Don’t wait until it’s too late to start planning for practice succession.
Succession planning is essential for private practice owners, especially since ownership transition can be necessary at a moment’s notice due to unforeseen events such as illness, death or retirement.
Unfortunately, many physicians have not contemplated succession planning or do not have a comprehensive succession plan in place. This widespread lack of succession planning can lead to major obstacles for both private practice owners and the continuity of care for patients. An increasing number of physician owners are expected to retire within the next decade, which will create an extremely competitive market for medical practices looking to sell to new owners. Private practice owners who want to secure the future of their medical practice need a solid succession plan in place to ensure a smooth transition from ownership to retirement.
There are several options available if you are a private practice owner looking for advice on how to establish a succession plan. Here are four tips on getting started:
1. Select a designated successor
The first step to medical practice succession planning is deciding who will inherit your business. You can select an individual physician, a group of physicians, hospital, another practice, or a private equity-backed management company (“MSO”). The intent, of course, is to have someone who will continue to care for your patients and also maintain good relationships with referring physicians and the community as a whole. Many of your patients and referring physicians may come to your practice because of their relationship with you. Choosing the wrong successor can lead these patients and physicians to seek care elsewhere. As an aside, if you decide to select a family member as your successor, be it a relative or child, make sure they want to run your medical practice and have a passion for the business side of private practice.
2. Create a buy-sell agreement
Once you have decided your successor, you need to ensure your private practice succession plan is legally protected. There are several legal arrangements you can make to plan for succession, and one of the most popular is creating a buy-sell agreement. A buy-sell agreement allows you to make provisions that govern what will happen when you decide to leave your practice. You can state who will own your practice, how shares will be allocated if there are multiple owners and at what price to sell shares. Even if your retirement is more than 10 years away, creating a buy-sell agreement is a good idea. Buy-sell agreements can determine what will happen if unforeseen circumstances, such as bankruptcy or personal injury, force you to leave the practice of medicine earlier than expected. This will ensure your chosen successor (or successors) are legally able to transition into ownership when you step down.
3. Prepare your successor (and yourself) for success
Once you have finished your private practice succession planning, chosen a successor and taken care of the legal arrangements, you will need to train your successor to successfully run your medical practice. I cannot stress enough the importance of this step and yet it so often is overlooked after the attorneys have drafted the legal documents and departed the practice. Even if your successor is passionate about your practice, you should set up a training plan that exposes them to every area of your medical practice so they can learn the critical management tasks that you may take for granted. In addition to training your successor, you should also plan your own exit strategy. Give your successor room to learn and grow while you are still in a place to offer advice, but be prepared to start giving them more control as you approach retirement. This can prove to be difficult for passionate private practice owners, but it’s essential to gradually let go and allow your successor to take ownership when you’re ready to depart.
4. Communicate your succession plan
The last thing you want to happen as you create your succession planning is for rumors to spread about your departure. Rumors can become misunderstandings if you are not clear about who will be running your medical practice and when the transition will take place. You risk patients leaving and referring physicians sending patients elsewhere if they are concerned about the stability of your practice. Once your plan is in place and the time is right, make sure to tell your patients and referring physicians and assure them that your successor will provide the same level of service they have come to expect while working with you. Communication is also essential with the person you are eyeing to be your successor. Don’t let them jump ship for another job without communicating that you are considering them as the eventual head of your medical practice.
Private practice succession planning can take years, so it is essential to get an early start. Make sure to involve an experienced consultant at the outset as they can walk you through the strategy and also can coordinate the other needed professionals such as an attorney, accountant, and financial advisor. The earlier you get started, the better chance you have at ensuring the transition to your successor is as smooth as possible.
Nick Hernandez, MBA, FACHE, is founder & CEO at ABISA, LLC.