Creating a Transition Plan for Your Healthcare Practice

We know it’s blunt, but it must be said: The end of your career doesn’t always happen when you expect it. And even if it does, the financial setup needed for retirement (or whatever new life you choose) doesn’t create itself. A transition plan ensures that, no matter when or how you step down from your healthcare practice, you—and everyone else—will be prepared.

Creating a transition plan takes a great deal of time and thoughtful consideration. (And to be fair, not many people like to think about how life and work would go on without them.) So we’ve broken down the steps to create a thorough, practical transition plan that suits your practice and you.

Do I really need a transition plan?

Well, that depends:

  • Would you like to enjoy a certain lifestyle after you retire?
  • Do you want to make sure your patients receive the care they need in your absence?
  • Would you feel better knowing your employees would still have jobs when you’re no longer working?
  • If you unexpectedly become unable to work, would you like a plan in place to keep your practice running?

If you answered “yes” to even one these questions (and we expect you would), you need a well-thought-out transition plan. It helps preserve your practice’s value so you’re more likely to retire the way you want. It also ensures continuity of patient care and minimizes disruptions to your practice’s operations.

There’s a lot riding on your transition plan, and the groundwork needs to be laid well ahead of time. So if you’re five, ten or even 15 years out from retirement, get started now. Your actual timeline depends on your post-practice plans and how long you’re willing to wait. That said, here’s a common framework for each phase of the process.

  • Initial planning: Five to 10 years before starting the transition process
  • Preparation: One to two years before the transition
  • Execution: Six to 12 months before the transition
  • Transition: Three to six months before and after the transition
  • Post-transition support: Three to 12 months after the transition

Phase 1: Initial Planning

We recommend starting this phase at least five to ten years before you want to transition from practice ownership. That said, even one year out can be helpful if your business is doing well.

Define your goals and evaluate your readiness.

Creating a transition plan without knowing your goals is like cooking without knowing what you want to eat—or for that matter, whether you’re preparing breakfast, lunch or dinner. And just as people have their own unique palates, they have their own ideas of post-work life as well.

Leisure activities, traveling and enjoying family are the stereotypical trappings of retirement. But maybe you want to continue seeing patients part time. Or perhaps you’ll dive headfirst into volunteer medical work. And how about living arrangements – would you like to stay in your current home, downsize or buy something larger? Maybe you’ll ditch a house altogether and make hotels or an RV your home as you travel. Set your goals, preferably with the assistance of wealth management advisors.

Then start creating your transition plan. You don’t have to do this alone; in fact, we don’t recommend it! A healthcare CPA, an attorney, a medical practice broker and other professionals should guide you in the process. You might also conduct a practice valuation to determine your business’s value and take steps to increase it in the years to come. (We’ll talk more about practice valuations shortly.) Assembling an experienced team of advisors you trust is crucial to achieving your objectives.

Phase 2: Preparation

About a year or two before you intend to exit, the preparation part of your transition plan should kick in. In this phase you’ll lay the groundwork for how this will happen and facilitate the best possible outcome.

Choose your exit strategy.

Once you know what you want out of post-practice life, you can decide what will happen with your business. Your choice depends largely on the goals you’ve set for yourself and the time you have to achieve them.

Bring another physician on as a partner. This option is ideal if you want minimal change for patients and employees, because it best allows you to find someone who shares your approach to patient care and your business philosophy. You can also work alongside your new partner to show them the ropes and ensure a smooth transition. When you’re ready, you can sell your share of the practice to the new partner with confidence.

This arrangement also provides greater flexibility for your transition plan. You can retire completely knowing your business and patients are in good hands. Or you could continue practicing but reduce your hours and be free of business-end responsibilities. However, be prepared to lose some or all control over your practice as the new partner takes charge.

Sell to a larger practice, a hospital or a private equity firm. Some physicians choose to become part of a larger healthcare or private equity organization. As with bringing on a new partner, this option allows you to let someone else handle business operations. It would also likely give your patients access to more resources, like multiple locations or advanced equipment.

A bigger benefit, however, is the deeper pockets such an organization likely has. And that generally means more money for you when you sell your practice.

That said, there are several downsides to this option. You’ll have even less control over patient care and operations due to the new entity’s well-established policies. This could set up cultural and operational differences that can lead to employee conflicts and patients that feel neglected. And in the case of a private equity firm sale, your practice is more likely to be run by people lacking medical expertise and focused on the bottom line.

