The time to retire comes sooner than you think. Unfortunately, most of us will find ourselves without an answer to the inevitable question, “What happens to the clinic after I’m gone?”
Planning for this scenario is especially relevant now since the landscape for some specialties such as primary care indicates a mass transitioning of practices. In fact, one New England Journal of Medicine survey indicates “20 to 40 percent of respondents from primary care practices were considering [the] sale, permanent closure, or consolidation” of their practice.
In the same way that preventive health is a strategy for improving health outcomes, succession planning is a strategy for improving the outcome of your overall well-being when you retire. To retire on your own terms, it’s important to begin the planning process––early.
It takes time to develop a long-term strategy that will support the practical, emotional, family, legal and financial implications of your transition from practicing medicine to the next chapter of your life. Knowing your options and being prepared can help ensure that you meet all aspects of your retirement goals.
If you own a clinic practice, three likely scenarios for succession planning include:
- Close the practice–A delay in making a plan may result in difficulty finding someone to take over, which inevitably leads to no other option than closing the practice. This can sometimes be the easiest and most timely option, but it often comes with a high financial and emotional price. Don’t underestimate the psychological impact of seeing a ‘closed sign’ on your clinic door, especially when accompanied with a financial loss. This may be the most attractive option to physicians in rural locations, late in the game to succession planning.
- Find a successor–This option usually requires a longer timeframe and finding a physician that exhibits the values of the culture you’ve created within your practice. A willingness to take the reins at a mutually beneficial price may take patience and time, but the payoff can be significant financially, emotionally and knowing you’re leaving your practice and patients in good hands.
- Sell the practice–You might find someone who wants to acquire your clinic. Planning ahead and tidying clinic processes and reports will help ensure you’re on the winning side of a financial deal. This situation may also provide you with the option of continuing to practice without the burden of ownership. Be sure to discuss the buyer’s plan and ability to maintain the values of your culture, and make certain there’s a smooth transition plan for your patients.
Starting early is the key to maximizing benefits and achieving the best outcome for yourself, whichever option you chose. Typically, closing a practice or finding a successor are internal matters and require less involvement of experts to help support a transition. Selling your practice, if planned appropriately, provides clinic owners the most financial upside. This option also requires the most involvement with external consultants to help with the transaction.
To start the selling process, you’ll want to ensure you have a good accountant, lawyer and financial advisor that have domain expertise in medical clinic exits. Having these three experts can help you successfully navigate the process, plan and negotiate the best offer.
If you decide to sell your practice, consider:
- Your value in the market–Clinic owners are frequently awe-stricken by the value they expect, versus the offer they recieve. Preparing in advance will help you focus on areas of improvement to increase your value and price.
- Different types of buyers–Different types of buyers offer different levels of bids. Offers may come from hospitals, large multi-specialty practices, other small clinics and private equity firms. Hospitals and specialists could be restrained on valuation. Understanding the landscape can help to align your current practice’s strengths to the right value of buyer.
- How to plan for the real estate exit–Many physicians own their clinic real estate. The sale of both of these entities can be considered a “Complex Transaction” by the IRS. Understanding how best to leverage your property to get the most gains requires a keen grasp of the real estate market timing and your retirement plans.
- When to phase out–In most cases, the buyer will value your experience and command on the clinic’s culture and in the community. They will want you to stay to transition patients and ensure post-acquisition integration goes well. You may need to start to transition two years or more before retirement. Setting expectations will help prepare for next steps. In some instances, your transition can be a negotiating point for increasing the value of your clinic.
Selling your practice can be a daunting experience, particularly if you are seriously considering the option of leaving the years of hard work it took to build your practice in the hands of another person. But starting early with succession planning can help ease stress and anxiety, and ensure that, when the time comes, you’ll be able to exit the market knowing you made the right decision for yourself, your patients and your pocketbook. If you’re interested in selling your practice either now or in the future, I’d love to learn more about your vision and/or answer any questions you may have. Feel free to contact me directly at clifford.tse@carymso.com.
Clifford Tse is Head of Acquisitions for Cary Medical Management (CMM), a leading healthcare IT and physician management service organization (MSO) headquartered in North Carolina. With over 10 years of experience in healthcare management and acquisitions, Tse helped to grow CMM’s footprint four-fold, while helping independent clinic owners realize their succession and retirement plans.