Contemplating Succession Planning: The Solo Physician Dilemma

The decision to sell your practice is never one made lightly.  It takes years of hard work and unwavering dedication to build a successful physician practice.  No matter how rewarding the practice is though, no wants to work forever and eventually physicians will want to retire.  As you move closer to your ideal retirement date, you begin to wonder what will happen to the practice, how will you handle the transfer of ownership, and will you make enough from the sale.  There are multiple options when it comes to selling your practice, but the best decision for you will depend on your unique circumstances and personal preferences; do not let any outside professional attempt to get you into a boilerplate succession planning model.  Every physician will have different goals and visions for themselves and their practices, but having an idea of your options will help you prepare for a smooth and rewarding transition.

Selling to an outside party

Opting to sell your practice to an unrelated party carries its own sets of emotions and complications, but that is the course laid for solo physician practices.  Outside of finding a buyer, you must decide on a value for your practice and also determine the exit plan.  As I have detailed in previous articles on the valuation process, the value of a physician practice is typically based on the previous three years of data.  During that time, you may have been increasing patient volume, revenue, and profitability.  You have undoubtedly added new patients and may have updated technology in the practice including making major equipment purchases.  All of these items can help to maximize the value of your practice before a sale.  When you are ready for the final push to entertain a buyer, what can be done to improve the value of the practice, especially the curb appeal?  You need to look at your practice through the critical eyes of a potential buyer.  Here are a few items to consider.

New patients

It is imperative to keep new patient numbers up as this is a key metric that purchasers review and consider an indication of practice vitality.  If the rate of new patients is falling off, it sends off warning signs to a potential buyer.  If needed, engage an experienced marketing firm that has success in attracting new patients.  They might suggest items such as launching a new website, running social media campaigns, and asking for online reviews from patients.

Website

Speaking of websites, when was the last time your website was updated?  The website introduces and describes your practice to the community.  Reviewing your website is one of the very first (if not THE first) tasks a potential buyer undertakes.  Is the site up to date, inviting, informative, and user friendly?  Are there recent professional photos of the facility, the physicians, and of all staff members? 

Cosmetic

Ensure that you tune up equipment and declutter the facility.  Have maintenance and repairs performed on all equipment as needed, although you want to avoid making any last-minute big equipment purchases unless absolutely necessary.  Replace damaged fixtures and dispose of old plants.  Consider installing new carpet, replacing worn furniture, and refreshing the paint.  Fresh paint and some new décor can help freshen the look without breaking the bank.  Ask a friend or hire a consultant to walk through your office and provide candid feedback on the aesthetics.

Revenue and Procedural Volume

Sometimes practice owners start to slow down before retirement.  This results in an exponential decline in profit and practice value.  It is important to maintain the historic growth rate of the practice until the sale closes.  The year before you sell your practice is not the time to cut back your schedule or take an extended vacation.

Accounts Receivable

A practice sale requires a lot of information be provided to the prospective buyer.  Most likely you will hire a transactional consultant (different from a practice management consultant) to facilitate the entire process. That consultancy can discuss with you a checklist of due diligence items that will be needed for prospective buyers to review.  Additionally, you should be proactively reviewing accounts receivable and cleaning up accounts outstanding over 90 days if A/R is going to be addressed in the valuation and/or purchase agreement.

Staff

Nothing good comes out of trying to hide a practice sale from your staff.  Set the tone with the team that the transition will be welcomed and embraced as a positive step forward.  If your spouse works at the practice, then they will obviously need to step aside with the transaction.  If there is a position in the office that needs to be filled, consider hiring and training someone before the sale because you need to continue operations as normal and not attempt to hand off a practice that is lacking staff at the last hour.

Planning your exit strategy

Remember too, that transparency is crucial both internally and externally.  Proactive communication about leadership changes alleviates the normal fears associated with change and uncertainty.  Plan for this.  Poor management of this process shakes organizational credibility and effectiveness.  The bottom line is that transitioning from a practice takes time and preparation.  There are a variety of issues that must be considered, which is why it requires education and adequate planning to ensure the handing over of your practice is seamlessly executed. Someday the time will be right for you to sell your practice.  The best exit strategy is the one that best fits your practice and your personal goals.  Decide what you want to walk away with and a transactional consultant can help you decide how you will accomplish that.  Once you have made a decision to exit your practice, you can never start too early to prepare for a future practice transition.  Starting early can ensure a smooth and successful practice sale, but you must have a carefully thought-out roadmap with timelines.  And don’t be afraid to ask for help; it’s not every day that you sell your practice, but there are experienced professionals out there who can advise you.  Don’t seek the advice you want to hear, but rather the advice you need to hear.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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Transitioning from Solo Practice to Partnership

If you are a solo physician practice, there may come a time when you decide to bring on a partner.  Whether it is for growth reasons or succession planning, bringing in a physician partner has many advantages: A partner may help your practice grow and become more successful; partners allow you to share the workload and to combine skills with another provider; and you can enrich your practice by having a solid teammate. However, business partners can become your greatest asset or worst liability. Deciding whether or not to share your practice with someone else may be one of the most important business decisions you ever make. Deciding who you go into business with can be just as important.

