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Medical Practice Succession Planning: Developing A Plan

A medical practice succession plan is a detailed analysis of the practice’s assets, liabilities, equipment, personnel, operations and earnings potential. A succession plan also provides management for the remaining medical practice owners with an outline to follow if there is an emergency. The plan also would involve a buy-sell agreement between the medical practice owners when one retires, is disabled, or prematurely dies.

Many experts agree that medical practices should start planning for the sale of their practice the day they start their practice. Yet, only approximately thirty percent have a written succession plan.

Before starting a succession plan, medical practices should keep in mind the following advice:

1) Set realistic succession goals.

2) Think of the plan as a living document. Revisit it once per year and more frequently as the owner draws closer to retirement or in the event of failing health.

The first step in formal succession planning is to form a team of advisors to plan for the succession. The team is usually composed of the practice’s attorney, accountant, banker (if financing is involved), medical practice appraiser, financial planner, and life insurance agent. Before any meetings with the planning team, medical practices should be prepared to answer the following questions:

A) What should the plan accomplish?

B) What is an acceptable value for the practice?

C) When and how will the practice be transferred?

D) Who are possible successor medical practice owners?

Next, the practice’s value must be determined. This is best accomplished using the services of a valuation expert such as a medical practice appraiser or CPA who spends the majority of his or her time doing medical practice appraisals. This expert should be able to help market the medical practice to potential buyers as well as track sales of comparable medical practices.

A common mistake medical practice owners make frequently is underestimating the value of the practice. This is why valuation experts should be consulted.

Next, medical practices should research the market that would buy the practice. The medical practice should then be evaluated as an investment from a buyer’s perspective. Third, medical practice owners should know ahead of time how much money a successor must have to buy and sustain the practice. The reason for this is that medical practices frequently hold a note receivable for a portion of the proceeds of the sale price or which can be based on receivables.

When medical practices are at the point where they are talking to buyers, many make common mistakes such as:

· Thinking a buyer is qualified when he/she is not.

· Talking with only one buyer.

· Disclosing too much information too early in the negotiations.

The last step in succession planning is dealing with the post-sale issues. Former medical practice owners should have an investment plan ready for the sale proceeds. They should also have new personal plans and goals. They should also remember that the old write-offs, health and disability insurance, club memberships, mileage, etc. no longer apply to them and they must adjust their financial plan accordingly.

For further information, contact Louis P. Stanasolovich, CFP™ at (412) 635-9210 or mail to:

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