We spend so much time building up our businesses because we want them to succeed. But what do we do when it’s time for someone else to take our place – especially with a medical practice? It’s important for physicians who own their practice to look into a succession plan that protects their future.

Despite the lengthy process, developing a succession plan does not need to be difficult. You can look into several options depending on your unique situation and find what one best represents your interests.

Prepare for the sale

Establishing a succession plan for a medical practice is similar to any other business; the only difference is you need to sell or pass on your practice to a medical professional. If you are selling your medical practice, you have a few options for finder an appropriate buyer.

If you are in a group practice, you can have a partner buy out your shares. A buyout arrangement often includes how much the selling or retiring partner receives for their interest in the practice upon the occurrence of certain events such as death, retirement or a withdrawal from practice.

If you are in a solo practice, you can hire a junior physician to assist you in the practice management and prepare them for taking over the practice when you retire. You also can seek out a potential buyer if you do not want to bring on another physician. You may be able to pass along the practice to a family member if they are a medical professional. If all else fails, you have to slowly wind down services until you close the practice.

The last scenario is having a hospital or health system purchasing your practice. The option is growing to be more common, but you should not try to lean on this option to heavily.

Negotiate the sale

Similar to selling a small business, there are a few concerns physicians should think about when they sell their practice:

  1. Buyer qualification – are they qualified to run their own practice? Do they have the proper business management and people skills to work in a medical practice?
  2. Payment schedule – how will you set up the payment schedule? Will it happen in one lump sum or multiple payments throughout the next years?
  3. Non-compete agreement – do you need to set up an agreement that prevents them from starting a competing business for a few years?
  4. Management assistance – do they have previous experience will business operations?
  5. Sales agreement preparation – what is the selling price, the promissory note, dispute resolution and etc.
  6. Collateral – if the purchase requires a loan, what will the collateral be if the seller does not receives compensation?

Start a retirement plan

While selling your practice, you need to consider your retirement plan and the transition between practice owners. If you plan this before leaving the practice, you ensure a supplemental income for your retirement.

For retirement, you should take advantage of tax-deductible contributions to qualified plans and building up your investment portfolio for future income. You can also decide if you will receive payments for equity in the practice and how the buyer will pay for that.

You might look into the current structure of your practice as well and see how those roles change with your departure. If you are passing along your business to your son or daughter, they may not have the business background to properly succeed the practice, so consider hiring a business manager or an accountant to look into the business’s finances.

There are many paths you can take during the succession process, but you should seek advice from a business partner or financial advisor to see what option works best for your practice. Having these discussions can protect the future of your practices for generations to come.