How to Sell a Care Business

03/12/2020

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Do you have a care business you want to sell, but don’t know where to start?

We know it can be a daunting process. But with the help of this guide, you can learn about the steps involved.

The care industry ranges from residential care and nursing homes to childcare and nurseries. It is a growing market, with the care home sector currently making up 1% of the UK’s total GDP.

With an increasing number of independent care and nursing homes due to the drop in market share between the Big Five, there is an abundance of keen buyers and sellers. So, it’s important yours stands out.

A similarly promising sector is childcare. It’s worth £3.6 billion and with an increasing trend of both parents working full-time, it has a strong level of forecasted growth. This makes it an exciting time for hopeful buyers to enter the care market.

This guide will walk you through the sales process from valuation advice, how to prepare your business for a sale, negotiation tips, to finalising the deal.

How to Value a Care Business

Combining a business’ assets and the value of its goodwill attributes will help create an accurate and holistic valuation of the business.

Your business’ assets will vary according to the type of care sector you are in.

Using a residential care home as an example, let’s look at its assets:

Care equipment such as; hoists, bath lifts, wheelchairs
Bedsheets, food stock, activities and games
Furniture such as; beds, chairs and tables, garden furniture
IT equipment such as; TV’s, software, CCTV
Property value, if owning and selling the freehold

Having high-quality assets means the buyer does not need to worry about replacing any items soon, and so, providing better value for money.

It is tricker to calculate the goodwill value of a business, however, it is essential to get an accurate valuation.

When estimating your care business’ goodwill value, it’s important to consider the following:

Let’s use a nursery as an example.

The capacity for the number of children at once
Average working capacity. This is calculated from management information on customers and their frequency. For this, we suggest gathering data from your systems for the past two years
Local reputation
Loyalty and motivation of staff

We recommend seeking advice from a business broker for an accurate price. This is because there can often be an emotional involvement with your business which can skew your personal valuation.

At Intelligent, we have a dedicated expert team with years of experience in calculating the value of hundreds of care businesses.

We use a tailored approach depending on the business’s characteristics but using the same basic formula as shown below:

Adjusted Net Profit

This calculation takes into consideration any exceptional costs that the business has incurred. These exceptional costs are not considered part of the normal course of business and should therefore be excluded

Market Multiple

We analyse buyer behaviour and transactions regionally and nationally. We overlay our experience, sector knowledge and understanding of market trends to provide a real time market multiple

Assets & Liabilities

An asset is something that the business owns and is a key factor in determining the businesses value. These include such things as property, stock and equipment. A liability is the opposite of an asset and includes things such as loans, tax and mortgages

Use Our FREE Business Valuation Calculator for an Instant Valuation

Preparing a Care Business for Sale

To be fully prepared for your sale, it’s key you have all the necessary documents and information in advance. This means you are ready for any questions from interested buyers.

Being prepared will ensure a more efficient seller journey, as well as making you appear more professional and confident to buyers.

That’s not all.

By fixing any problems with your business you can be assured that you will receive the best possible price.

Below we have highlighted key areas to focus on when preparing your care business for sale.

Conduct Repair Work

Undertaking immediate repair and maintenance work is a relatively simple yet effective way to boost the value of your care business.

If this work has been carried out prior to a sale it makes your business a more attractive option as it will save buyers future hassle.

But remember.

Although repairs and maintenance are essential - don’t invest in new expensive equipment or carry out a total refurbishment just before your sale.

You won’t regain the cost of pricey new equipment.

Equally, the buyer may want to change the appearance of the premises to suit them.

Hygienic Environment

Top hygiene standards are expected in any business, but it is crucial to have them in the care industry, as often the clients are vulnerable adults or children.

Fortunately, this is a relatively simple and affordable action in boosting your business’s value.

Documents & Financial Statements

We recommend having at least three years of financial statements prepared, ready to show interested buyers (this usually happens at the enquiry stage).

Disclosing your business’s financial health will aid buyers in their decision whether your business is a suitable choice for them.

