Taking on equity partners Part Two
In part one of Taking on equity partners I talked about the importance of having a process to choose the “right” potential equity partner based on their skill and ability as a practitioner, personality, work ethic, ability to add value as a partner in the business, commitment to the task etc. I also covered the steps that a client called John needed to take to attractively present his business equity proposal to Belinda. Some of these activities included having a clear vision for the ongoing business, considering the quantum of equity to make available and at what price, understanding the competitive landscape, what sort of financing he would need to start his new business with Belinda etc.
John and I have worked some more of the above planning and he has now compiled the detail he needs to make the first presentation to Belinda of the opportunity. We needed to discuss some of the contractual matters like the type of entity that would offer the equity (in his case and country location a Limited liability Company suits him more than my favoured unit trust structure), the detail needed in a shareholder agreement and a contract of sale that will outline exactly what needs to be agreed and committed to ensure there are no outstanding matters. One key element was to identify what happens in the event of the equity partner wanting to exit (or indeed needing to exit due to unforeseen circumstances), what happens if John is approached by another party wanting to purchase his business etc.
In our most recent discussions before Xmas 2024 John advised that the timeline had changed as Belinda needed to provide some family support and wanted her timeline to be deferred. She remained keen but the timing was not right at this moment. We decided to discuss where to go from here in the new year 2025. This has created the possibility of John taking a different path as he still wants to expand his business and is now not sure how to proceed.
The path this potential transaction has taken is not uncommon and it is prudent that it happens now!! John has readied his business to move forward, and the next steps will be to now explore other options.
The first option is to identify another investor who works with him already and the other is to consider the option of taking an external party who wished to invest but is not another therapist. In John’s case he does have external parties who have followed his progress and have suggested that they have capital they wish to invest in his expansion and see the opportunity as a secure way to park their capital and assist him. We have agreed to discuss this option and work through a new set of considerations! We will need to discuss:
· How much capital are they interested in investing and how much equity do they wish to purchase
· What skills could they bring to John in terms of advice, support, ideas for growth and mentoring
· Do they want an active or passive role.
· What is their timeline to see returns from the new start up
· Do they want equity in his existing practice as well as investing in his proposed new start up
Given the progress that John has made it will be helpful to work through his options as he is ready to move forward and can always accommodate Belinda’s interest in equity in due course.
Should you have your own business and looking to expand to another practice or take on an equity partner then make contact with me via email on michael@michaelkenihan.com,.au to see how we can work together or visit my web site at www.michaelkenihan.com.au.
If you also want to read more and learn about how I see practice growth then consider purchasing my book , “The Health Practitioners journey”, available from my web site.
https://www.michaelkenihan.com.au/book
Wishing you all best wishes and every success for 2025
