We have all heard the well-worn phrase: “if you fail to plan, you plan to fail”. This is no more true than in the area of Exit Planning, especially for healthcare professionals. Many times we see physicians focusing on day-to-day issues in their practices and not concentrating on planning for their exit until it’s too late. The fact of the matter is that at some point, whether you plan or not, you will leave the practice. Exit planning is a concept that encompasses more than just succession of your practice. For many professionals, the practice that they have spent a lifetime building may be one of the largest (if not the largest) assets of their estate. It would seem the only questions are whether you have planned for your transition out and how well you will achieve your financial goals when you decide to make the jump. This article addresses some of the other issues you should be thinking about and discussing with your advisors to make the eventual transition when you are ready.
Most professionals enter their professions because they have a talent for and enjoy what they do.
They see an opportunity to help people and feel they can make a good living by entering that profession. As the business grows, they typically get involved in the issues of running the practice and keeping the “money machine” going. Maybe they eventually transfer this responsibility to an office manager, but the owner is ultimately responsible and typically wants to stay in control. Remember, the practice is paying for everything you do — from paying real estate taxes on your home, to paying college tuition for your children. What happens if you become disabled? More importantly, how does your family benefit from your life’s work when you pass away?
The process you use in successfully leaving your practice starts with its initial formation. If your practice includes other professionals or real estate it is crucial to get the proper counsel on whether to use an S or C corporation, form an LLC or use multiple vehicles . At this stage, you should also engage in a discussion about protecting your assets and the structure best suited to you and your lifestyle.
Begin planning for your exit when you start your business
Once the business entity is formed, you should begin planning for your eventual exit. The process of leaving your practice on your own terms may take several years, so starting early makes sense. The Exit Planning process contemplates more than mere “retirement”. It also takes into account:
- your financial and personal goals;
- to whom to transfer the practice;
- how to keep the practice going should you become disabled;
- how to transition the practice when you are ready.
Think about the transition
This process calls for you to think about the transition, how to maintain and increase the value of your practice during transition and how to effectively go about the sale to achieve all of your goals. It encompasses:
- outlining and clarifying your personal, financial and estate planning goals;
- determining and enhancing the value of the practice;
- creating an action timeline;
- determining who are key employees that keep the practice going;
- planning for contingencies such as disability; and
- wealth preservation and asset protection.
Clarify your personal goals for exit planning success
For example, you should clarify your personal goals to ensure that you can meet them. Some questions you should ask yourself:
- Who will keep the practice running if I become disabled?
- If you have partners, do you have a comprehensive agreement that is current and in line with your goals?
- Will your family be protected in the event you don’t make it to your planned exit so they can reap the benefits of the asset you’ve spent a lifetime building?
- Who are the advisors with whom I counsel currently that my family or partners should seek out for guidance?
The issues to be dealt with are as diverse as the number and types of businesses present today. Maybe you want your children to take over, but they are not quite ready to do so. In that case, a management transition team may be assembled to help during the transition period. An entity may be established to run the business and teach your family the family history and philosophy until they can take control on their own. Also, there are different ways to minimize the impact of various taxes that come into play. Establishing an advisory team that you bring together can help you in navigating the different laws impacting your practice. With the prospect of changing tax laws, it is essential that you engage in these discussions now.
Exit planning is vitally important for every business owner and professional
It is one of the most significant financial and emotional events of your life. It will allow you to make the transition orderly and more financially rewarding than if no planning had been done. Having a team of advisors to guide you through the multitude of issues you face is crucial to ensuring that your goals will be met. By obtaining the proper counsel about the issues involved, you can gain the peace of mind knowing that the practice you have spent a lifetime building will achieve your goals and provide for you and your family as you intended.