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Transition Tips for Your Medical Practice
According to the Association of American Medical Colleges (AAMC), one-third of all doctors currently active today will be over the age of 65 in the next decade. This will likely contribute to a shortage of physicians and lead to a number of medical practices transitioning ownership.
This transition process raises questions. Who will care for my long-standing patients? What if the new owner isn’t a good fit for the practice? As the transition begins to take shape, stakeholders must underscore open communication and a unified, long-term vision.
Whether you own your practice or are part of a group of practices, these questions must be answered. Having a succession plan in place will allow for a successful shift in management or a prospective sale.
Consider the following transition tips to effectively plan for whatever the future holds — without forsaking the established business you helped build.
Seek a Practice Valuation
Determining the value of your practice is the first step in setting up a viable succession plan. Doing so assures the physician transitioning their practice is compensated appropriately for the results of their life’s work.
An array of issues must be assessed to reach the final valuation, such as:
- The economic climate at the time of the valuation
- The fair market value compensation for existing staff and new ownership
- The practice’s specialty
- The insurance policies involved
- The practice’s referral patterns
Once these factors are taken into account, a practice valuation can be determined.
Retirement Planning and Implementation
Physicians generally get a late start in planning for retirement. This is often because they don’t begin to earn higher levels of income until their early 30s. However, your retirement goals can only be met with an emphasis on contributing to a plan throughout your career. While some physicians choose to contribute more than 20% of their salaries to a retirement fund, others lack proper knowledge about retirement planning.
Making plans for retirement must be evaluated as a main component of every sale, merger or transition. To boost your retirement savings before exiting the practice, focus on the long-term benefits of a 401(k), health savings account (HSA) and self-directed IRA rather than individual stock or high-risk investment strategies.
In addition to retirement savings, give some thought to the services you offer at your practice. For example, if running a clinic is draining your practice’s finances, it may not be justifiable to continue those services.
Seeking Partnership Opportunities in Transition
Once you have a retirement strategy and a valuation for your practice, it might make good financial sense to seek a partner or associate for the practice as part of your exit strategy. Before doing so, look at the number of active patients in your practice over the course of a year. If you have fewer than 2,500 patients, taking on a partnership may not be a worthwhile deal. However, if a significant number of your patients are likely to return continually, having a partner as you transition ownership will allow you to split costs and increase your savings.
As more physicians prepare to retire or transition their practices, proper management of the succession planning process is crucial. With an accurate practice valuation, a retirement plan and potential partnerships on hand, physicians can exit their long-established practice with the peace of mind that their legacy will continue well into the future.
Tying all these steps together requires a team of knowledgeable financial professionals. And a crucial part of that team is a CPA experienced in serving physician practices and other healthcare clients. Whether you’ve just started thinking about transition planning or have one established, their expertise can provide helpful insight.
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.
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