summer_ceo
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Could use some entrepreneurial advice...
I started my own company as a solo entrepreneur 8 years ago. We have grown substantially in the past 3 years to include 7 FT employees and an office location. We have 1.7 years remaining on our commercial lease and I am strongly leaning towards not renewing our lease for a number of reasons that I will go into. I would really appreciate your advice about whether we should get out and what our best exit strategy should be.
I own an behavioral therapy center for children with autism which is now considered a medical practice. I am a professional in this field with 17 years experience and have a masters degree and a license which allows me to bill insurance. Our revenue in 2018 was $508k with $100k EPITDA.
We rely on a small group of clients (generally 7-10 at a time due to our limited office space) and have only two funding sources (federal and state health plans). Having a small number of clients means our income fluctuates greatly when we lose 1 or even 3 clients at once, and we aren't always able to fill open spots as quickly as we'd like to. Having limited funding sources means widespread delays in payments usually once (sometimes twice) per year. For example, we had new medical code changes as of 1/19 that impacted all insurance payors and resulted in delayed payments for all of January and into February. We needed to put in our own capital to cover payroll and overhead at $30k a month. We have a lot of cash reserves, so it's usually not a problem overall--but just a stressor and something that is definitly a hindrance and concern with growing larger, where our expenses would eventually exceed our cash reserves.
Relying on insurance also means sweeping rate changes that can occur with little warning. For example, a few years back we were notified of a 20% rate reduction which was reseversed after 3 months. They never raise our rates, but each year find some way to cut it indirectly. All of this makes us feel unstable about the future of this business.
Insurance also has become increasingly stringent about their medical documentation. More and more our time is being eaten up by paperwork and documentation. The payors are not always clear about what information is needed in this documentation and it all very subjective and based on the auditor. We are required to keep medical records for 10 years which means we are always at risk of having any of our reimbursements for the last 10 years recouped if they believe that our medical documentation is not adequate. In other words, they are scarier than the IRS.
Overall I am just burnt out with my work and with being a business owner in general and with the constant stress about our funding. I don't have it in me to sign another lease at this point and so I am actively looking for a buyer. All the buyers I am talking with are big private equity firms (which are now beginning to take over a large part of our industry). Being such a small company, I am not sure if this is realistic and although there has been interest, we haven't received any offers yet (just began sharing financial in mid-October).
Ideally, I imagine the best case scenario to be selling to one of these companies, so we can earn some capital through the sale of our business as well as having the assurance that the business will likely be financially secure (for both employees and clients). The only con that comes with selling (as oppossed to just closing) is the non-compete. I assume I will be contractually obligated to work for the company that buys us for a certain period of time. I am okay with this--but ultimately, I just want to get back my freedom again.
If I am not able to sell the company to my preferred type of buyer, my only options will be to grow larger (some companies require a million in revenue minimum) to try to attract a buyer (which isn't likely to happen on a 1.7 year timeline since we have always grown slowly) or to give it or sell to my employees (which I don't consider ideal because they are all young women in their 20's just starting out in their careers with limited experience and no capital) or to just close up shop...which would mean no windfall from the business but also means I can have my freedom back and can go back to work as a solo entrepreneur if I ever get over my burn-out.
Considering the complexities of our type of business what would you recommend? Any idea I haven't considered yet?
I started my own company as a solo entrepreneur 8 years ago. We have grown substantially in the past 3 years to include 7 FT employees and an office location. We have 1.7 years remaining on our commercial lease and I am strongly leaning towards not renewing our lease for a number of reasons that I will go into. I would really appreciate your advice about whether we should get out and what our best exit strategy should be.
I own an behavioral therapy center for children with autism which is now considered a medical practice. I am a professional in this field with 17 years experience and have a masters degree and a license which allows me to bill insurance. Our revenue in 2018 was $508k with $100k EPITDA.
We rely on a small group of clients (generally 7-10 at a time due to our limited office space) and have only two funding sources (federal and state health plans). Having a small number of clients means our income fluctuates greatly when we lose 1 or even 3 clients at once, and we aren't always able to fill open spots as quickly as we'd like to. Having limited funding sources means widespread delays in payments usually once (sometimes twice) per year. For example, we had new medical code changes as of 1/19 that impacted all insurance payors and resulted in delayed payments for all of January and into February. We needed to put in our own capital to cover payroll and overhead at $30k a month. We have a lot of cash reserves, so it's usually not a problem overall--but just a stressor and something that is definitly a hindrance and concern with growing larger, where our expenses would eventually exceed our cash reserves.
Relying on insurance also means sweeping rate changes that can occur with little warning. For example, a few years back we were notified of a 20% rate reduction which was reseversed after 3 months. They never raise our rates, but each year find some way to cut it indirectly. All of this makes us feel unstable about the future of this business.
Insurance also has become increasingly stringent about their medical documentation. More and more our time is being eaten up by paperwork and documentation. The payors are not always clear about what information is needed in this documentation and it all very subjective and based on the auditor. We are required to keep medical records for 10 years which means we are always at risk of having any of our reimbursements for the last 10 years recouped if they believe that our medical documentation is not adequate. In other words, they are scarier than the IRS.
Overall I am just burnt out with my work and with being a business owner in general and with the constant stress about our funding. I don't have it in me to sign another lease at this point and so I am actively looking for a buyer. All the buyers I am talking with are big private equity firms (which are now beginning to take over a large part of our industry). Being such a small company, I am not sure if this is realistic and although there has been interest, we haven't received any offers yet (just began sharing financial in mid-October).
Ideally, I imagine the best case scenario to be selling to one of these companies, so we can earn some capital through the sale of our business as well as having the assurance that the business will likely be financially secure (for both employees and clients). The only con that comes with selling (as oppossed to just closing) is the non-compete. I assume I will be contractually obligated to work for the company that buys us for a certain period of time. I am okay with this--but ultimately, I just want to get back my freedom again.
If I am not able to sell the company to my preferred type of buyer, my only options will be to grow larger (some companies require a million in revenue minimum) to try to attract a buyer (which isn't likely to happen on a 1.7 year timeline since we have always grown slowly) or to give it or sell to my employees (which I don't consider ideal because they are all young women in their 20's just starting out in their careers with limited experience and no capital) or to just close up shop...which would mean no windfall from the business but also means I can have my freedom back and can go back to work as a solo entrepreneur if I ever get over my burn-out.
Considering the complexities of our type of business what would you recommend? Any idea I haven't considered yet?
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