Nearly half of all physicians are age 50 or older, and many would retire today if they had the means. The importance of advance planning when it comes to an exit or retirement strategy cannot be overstated.
Nearly half of all physicians are age 50 or older, according to a report issued by The Physicians Foundation. In other words, the time to ride off into the sunset and enjoy their retirement years is not far off. Or is it?
The same report, “A Survey of America’s Physicians: Practice Patterns and Perspectives,” reveals that more than 60% of respondents say they would retire today if they had the means.
“The earlier you start, the more opportunities you give yourself,” Lee says. “A lot of doctors don’t think about their practice from a valuation standpoint; they don’t understand what it can be worth. The sooner they start planning, the better off they’re going to be.”
Lee believes that the importance of advance planning when it comes to an exit or retirement strategy cannot be overstated. One approach he recommends, especially if a physician is self-employed, is to bring in his or her own successor, or successors.
“Some very entrepreneurial physicians might want to maintain ownership of the practice, but no longer work with patients, by bringing in physicians and having them work with their patients and grow their patient base,” Lee says. “Eventually, when they’re ready to retire, the successor can take over the practice and either buy them out, or physicians can still own the practices if they want to and can just oversee the business.”
Lee acknowledges the challenge of removing oneself from the day-in and day-out aspects of a medical practice, no longer performing as an integral part, but he says it’s a strategy many are employing.
“Some of the more wealthy physicians I work with, that’s what they’re already doing,” he says. “They might be the owner of a practice and have other doctors working for them. It makes it a little easier for them to step away from their patients, but still keep a healthy profit in the business.”
Importance of communication
Effective communication is important in all aspects of business, and especially so when it comes to an exit planning strategy. Lee says that the better the communication between the doctor and the staff, or the doctor to the patients, the better the outcome.
For example, in a multi-physician practice, it’s important to have effective communication across all lines among all the physicians. Each of the physician members should know what’s taking place, what the timeframe is, and what the strategy is to ensure a smooth transition.
“That’s especially important if the practice is trying to maintain the doctor’s patient base,” Lee says. “The better the communication, the better the transition.”
Communication is also key when it comes to getting sound advice from financial and legal experts.
“Physicians are notorious for making bad investment decisions,” Lee explains. “It’s really because they spend so much time in their work, and their work is so consuming that they don’t have as much time to concentrate on their finances. So I think it’s very important to have some trusted advisor and to work as a team to help the physician with some type of exit plan or strategy.”
Plan with flexibility
When it comes to sticking to a plan, Lee says that’s an important element with regard to investment strategy. But where retirement is concerned, any plan should contain some flexibility for adjustment.
“A lot of times doctors will change their mind about what they want to do,” Lee says. “Contingency options need to be built into the plan.”
Part of early planning is thinking through the process. For example, Lee says that many young, ambitious doctors are very aggressive when they talk about their retirement strategy, often planning to retire sooner than they should or can. Thinking through the different scenarios, such as what their life is going to look like in 15 or 20 years, as well as what it might look like once they retire, is critical.
“Going through that exercise can help doctors to think about how best to monetize the equity in their practice,” Lee says. “A lot of doctors often times just walk away from their practices when, if they had planned earlier, can make money off the practice. So, early planning should be the first consideration.”