The business side of practicing medicine is a lot more fun when you can share it with someone else. There’s something exciting and exhilarating in facing challenges together, and if you’re blessed with a partner with a sense of humor that meshes with yours, work becomes like play. Managing employees and a practice is exhausting. On the days when you just need a break, your partner is there to pick up the slack. A physician partner provides motivation and support. Not only can you bounce ideas off each other, but in difficult times you can find encouragement in one another. Also, you will often find that you work harder because there is pressure to perform and to not let the other person down.

Pause to reflect.

There is no way to guarantee a potential partnership will work. Consequently, weighing the advantages and disadvantages of having a physician partner, and carefully analyzing the reasons for choosing a partner can help ensure that you find the right person to entrust with your practice. Identify what you really need from a physician partner before you start looking for one. Once you have completed this essential first step, you can begin the process of choosing a partner.

What does the partner bring to the table?

Your partner should have strengths that you lack, and vice versa. Perhaps you need a more detail-oriented partner. Or if you are shy, a good “people person” may be needed to balance the dynamics. Although it might be more comfortable if the partner is similar to you, but it may not be what your practice needs. You need a partner who complements your skills and personality. Great partners band together to compensate for each other’s weaknesses, so that individually they can focus on using their strengths. Tasks are done more efficiently and the practice is able to get more accomplished, precisely because partners have different skills and areas of expertise.

Discuss your vision with your potential partner.

Partnerships promote greater creativity and can spur innovation. The purpose of evaluating a potential partner is to understand if your business principles, company goals, and personalities are compatible. It’s hard to brainstorm alone. Most physicians’ creativity flows more freely if they can bounce ideas off others. And things get really interesting when you have partners who bring their own ideas and perspectives to the party — that’s often when the biggest leaps of innovation occur. A physician partner means more ideas coming from a different background. Take as much time as you need to make a well-informed assessment of whether your business partner is actually a suitable one. While you do not want overlapping skills, you should share a sense of vision for the practice.

Taking your practice forward.

Sometimes it takes another physician’s perspective to shake a successful practice out of complacency and see an old practice in a new way. A physician partner can help you narrow down the list by offering unique perspectives and opinions that you yourself may not have been able to think of, which can save you time and money later on. A good partner can challenge you to take the kinds of risk that will help your practice grow. Partners also can encourage each other to be more daring simply because each partner figures the other will be there to pick up the pieces if the risk doesn’t pan out. Having a good physician partner will help you tackle large initiatives, but also will help pull you out when things go wrong. Similarly, a good partner will tell you when an idea is misguided and keep you from taking on too much risk.

Be open about expectations.

Assess the potential partner’s expectations on the time involved. Partners don’t have to spend the same amount of time, but it is important that they are on the same page as to each other’s expected time commitments. How many hours a day does your partner expect to put into the practice, and do her expectations meet yours? Your partner’s commitment has to equal yours, otherwise they may lose their enthusiasm and end up damaging the practice’s reputation daily.

Other evaluation considerations.

When evaluating potential partners, it is important to disregard any friendship or emotional ties. Construct criteria that you are looking for and determine how well a potential partner lives up to it. Your potential partner should also have questions for you and should want to know about your character, reliability, and expectations. Of course you will want to weigh their standing in the referring physician community too. A business partner who is adept at cultivating relationships with your referring physicians adds value to the practice. Also consider how they interact with employees and patients.

Utilize the consultant/attorney team.

An attorney can create essential information into governance documents, such as how the work will be divided, what will happen if more startup money is needed, and how decisions will be reached. Although partnerships need to be written up, remember that people make partnerships work, not legal documents. And remember, the best time to address potential problems with your partner is at the beginning of your venture, before emotions run high. You can’t predict every potential problem, but a good healthcare attorney and consultant can help you work through some of the common problems and put a framework in place to help address unforeseen circumstances. You may find it beneficial to work with a consultant before having an attorney draft up the legal documents.  Additionally, it is very wise to use a consultant after the partner joins to ensure communication and business training happens between you and the new partner.

Final thoughts.

Physician partnerships are often a great idea providing you give thought to how you will structure one and why you wish to create a partnership. Sometimes physician partnerships aren’t so successful — so it is crucial to choose your partner well. This is somebody who you’re going to spend a lot of time with and who, like your spouse and your family, will probably see all sides of you, in full Technicolor glory! Even if you’re not looking for leverage now, think about what a physician partner might do for you. What holes could he plug, what opportunities could she open up? Rugged individualism has its limits.

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Contact ABISA for healthcare consultancy support or speaking engagements.

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