To Our Employees: Why We Sell Our I/DD-Human Services Businesses

Published 05 June 2019 by Vertess

The most difficult message I ever delivered was telling my employees, families, and friends that I was selling my provider agency that supported individuals affected by an intellectual and/or developmental disability (I/DD). Like me, these stakeholders had developed a deep attachment and investment in the company over its 20 years of operations.

Fortunately, by the time I shared this news, I was confident that selling the company was the best decision — not only me, but for the organization as a whole. I believed the buyers would provide our staff with more resources, our company with new paths for growth and development, and the individuals we serve with a more solid support system.

What few people understood was how painstaking it was to make the decision to sell and how many factors influenced this outcome. This lack of knowledge even applied to some of my highest-level associates who knew almost as much about the company's operations as I did.

Below are five of the most significant reasons that I became comfortable selling my baby — reasons, I have learned as a merger and acquisition (M&A) advisor, that are shared by many small business owners who make the ultimate decision for their companies.

1. There are buyers that love what they do as much as we do - I understand this more now as an M&A advisor. I am presently working with some pretty aggressive and enthusiastic buyers. Many of the small- to medium-sized organizations considering acquisitions understand that building a business "one person at a time" is expensive and time-consuming. In fact, some of these organizations took that approach themselves. They now recognize that there is tremendous value in acquiring a well-established organization with a strong reputation as an effective and efficient means to enter new markets and widen an organization's scope. Such buyers often bring many years of experience as well as the drive and ability to further strengthen an already great organization.

2. We are exhausted from wearing every hat - Small business owners perform essentially every task required for their business at some point. I recall telling new managers when we hired them that, along with their management responsibilities, they must be ready to step in and serve as driver, custodian, and coffee maker on a moment's notice. There was some humor in this directive, but also a lot of truth. For an organization to succeed, no individual is above performing a job.

As an organization grows, many responsibilities are passed on to other individuals, but if a task is not completed, this ultimately falls on the owner. We are responsible for putting out the most significant fires, answering the 2:00 a.m. alarm calls, and making the decisions no one else wants to. There are few, if any, "days off." Worrying is constant.

When we sell, there is a sense of relief that these daily stresses are off our plate. In addition to relief, we gain confidence. We know that a larger organization with vast resources of people and processes has needed to put out its share of fires over the years and proven it can do so time and again.

3. We're constantly stressing about cashflow. Most small business owners work closely with banks to ensure they have adequate financial resources when cashflow is tight. We often put up our houses or equity as security for this money. When others go home for the weekend, they have the luxury to forget about most of the stresses from the previous week. Meanwhile, owners are looking ahead at the next several payroll weeks. We are trying to project whether the receivables will come through in time to cover expenses and what would need to happen if this does not occur.

Most people have no sense of the personal pressures that an owner bears to keep the lights on, doors open, and employees paid. Selling to a larger, established business alleviates this pressure and provides the company with the financial security it may have previously lacked. Established businesses can typically access more substantial lines of credit because of their size, reputation, and cashflow attributable to diversified lines of business and/or geography. They usually have the resources small businesses do not. This means greater security when times are tough and the ability to grow more aggressively when business is thriving.

4. The future is unsettling - Keeping great direct care staff is always a challenge in a highly competitive market. If they're great at their job, they will be afforded other professional opportunities — some of which are likely to be very enticing. I recognized the value in keeping this staff (and the high costs to replace them), so I paid a higher wage. Most of these wages exceeded our compensation for the services provided by these staff. Then the Affordable Care Act (ACA) became law and we were required to provide health insurance — another unfunded mandate. I worried even more about how my company would make ends meet. A larger organization can more easily cover benefits because of its size.

Owners today are watching closely for their own ACA that brings new, unfunded mandates as they try to retain and attract skilled staff. These mandates include EVV (electronic visit verification) and increases in minimum wages. For large organizations, such financial "hits" will typically have a minimal impact on the bottom line. For small business owners, they can be a crushing blow that closes the doors.

5. There is power in numbers - When we started our company, we concentrated on the single state we were in and got to know all of the players. It was relatively easy to learn what industry changes would affect our business since we were closely connected. As we expanded our services into more — sometimes larger — states, it was more difficult to stay current with rule changes and navigate the latest regulatory standards. Every state and region has a different way of doing business. Staying current and relevant can prove challenging.

Managed care is now entering the I/DD service delivery market. We're hearing that hundreds of separate providers in each state, each billing for their services, is not likely to be a model for long-term success. There is fear that smaller providers will lack the required resources — from technology to ease of billing — to keep up with the larger providers and may struggle to compete.

There is a greater opportunity for larger organizations to leverage their size and scope to negotiate strong rates and contracts. By joining another organization (or bringing two smaller organizations together to form a larger entity), businesses can achieve economy of scale, allowing them to more effectively compete while still providing high-quality services.

Passing the Torch

Most small business owners do not start their company with plans to sell it. That was not in my plans. I focused on the present. After all, one needs to be successful in the beginning to have a chance at a future. And, unfortunately, there's no Magic 8-Ball to help foresee where our businesses will be down the road.

But if all goes well, we achieve growth and success, and earn an opportunity to sell our companies. When this time comes, hopefully we can move our company forward and become part of something greater by finding buyers that we relate to, respect, and trust to take the vision we had years ago when we started our business to the next level.