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While retirement or a reduced role in the practice might feel like a long way off, the reality is that positioning yourself and your practice for a smooth transition takes time and thoughtful planning.
It’s easy for many physicians in private practice to avoid an important professional priority: succession planning. While retirement or a reduced role in the practice might feel like a long way off, the reality is that positioning yourself and your practice for a smooth transition takes time and thoughtful planning. The consequences of failing to prepare appropriately can be financially damaging and can leave even a flourishing practice in a state of uncertainty and even lead to dissolution.
With that in mind, physicians in private practice would be wise to familiarize themselves with the legal and economic considerations involving succession planning, including basic tips and best practices for optimizing planning and preparation to ensure a smooth transition.
Putting succession planning off until the last minute is a prescription for trouble. When you consider that roughly 54% of physicians are over age 50 and 31% are over age 60, it becomes obvious that failure to prepare is preparing to fail.
The easiest answer as to when you should start succession planning for your practice is “always.” Almost all strategic and professional decision-making for the practice should be conducted with an eye toward long-term succession planning. Remember, there’s no such thing as “too early,” but there is certainly such thing as “too late.”
One of the most common issues physicians encounter when it comes to self-evaluating their practice is inflated financial expectations. Many have a dollar amount in mind that they think their practice is worth-and in many cases, the actual value is far less. For too many physicians, that “guesstimate” may have been the basis of retirement planning and other financial decisions, and discovering that it is inaccurate can be frightening (and can even delay retirement).
A common reason for this is that many physicians attribute far too much goodwill to their practice, often without any supporting evidence. It is critical to consult with a trusted adviser who can provide a realistic view of your practice value.
How you handle your transition out of practice can have a significant impact on the value of the transaction. A sudden departure and impersonal farewell letter can be disruptive and jarring to patients (especially in a small or solo practice), so take care to promote continuity and comfort. Consider a gradual transition to the purchaser, such as an overlap period between the closing of the transaction and the day you officially retire.
An often-overlooked part of succession planning is compliance with applicable medical records laws. Physicians are deemed to have legal custody of a patient’s medical records, and must comply with certain laws when selling a practice. Transferring custody of those records, informing patients of the transfer of custody and their related rights, executing a medical records custodian agreement to satisfy state and federal laws and notifying the state of the transfer should all be part of a comprehensive succession plan. This process is also a good time to determine whether you have any medical records that can be purged.