At all sizes of practice, the planning for retirement should begin as early as possible. The first order of business is finding the person who will be taking over the practice or the position in the group.
Initial recruitment can be done various ways. Advertisements can be taken out in journals. Current partners may want to use contacts at medical schools or other practices. Fellowship programs are another source.
The second aspect is making sure the practice and the physician are a good fit from a personal and professional standpoint.
“You should plan on at least a two- to three-year period of working together so the new person knows what is happening with the practice,” says Mr. Keller. “The incumbents will want to know if the replacement physician’s style of medical management is congruent with the values of the practice. Finally, it is important that the patients like [the new physician] going forward. Best case, we need to start serious planning five or even 10 years before retirement.”
Because of the need to assess compatibility, most often the new person will be brought on board as an employee. The first agreement with the practice will likely be an employment contract that outlines pay, practice expectations and length of the contract. It may or may not outline the price formula for the takeover of a solo practice or buying shares in the group.
At some time, the price will have to be negotiated. Whether it is part of the employment contract or comes about later, an agreement will have to be reached.
“If you have a group of physicians, you have a pretty good idea of what the practice is worth,” says Mr. Mann. “Generally, at some point, everyone has bought into the group or people have left and paid on their way out.”
This means that there is often a history of what a slice of the practice has been worth in the past. In addition, most larger groups have buyout formulas in place as part of their governing documents.
Solo practices, much as we discussed in the unplanned succession section above, are harder to evaluate. Not only is there less of a paper trail for valuation, it is the physician’s life work and worth much more to them than to someone coming in from the outside. Expectation management is an important part of the accountant’s job.
It’s important to involve your practice’s attorney from the start. They will be involved with drawing up the contracts for employment and/or selling the practice, as well as the rules governing how the partners deal with each other and the practice.