What Financial Goals Must Healthcare Business Owners Achieve Before Exiting?
Updated: Aug 27
By Cory Mertz, M&AMI, Managing Partner, Mertz Taggart
At a Glance Exiting a healthcare business involves more than finding a buyer and negotiating a price. Most owners face three financial needs that must be addressed before the transaction closes: replacing the earned income the business currently provides, learning to manage a post-exit investment portfolio with a different skill set than running a company, and reducing the concentrated risk that comes from holding most of your net worth in a single illiquid asset. Addressing all three is what allows an owner to exit and stay financially secure afterward. |
Most owners spend their energy on the transaction itself, which is understandable, but the financial picture after the closing is where things tend to get complicated. The number matters, of course, but so does what the number has to do, and what happens to it once the deal is done.
In my experience, owners who think through the following three needs before going to market tend to exit with fewer regrets.
1. Can Your Investment Portfolio Replace Your Business Income?
The most immediate question after a sale is whether the proceeds, prudently invested, can generate the income you need to maintain your lifestyle. For many owners, the answer is less straightforward than it first appears.
A business that generates $500,000 a year in owner income does not automatically produce a portfolio that does the same. Depending on the sale price, the investment return assumptions, and the tax consequences of the transaction, the post-exit income stream can fall meaningfully short of what the business was producing. That gap is worth understanding before you sign anything.
The tax side compounds the issue. A sale creates a significant taxable event, which reduces the net proceeds available to invest. That smaller base then has to generate income at a higher rate to meet the same lifestyle needs, which usually means taking on more investment risk than a conservative portfolio would carry.
There is also the question of what the business was quietly subsidizing. Vehicles, insurance, travel, and cell phones often run through the company. After the sale, those expenses shift to personal, and owners who have not mapped that transition tend to underestimate their actual cost of living, sometimes by a substantial amount.
2. Do You Have the Skills to Manage a Portfolio the Way You Ran Your Company?
Running a company and managing an investment portfolio require different instincts. The habits that made you effective as an operator, moving quickly on opportunities, staying close to every decision, treating uncertainty as something to act on rather than sit with, can work against you as an investor.
Portfolio management tends to reward patience, discipline, and a tolerance for short-term noise. It also involves delegating decisions to advisors whose expertise you have to trust without being able to fully verify it in real time, which is a different relationship than most owners have with their teams.
This is not a reason to delay a sale, but it is a reason to build the advisory relationships before the closing, not after. Owners who wait until the wire hits to start thinking about wealth management often make reactive decisions in the first few months that are difficult to undo.
3. How Much of Your Net Worth Is Riding on the Business Right Now?
For most healthcare agency owners, the business represents somewhere between 50% and 90% of total net worth. That concentration is the most underappreciated financial risk in the pre-exit period, and it is also the most actionable.
Consider three assets, each worth $5 million: a piece of commercial real estate, a cash account, and your agency. All three have the same stated value, but the risk profile of the third is meaningfully different. If your health changes, or a large payer relationship deteriorates, or a regulatory issue emerges, the real estate and cash hold their value. The agency may not.
That is not a reason to panic, but it is a reason to think carefully about what risks you can mitigate before going to market.
Four areas that consistently matter to buyers:
• Key-person insurance
• Documented management depth
• Diversified payer relationships
• Clean compliance records
Each of these reduces the fragility of the asset and, in most cases, improves its value to buyers as well.
Owners who address these risks before initiating a process tend to command better multiples and face fewer surprises during due diligence. The ones who do not often find that a buyer’s risk assessment knocks down the price in ways that were entirely predictable.
Key Takeaways
|
One Chance to Get This Right
You can get wealthy by building one business well. Staying financially secure after you sell it requires a different kind of planning. The owners who exit on their terms are usually the ones who started thinking about these questions early, before the offers arrived and before the clock was running.
Mertz Taggart has guided healthcare owners through hundreds of transactions over more than two decades. If you are thinking about what an exit might look like for your agency, we are glad to have a confidential conversation. There is no obligation and no pressure, just a straightforward discussion of your options.
Contact Mertz Taggart for a complimentary, confidential consultation.
Comments