Tips for a Smart Succession Plan
Learn how to make the transition more efficient.
Whether you are a sole practitioner or a partner in a larger practice, chances are that your business is one of your largest assets. Converting that asset into a secure retirement when you are ready to step down, though, requires a well-structured succession plan that protects your business's current value as well as its future stability.1
Know What You Want
Having a clear understanding of your objectives sounds obvious, which is why this critical step is so often overlooked. Do you want to phase out of the practice slowly or leave by a specific date? Do you want to be bought out with a lump sum, or do you want to build an income stream with a long-term payment schedule? Will your partners be buying the business, do you want to sell to a third party, or do you want to bring in a young professional whom you can groom to take over down the road? Your succession plan needs to be designed around your optimum exit strategy.2
Understand Your Fair Market Value
Unlike many other small businesses, the fair market value of your practice may involve more than simply multiplying annual revenue by a factor of two or three. Other issues to consider include the type of practice, its location, revenue history and its dependence on one major rainmaker, such as a sole proprietor or managing partner. Bring in an expert, such as a business appraiser or certified public accountant (CPA), with an expertise in handling cases similar to your own.3
Identify Potential Buyers
Whether selling to other partners in the practice, grooming a successor or selling to a third-party, potential buyers need to be thoroughly vetted to ensure they have the resources to finance the purchase and the expertise to manage the practice after you leave. Most buyouts include some combination of a lump-sum payment combined with the seller carrying a note based on receivables and other financial considerations. You need to ensure that your buyer can fulfill their commitment.4
Put Transition Details in Writing
To ensure a smooth transition for yourself, your successor and your clients, consider establishing a changeover period during which you will remain involved at least on a part-time basis. This will give your buyer a chance to come up to speed on managing your practice, and give your patients a chance to get to know their new caregiver. During this phase, though, it's important to establish clear expectations for each party, including how long you will stay on, your responsibilities during the transition and your compensation. It is recommended that you work with counsel for assistance in documenting the agreement with your successor.