Close your practice entirely. Technically, your transition plan doesn’t have to include transferring your practice to anybody. Closing your business is a quick and relatively simple way for you to move on. If you must leave your practice and don’t have a plan set, this might be your only viable option.

As you can imagine, this path has its drawbacks. You probably won’t receive any financial return since there’s no sale of your business. Meanwhile, your patients will lose a trusted care provider and employees will lose their jobs. If you must use this option, do your best to provide time for both groups to make new arrangements.

Conduct a thorough practice valuation.

A practice valuation evaluates your practice’s financial performance, assets, patient base and other factors to determine its overall worth. The process will focus on either your business’s future earnings potential (income approach) or comparisons with similar practices in your market (market approach). A third type of valuation, asset-based approach, is not commonly used by physician practices.

Depending on where you are in your transition plan, your practice valuation can serve different needs. If you’re looking to retire soon, it helps you set a realistic sale price. Otherwise, it provides a benchmark you’ll use when deciding how to build value in the years to come. From there you can take the steps needed to strengthen your practice’s performance and achieve your desired sale price.

Phase 3: Execution

In this part of your transition plan, you’ll search for a new partner or market your practice for sale. This should start at least six months before your targeted transition date, but no longer than a year beforehand.

Your professional help comes in handy in this phase of transition planning. Your medical practice broker can help you find and evaluate potential buyers. Consider their plans for your practice, their ability to obtain financing and their vision for patient care.

Once you have a buyer or new partner set, you’ll negotiate terms of the sale. During this time, the buyer will perform due diligence to review your practice’s financial records, operations and legal compliance. Any issues that arise are discussed and (hopefully) resolved during this phase.

Finally, you’ll work with your attorney to draft and review the necessary legal documents. These include a purchase agreement, any applicable non-compete agreements and transition services agreements. Once all is set, you’ll close the sale of your practice.

Phase 4: Transition

Ah yes, the “transition” part of your transition plan. It’s also the most human-centric phase, because this is when you’ll inform your patients and employees. Hearing about this change through the grapevine creates uncertainty and undermines trust—neither of which your patients or employees deserve.

Create a thoughtful communication plan that tactfully breaks the news to all members of each group. For patients, this likely means an email or letter; for employees, an in-person meeting is best if at all possible.

Regardless of the method, you should include the following information:

  • The fact that you’re stepping away (and if you’d like, the reason you’re doing so)
  • Information about the new partner/owner (as much as you can to reassure patients and employees of their expertise, approach to care/management, etc.)
  • The date of your transition or last day on the job
  • Any changes in practice operations you know at that time (e.g., setting appointments, payment policies or the process of scheduling shifts)
  • A mention that you’ll keep them informed as more details concerning them are ironed out

This communication should begin a few months before your exit and continue through the transition (and a few months afterward). During this time you should also work with the party taking over your practice. Walk them through daily operations, share with them your employee and operations manuals, and have them assume some responsibilities.

Be sure to specify in your transition plan exactly how and when these measures take place. You might want to include the details in the legal documents you developed in phase 3.

Phase 5: Post-Transition Support

You’ve settled into life after the lab coat, whatever that life might entail for you. Your transition plan is complete, right?

Not exactly. In most cases, your transition out doesn’t necessarily mean a hard cutoff from your practice. For at least the first few months after your exit, you’ll likely provide support and help address issues that arise. These responsibilities can include:

  • Monitoring practice performance
  • Serving as a mentor or helping train new employees
  • Supporting necessary changes to operations (such as the adoption of new procedures or technologies)
  • Maintaining communication with those affected by your departure (for example, occasional check-ins with the new owner/staff, replying to patients who contact you with concerns, etc.)

As with the transition measures in phase 4, you might include the specifics of your post-transition responsibilities in your sale documents. Setting these expectations (and boundaries) ahead of time allows you to better enjoy your retirement. It also helps the new owner avoid feeling like you don’t trust them or can’t let go of your practice.

Take it step by step.

We get it; this is a lot to process. But when you break a transition plan down to these phases and hash them out one at a time, the process is far more manageable.

And it’s all the more reason to start planning as early as possible. Imagine making all these decisions, obtaining valuations, marketing your practice and drawing up legal documents within just a few months (or less!). And that’s not even including the communication plan and the transition itself.

It’s also why you don’t have to—and shouldn’t—do this alone. Work with your healthcare CPA and other advisors to create and execute your transition plan. With their knowledge and experience in both your industry and in how this planning works, their expertise gives you the best chance at the post-practice life you’ve dreamed of.


All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.