Nearly 40% of doctors in the UK are aged 50 or older, and one in four are 65 or older. For these baby boomers, retirement is a fast-approaching reality.
As you ponder your next life phase, if you own a private practice, you face several challenges unique to the profession.
Physicians can only pass their business on to another physician, naturally limiting the number of available potential buyers, but the good news is that more and more young doctors look to private medicine, so increasing the likelihood you can sell your practice.
As with all matters financial there can be substantial advantages to starting early.
Preparing for a sale
Establishing a succession plan is one of the most important business decisions the owner of a practice can make. The succession plan should provide for both ownership transfer and management continuation in the event of disability, death or retirement.
The structure of the succession plan will depend on the type of practice involved. A physician in solo practice, for example, will need to consider hiring a junior physician who can take over the practice, or finding a potential buyer or merger partner. As a last resort, a solo practice may need to wind down gradually if no other options are available.
A group practice, in addition to the options noted for solo practices, has the possibility of a potential physician partner buyout. Another increasingly common scenario is to sell the practice to a hospital or a health system.
A formal buyout arrangement, often referred to as a buy-sell agreement, establishes how much the selling or retiring physician partner will receive for his/her interest in the practice upon the occurrence of certain trigger events, such as the death, disability, retirement or voluntary withdrawal of a physician from the group practice.
Whether it involves a solo or a group practice, basic steps should be considered in preparing for the succession of the practice ownership to try to ensure that maximum value is preserved:
Plan early for practice succession and retirement. To help preserve, enhance, and extract maximum value from the practice, succession planning should begin early, preferably seven to 10 years before retirement.
Assemble a team of competent advisers who have in-depth knowledge and experience working with physicians, their practices, and their unique planning needs. A qualified tax advisor, attorney, and wealth adviser should form the core of the team.
Implement a plan to retain, recruit, and reward key physician and non-physician personnel to shore up the practice and to aggressively grow its gross and net income, especially during the seven to 10 year period prior to retirement.
Approximately six months prior to retirement, engage a qualified appraiser who specializes in medical practices to ascertain the value of the practice.
Consider how a practice’s underlying real estate should be owned. A practice that owns its real estate may subject that property to liability and creditors’ claims flowing from the practice. Proper ownership of a practice’s underlying real estate (i.e., in a Limited Liability Company), whether by the solo physician or a group of physicians, may provide added protection of the real estate and an additional source of potential growth and income into retirement.
But at the end, finances aside, it is that feeling of leaving your patients in the hands of another specialist. You have worked hard to build your practice and feel responsible for their welfare. I put it to you, that they will be better served by a well organized practitioner, who has realised his or her need to retire, and has put in place a plan with a colleague hand picked by you to take over.