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Understanding Succession and Exit Planning for Physicians
By Michael J. Searcy, ChFC, CFP®, AIFA®
Doctors who once planned to rely on the sale of their practice to fund their retirement are now finding it more difficult to recruit younger physicians for their succession plan. If you are a mature doctor today who owns a smaller medical / dental practice (one or two doctor groups), you may be finding that both the economy and desires of younger doctors are changing the game for developing an exit strategy.
The Plan
In preparing a succession plan, a major key to success is starting the process early. Waiting until you near retirement to begin thinking about selling your practice may leave you with limited (often unfavorable) options. While some doctors choose to fund a buy-out vehicle during the early stages of their practice with the end goal of selling and retiring in mind, the majority are not in a position where they have a longstanding plan in place. For doctors who are more than 5-7 years out from retirement, making time to consult with professionals and come up with an enticing purchase proposition for a younger doctor can lead to receiving maximum value for the practice.
Understand the Obstacles
Several factors lead to younger doctors not purchasing existing practices. These include the heavy competition from hospitals that are competing for more doctors, their desire to set up their own practice, or their aversion to the responsibilities of running a business. By understanding the obstacles you may face in finding a successor, you can plan ahead to overcome them and get your practice in optimal operating order to increase its attractiveness to potential successors.
The Questions
Questions to consider during the process include:
- Do I know my practice’s worth? Getting an accurate valuation is important for you and your successor. Valuation companies that specialize in medical and dental practice valuations will consider your tangible assets, accounts receivable and the goodwill/brand of your practice to give you an accurate picture of your worth. By overvaluing your practice, you may repel potential buyers.
- Are all operations running smoothly? There may be areas of your practice that need strengthened before a sale. This can make things smoother as you prepare for a sale, and also make the practice more attractive.
- Can I/we sustain another doctor’s salary while they are being groomed to take over?
- If not, is there a hospital affiliate who can hire the doctor to work in my practice until we build the financial base to sustain another salary?
- Am I protecting my patients? Aside from adhering to any patient notification laws of your state, you want your patients to understand any upcoming transitions. Creating a plan to protect your clients may help retain them after the transition.
Build an Alternative Nest Egg
While the sale of your practice may be a wonderful addition to your retirement fund, it is important to build a nest egg as you work and not rely on that big chunk from a sale at the end of your career. No sale or purchase price is guaranteed and economic changes or new regulations could make your practice unsellable. By building a nest egg for retirement throughout the course of your career, you can have greater peace of mind that you can experience financial freedom in retirement.
Assessment
Developing your exit strategy will take time, organization and careful planning. Avoid adding additional stress by viewing the sale of your practice as your financial freedom for retirement. When it comes time to transfer your ownership out of your practice, make sure you are able to focus solely on a successful outcome!
The Author
Michael J. Searcy, ChFC, CFP, AIFA, is President of Searcy Financial Services, Inc., a registered investment advisory firm in Overland Park, KS, offering integrated wealth management solutions to doctors. Searcy has been listed by Medical Economics as one of the “Top 150 Financial Advisors for Doctors” in 2002-2006 and 2011. For additional information, visit www.SearcyFinancial.com
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Filed under: Career Development, Retirement and Benefits | Tagged: A Retirement Game Changer for Mature Physicians?, Michael J. Searcy | 4 Comments »
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