H E A L T H L A W How to Say ‘Farewell and Adieu’ to Owning Your Business ■ JOHN SHUFELDT, MD, JD, MBA, FACEP H ow do you know when it’s time to cut bait? Remember the scene in Jaws when Chief Martin Brody (Roy Scheider) is throwing fish guts into the ocean and comes face to face with the shark? He remarks, somewhat casually, “You’re going to need a bigger boat.” Despite the fact that everyone in the theater is yelling “run for your life,” the trio then decides to continue after the shark even though the boat is horribly outmatched when compared with the size of the great white. (Parenthetically, if it were me, I would have come back with the Exxon Valdez.) Anyway, this poor choice ultimately causes Quint (Robert Shaw) to not only lose his other leg, but the rest of his body, as well. Kind of like “reverse sushi.” So, when is it time to stop throwing good money after bad and either try to sell the urgent care or simply take your lumps, close it, and move on? I have been receiving quite a few calls and e-mails recently about urgent care centers that are quickly going under. Some of these failures are due to poor planning/execution, some are due to an initial lack of capitalization, and, finally, some are due to the credit crunch (banks promised a line of credit but then called the note or cancelled the line). Preparing to Sell Let’s first discuss how to get your center ready to sell and what to expect during due diligence. If the reason your center is failing falls into the first cate- gory—poor planning or execution—chances are that it is go- ing to be tough to sell. The field of groups buying urgent care centers is very sparse, and believing they are going to pay cash for your mistake is unrealistic unless the initial mistake is eas- John Shufeldt is the founder of the Shufeldt Law Firm, as well as the chief executive officer of NextCare, Inc., and sits on the Editorial Board of JUCM. He may be contacted at JJS@shufeldtlaw.com. w w w. j u c m . c o m ily correctable and, but for your lack of financing, you could fix it yourself. If, however, the reason your center is struggling is second- ary to lack of initial capitalization and/or the credit crunch, you may be in a position to sell or at least have a group assume the liabilities, allowing you to exit the business somewhat intact. What will the potential buyer expect when evaluating your center? The first and foremost is brutal honesty. Trying to hide some bad facts (failure to pay taxes, undisclosed lawsuits, less than arm’s length transactions, etc.) is not only deceitful, it will delay and, most likely, ultimately derail the sale once discovered. Due diligence is much like an awake colonoscopy; the preparation is awful, the procedure painful, and neither party enjoys the process very much. The ultimate purchase agreement is only as sound as the parties signing the doc- ument, and if the relationship starts with a lie, it is doomed for ultimate failure. The second expectation the potential buyer will have is that your books are accurate, hopefully accrual-based, and timely. The value of your business will most likely be based upon the EBITDA (earnings before interest, taxes, depreciation, and amortization) generated during the last 12 months, referred to as “trailing 12 months EBITDA” or “TTM EBITDA.” If your books are “cash basis,” the prospective buyers will want to convert them to an accrual basis, which will take some time. The cleaner and more accurate your books, the shorter the process and the more likely the sale will actually close. At the very least, have the following documents on hand prior to any serious discussions: Ⅲ Health plan contracts Ⅲ Building leases Ⅲ Equipment leases Ⅲ Employee contracts Ⅲ Provider contracts Ⅲ Cash flow, balance sheets, and profit-and-loss statements JUCM T h e J o u r n a l o f U r g e n t C a r e M e d i c i n e | Fe b r u a r y 2 0 0 9 31