cartoon of hands paying another set of hands for a business
5 steps to take before handing over the reins
by Mark Higley

The past few years have brought unique issues to the homecare industry. If you could say anything positive about the COVID-19 pandemic and the associated tough operational obstacles—finding sufficient staffing, an upward price spiral for our products, supply chain issues—it might be that it required businesses to get better at accepting and acting upon the need for change.

Homecare providers did just that, and you fared pretty well overall. Demand for your products and services has never been higher. Valuations of your businesses improved. Forecasts for continued growth and strength in the home health and home medical equipment market are more than positive.

I recognize the challenges that this industry brings—but also have noted a renewed optimism from providers about continued operations in the future. And the future requires planning, including the eventual conveyance of your business to another person or entity.

When to Begin

Business owners looking to create a succession plan might wonder when they should get started. Much like a personal will, the answer depends on a variety of factors, but generally comes down to as soon as possible.

Creating a succession plan takes time and effort, and answering the questions accurately isn’t easy. For this reason, many business owners start planning for succession at least five to six years before a transition. Creating a succession plan should also be considered as a contingency in case of death, illness or other circumstance that creates an unexpected need for transition.

5 Steps to Writing a Succession Plan

Writing a succession plan can be daunting. Indeed, many business owners put it off because they’re not ready to tackle the complexities. I’ve narrowed the process down to some simple steps to direct you along the way. Here are five common steps to preparing a business succession plan template.

1. Establish the timeline of succession.

There are two key types of succession plans: an exit succession plan and a death-or-accident succession plan. You may wish to write a death-or-accident succession plan well in advance of when you think you’ll need it to protect your business and successors in case of unanticipated events. An exit succession plan should be written when you have a specific plan to transfer ownership of your small business.

While an accident plan should be considered at any age, an exit succession plan should be written when you are within several years of retirement or wish to exit the business for other reasons. When writing an exit succession plan, you should have a specific date that you would like to transfer the business and indicate whether you will remain involved in the business after succession or prefer a clean separation.

2. Determine your successor.

An important part of writing a succession plan is choosing who will take over the business. Many owners plan to have a family member take over. Other common choices include a business partner or key employee. And of course, an outside buyer is always a possibility.

Choosing a successor may be difficult and requires considering what is in the business’s best interest. While keeping everything in the family may seem like the most obvious choice, keep in mind that second-generation businesses have a high failure rate. For this reason, many business owners choose instead to sell their business so they can provide a cash inheritance for their family.

3. Formalize your standard operating procedures.

As a small business owner, you should understand the importance of recording and formalizing day-to-day functions. Standard operating procedures (SOPs) should be documented for your managers and employees to reference, as well as any future owners of the business. Important items to document may include a daily checklist of opening and closing procedures, training for new employees and a performance management system.

While not required, many businesses include SOPs when writing their initial business plan and update them regularly as procedures change and the business grows more complex. It is a good idea to have these procedures in place before succession planning, as they will help you grapple with growth and change.

4. Value your business.

Figuring out the value of your business should happen early—and regularly. It’s an unfortunate fact that many owners tend to overvalue their enterprise, and these misjudgments can snowball into financial errors when planning for retirement.

There are several ways to determine the value of your business, from using a simple business valuation calculator to hiring a professional appraiser. You may also consider working with a company that offers business valuation services, such as BizEquity or Guidant Financial.

A good practice is to consider the lowest price the business should sell for. When the business is eventually listed for sale, it may take a while to find a buyer who is willing to pay your asking price. The succession plan should provide stipulations regarding how long to wait before dropping the price, how much to lower the price and the lowest acceptable offer.

5. Fund your succession plan.

Few buyers out there have enough liquid cash to pay up front. Therefore, every succession plan needs specifics on how the buyer will make the purchase, whether it’s a loan, installments or another option. The last thing you want is to reach your retirement date or triggering event and find that your chosen successor can’t afford your business.

This is also why your funding plan will often need a buy-sell agreement. This is a legal document in which your buyer agrees to a specific course of action (like taking out a loan or life insurance policy) in order to afford the purchase. Once you’ve settled on a specific method of funding, make sure you meet with a legal professional to draft your buy-sell contract.

Here are the most common ways succession plans are funded:

  • Life Insurance: Contrary to how it sounds, life insurance isn’t only used in the event of death. Permanent life insurance builds cash value that can be taken out at any time, so it can also be used in the event of retirement, disability or any other triggering event. Life insurance arrangements are common in family successions, especially when there are multiple children but only one is taking over the business. A life insurance payout lets them purchase shares from other heirs, thus leaving everyone with some compensation and financial security.
  • Acquisition Loan: This is money borrowed by the buyer, which is common when a key employee or outside party is taking over and they need funding. Buyers can typically get 70%-80% of the purchase price financed from a bank or the Small Business Administration (SBA)—which is great news for sellers who want to be paid in full up front. Acquisition loans are secured against future profits, which means a bit of work for the seller, as you’ll need to provide a lot of details for the bank’s due diligence. Even then, however, the loan is not guaranteed. Preapproval can provide some security, but it would need to be undergone regularly up until the transfer date or triggering event.
  • Seller Financing. This is when the buyer pays you back gradually over time. It is one of the easiest and most flexible arrangements, as the parties can set whatever terms they like. Terms can vary widely, but most agreements involve a down payment of 10% or higher, followed by monthly or quarterly payments with interest until the purchase is paid for. The key downside to seller financing is the time it takes to get paid back. If you’re relying on the sale to fund your retirement, a 20-year term may be less than ideal. However, given the flexibility of seller financing, it can be possible to find an arrangement that works for everyone.

This article was adapted from “Succession Planning: Identifying What Is Next for Your Business and How to Make It Happen,” an exclusive handbook for VGM members. Access the full version here.

Mark Higley is vice president of regulatory affairs for the VGM Group with responsibilities that include corporate business development, market research and industry analysis. He sits on the AAHomecare Regulatory Council and on the board of the Healthcare Quality Association on Accreditation and is a regular speaker at numerous industry events. You can connect with him at