using a standard valuation formula like EBITDA.
Identify potential buyers: Next, you will need to identify potential buyers for your practice. For the purposes of this article, this can be another medical aesthetics practice owner. However, it can also be an investment group or a private equity firm (which is really heating up right now).
Negotiate the terms of the sale: Once you have identified your potential buyers you will have to negotiate the terms of the sale. This will includes what your practice will be purchased for, the payment terms, and any other criteria which must be met before the sale is done
Draft the one-way buy-sell agreement: After the terms of the sale are agreed on, then you will need to raft a one-way buy-sell agreement. This should include the purchase price, the payment terms and any other criteria. Be sure to work with a qualified attorney who has experience and a strong track record in business succession planning agreements.
Close the sale at the triggering event: If this is in the case of an involuntary transfer due to death or disability this typically involves transferring ownership of the business and transferring any assets and liabilities to the new medspa owner who would absorb your practice while your family receives the financial gain without the further business involvement.
This can be a complex and time-consuming process and it is best that you seek legal and financial advice and consult with professionals who can guide you through this process. It really comes down to first knowing what you want, clearly identifying it and then working with your lawyer to ensure that it is legal, sound and binding.
If you learned something from this article, do share with your aesthetic bestie!
*Representatives do not provide tax and/or legal advice. Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.