The financial documents you will need:

Cash flow
Profit and loss
Balance sheets
The buyer will undertake due diligence which will highlight any discrepancies within your business’s finances, so make sure you’re truthful.

Other important documents to gather include:

A list of all assets, such as fixtures, fittings, and equipment
Up to date hygiene certificates
Other legal documentation, which may include leases, insurance, licences, and other permits that should all be fully compliant and up to date
Incorporation documents
Management structure
Employment contracts, which should be reviewed by yourself for the buyer’s convenience and to guarantee a strong staff team will be in place
Stockist information, to demonstrate you have secure stockist relationships already in place

Review Your Care Business’s Management Structure

It is key to have an organised management structure when you’re preparing to sell your business.

This is important to address if you’re a hands-on owner, involved in the day-to-day running of your business.

Having a clear operational structure makes a business more attractive to buyers who may only be interested in businesses that can be operated from a distance.

Are you a hands-on business owner? Why not start delegating more responsibilities to your current managers and/or team leaders.

Now what? It’s time for negotiations to begin.

Negotiating the Sale

After enquiries and viewings (click here for a guide on how to manage queries) you’re ready for the negotiation stage.

At this point, you will decide and negotiate what is included in the sale and the price.

As you’ll have your documents prepared in advance, you’ll be able to negotiate more efficiently.

Of course, the buyer will be inquisitive but remember, you should also be assessing their potential and capacity to run a care business successfully.

The agreements will be written down and both parties will sign ‘Heads of Terms’ or ‘Letters of Intent’ documents.

Through doing this, the sale is finalised. But be aware it isn’t legally binding yet.

This document will include the final sale price, the sale’s terms, and a thorough itinerary of everything included.

Crucially, you must then decide on a payment plan.

The buyer may be able to pay in a lump sum, but you could also offer owner financing with a larger total sale price.

Make sure you get specific protective legal advice as you could be at risk of a buyer default.

Therefore, it’s important to use a good solicitor.

We can help with that.

Using an Intelligent trusted partner, you’ll save time and money. Sellers complete on average 4 weeks earlier than the industry standard and our negotiated savings are passed on in full.

However, often owner financing can be a positive choice for both parties.

It’s due diligence checks next.

This is undertaken by the buyer and their team of professionals.

For more advice on this check out our in-depth guide, but essentially it involves scrutinising your premises, finances, assets, liabilities, clientele and reputation, as well as external threats and competition.

Finalising the Sale

You’ve made it, the final stage of selling your business.

If all due diligence checks are clear, the buyer will be able to commit to a final, legally-binding ‘Purchase of Business Agreement’. The contents of this document will look like the ‘Heads of Terms’ or ‘Letters of Intent’ from the negotiation stage.

However, if any falsehoods are uncovered during due diligence, this would usually lead to renegotiation of the price and/or terms of sale. Worst case scenario, the buyer may drop out of the deal. That’s why we recommend that you’re honest from the start.

Something else to make sure of.

You will need to gather any necessary permissions from landlords and banks for the transfer of premises, equipment, and liabilities. Once these documents are finalised and the money is transferred, you have officially sold your business.

Congratulations!

What about the handover? There are two types, immediate or transitional.

As their names suggest, an immediate handover is when there is a sudden shift in ownership and management. Whereas a transitional handover is more gradual and allows for a smoother exchange of ownership.

The terms of this handover are to be decided between you and the buyer. Usually, the seller will stay on for a transitional period of a couple of weeks or months.

A transitional handover is recommended where possible. It is more likely to result in successful new ownership and is, therefore, more attractive to buyers.

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There you have it, your ultimate guide to selling a care business.

It may seem like a long process, but a little preparation goes a long way, and it will help you to achieve the best possible sale price.

Selling with Intelligent removes the stress so that you can focus on your business instead.

We have a dedicated expert team who will work hard to fully understand your care business and what makes it unique, giving you peace of mind.

Click Here to Use Our FREE Business Valuation Tool

Get quick and easy insight into the real value of your business, without any obligations.

At Intelligent, all of our experts use a specific formula that will give you a free and highly accurate baseline valuation so that you've got a figure to work with that most realistically resembles the value of your business.