Building a thriving private practice as a doctor is no easy task. Yes, the work can be rewarding. You get to treat patients and run your business according to your values and beliefs, avoiding many of the potential administrative burdens that come with a large health care network.
However, you also have to expand the practice over time, carefully allocating resources and hiring the right staff. You have to compete for new patients and build a strong reputation. And you have to be focused with your budget to keep your practice financially strong.
As much as you may enjoy your private practice, nothing can last forever. At some point you will may leave your business. You may choose to retire so you can pursue other interests or spend time with family. Or you may reach a point where you find you’re no longer up for the task of running a busy practice. Either way, business succession is likely inevitable.
Succession is challenging for any business, but it can be particularly difficult for doctors. There’s a limited pool of potential buyers available. You also want to make sure your succeeding owner is someone who will provide excellent care for your patients. And there’s the troubling fact that many young doctors are saddled with medical school debt and aren’t in a position to buy a practice.
With the right plan in place, though, you can transition your business to a new doctor in a way that protects your patients and compensates you for your years of hard work. Below are a few mistakes that doctors commonly make in the succession process. A financial professional can help you develop a strategy that avoids these mistakes and others.
Focusing on the practice as your main retirement asset.
You probably feel that your practice is your most valuable asset. You may be correct in that assessment. However, it shouldn’t be your only retirement asset. Many business owners, including doctors, make the mistake of assuming their entire retirement will be funded by the sale of their business.
That’s a risky bet to make on your retirement. It’s possible that the sale of your practice could fund your retirement. It’s also possible that the transition could take years to complete or that you have to accept less than you’d expected for the business.
Diversify your retirement strategy by building assets outside your business. Fund an IRA or 401(k) to increase your assets on a tax-deferred basis. Consider using an annuity to provide guaranteed* income in retirement. Your practice may be a valuable asset, but don’t count solely on the sale of the practice for your retirement.
Failing to make connections and build relationships.
Your No. 1 job is to treat patients, and you likely take that responsibility seriously. However, it’s important to get out of the office and make connections with colleagues and potential buyers.
Consider that your buyer or succeeding owner will almost certainly be someone in your local market. It could be another doctor who wants to grow his or her private practice. It could be a hospital or health network. It could be a younger doctor whom you bring in as a partner.
The only way to identify these potential buyers is to make connections and develop relationships. As you expand your network, express your desire to possibly exit the practice in the future. That could spur conversation and open up potential opportunities. The earlier you start this process, the more opportunities you may discover.
Expecting a cash payout.
In an ideal world, your buyer would pay cash for your practice, and you could take the lump sum into retirement. That’s not likely to be the case, though. Medical practice sales usually include a mix of cash, dividends, debt, ongoing payouts and even stock. The agreement could require you to continue in the practice for several years to assist with the transition. You may even find yourself going from owner to employee.
Obviously, you should negotiate for the terms that work best for you. However, it’s important to be flexible. Be prepared to accept a range of types of compensation. If you’re expecting a sizable lump sum on the day you sell your business, you could be disappointed.
Ready to develop a succession plan for your practice? Let’s talk about it. Contact us today at Bridgeriver Advisors. We can help you clarify your goals and objectives and implement a strategy. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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