Doctors, lawyers, accountants and other professionals face particular challenges in their succession planning. Unplanned exits are at high risk for losing clients, revenue, and good will. Client replacement costs and other continuity challenges abound for the remaining partners and staff. On the other hand, an action plan to maximize profit in the sale of a practice typically takes 18-24 months. In our multidisciplinary practice, we know from experience that the most effective succession planning integrates legal planning techniques, personal financial and retirement planning, and in some instances, finding a business broker.
Considerations for Departing Partners:
- What is my financial goal for being able to afford to retire?
- Do I prefer to sell, wind down, or hire next-generation successors within the practice?
- What mindsets and behaviors allow me to transition my identity and routines?
- Are multigenerational conversations occurring to identify next generation leaders and help them prepare their own retirement, insurance, estate and other financial plans?
Considerations for Business Planning
- What is the appraised value of the practice in the local market?
- Does the partnership agreement or similar document identify buy-out terms and is the practice in a position to meet those terms?
- Similarly, are buy-in provisions clear and attractive in today’s market?
- How should the practice be prepared to withstand due diligence reviews?
- What are the key value drivers such as strengths in staff, technology, procedures, branding, and location?
- Does the practice pay rent to another business entity with common owners?
- What ethics and competition provisions need to be addressed such as files, client lists, restrictive covenants and fee arrangements?
- Who does the practice want the business transferred or sold to?
- What is the preferred method of sale or transfer?
- Pending a sale, who should act as president/CFO?
- What training is required for successors?
- Will a retiring owner remain involved in the business and, if so, in what role?
All too often, we encounter clients with outdated business legal documents which don’t support their current needs. Addressed early enough, course corrections can be made. Whether you are pondering your own future or participating in a group professional practice, periodic review can save future headaches and protect your financial future.