Your three paths for transitioning

The short answer

What are your options for transitioning out of a physical therapy business? There are three: an internal transition to your own team, an ESOP, or partnering with a larger third party. Paul Martin, Founder and President of Martin Healthcare Advisors, explains the tradeoffs of each.

The three paths:

1. Internal transition (sell to your team): every owner's dream, but often little real transfer of risk. Know exactly how your staff plans to pay.
2. ESOP (employee stock ownership plan): rare, expensive, complex, and typically valued well below a third-party sale.
3. Third-party partner or acquirer: the most common path, with a major transfer of risk and the most money in your pocket. The key is cultural fit.

Full transcript

There are really three pathways for transitioning a physical therapy business, and the right one depends on your goals and what you want to get out of a transition.

Number one, an internal transition: selling the business to your own team. This is every physical therapy business owner's dream, but there typically is not a real transfer of risk. Before you go down this road, make sure you fully understand how your staff intends to pay for your business.

Number two, an ESOP, better known as an employee stock ownership plan. This is rare, and the things to watch out for are that the valuation is typically significantly less than if you sell to a third party, and it is a very expensive and extremely complicated plan to carry out.

Number three, selling to or partnering with a larger third party. This is the most common strategy, primarily because there is an enormous exchange of risk and typically you can put a lot of money in your pocket. The key to success is finding the right third party, the one with the strongest cultural fit.

Transcript lightly edited for readability.