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10 questions and answers for successful succession planning
For established healthcare practice owners, succession planning is an important step in preparing for a seamless and rewarding transition to retirement.
We interviewed Provide Regional Director of Practice Finance Scott Fisher to better understand what established practice owners should consider when creating their succession plan.
Q: How far in advance should an established practice owner begin succession planning?
A: There is no one-size-fits-all answer to timing. Every established practice owner faces unique situations, considerations, and challenges to contemplate and carefully address. Generally, it’s advised to have a documented plan three to five years before taking action.
A fundamental aspect of succession planning is having a documented contingency plan in case of an unexpected major life event. Planning as best you can for the unexpected is vital for business continuity in unforeseen situations. While disruptions are unpredictable, established practice owners should have a documented plan, in addition to having trusted advisors prepared to act in the best interest of both the owner’s family and the practice.
A: There is no one-size-fits-all answer to timing. Every established practice owner faces unique situations, considerations, and challenges to contemplate and carefully address. Generally, it’s advised to have a documented plan three to five years before taking action.
A fundamental aspect of succession planning is having a documented contingency plan in case of an unexpected major life event. Planning as best you can for the unexpected is vital for business continuity in unforeseen situations. While disruptions are unpredictable, established practice owners should have a documented plan, in addition to having trusted advisors prepared to act in the best interest of both the owner’s family and the practice.
Q: How can an established practice owner identify possible successors?
A: Proactively evaluate and assess the current and future state of the practice. Consider associates and other doctors who align with the same goals, culture, and business strategy. Owners may have associates who wish to purchase the practice, or they may work with a team of advisors who can help identify a successor. Another option is having an associate buy into a portion of the practice. For example, a 50% buy-in, while the current owner continues working, can help ensure all parties have a vested interest in the practice’s current and future success. Additionally, having a relationship with a trusted practice lender is a great way to get help identifying possible successors.
A: Proactively evaluate and assess the current and future state of the practice. Consider associates and other doctors who align with the same goals, culture, and business strategy. Owners may have associates who wish to purchase the practice, or they may work with a team of advisors who can help identify a successor. Another option is having an associate buy into a portion of the practice. For example, a 50% buy-in, while the current owner continues working, can help ensure all parties have a vested interest in the practice’s current and future success. Additionally, having a relationship with a trusted practice lender is a great way to get help identifying possible successors.
Q: How can an established practice owner assess the readiness of possible successors?
A: Having a current associate who could eventually transition to the role of practice owner is one of the easiest ways to assess a potential successor's readiness. To start, observe their day-to-day interactions with staff and patients. For example, does the associate have the necessary knowledge and skills to replicate the practice's productivity? Will they maintain the continuity of care with current patients?
Understanding potential successors' backgrounds, along with their aspirations, values, and ownership goals, can help gauge both capability and commitment to preserving what has been built.
A: Having a current associate who could eventually transition to the role of practice owner is one of the easiest ways to assess a potential successor's readiness. To start, observe their day-to-day interactions with staff and patients. For example, does the associate have the necessary knowledge and skills to replicate the practice's productivity? Will they maintain the continuity of care with current patients?
Understanding potential successors' backgrounds, along with their aspirations, values, and ownership goals, can help gauge both capability and commitment to preserving what has been built.
Q: What role should the current practice team play in succession planning?
A: The current practice team should be central to succession planning, as they help drive and maintain production, engagement, and the culture of a successful practice before, during, and after a transition. Owners should lean on their current team for effective on-the-job training, shadowing, and mentoring across all roles.
As the current owner begins their transition, it's crucial to avoid dropping production by reducing practice hours. Implementing a plan to fill the gaps in staffing allows for the current owner to still be involved, while also pursuing other passions outside the practice, making it essential to have a team that understands and can maintain operations.
A: The current practice team should be central to succession planning, as they help drive and maintain production, engagement, and the culture of a successful practice before, during, and after a transition. Owners should lean on their current team for effective on-the-job training, shadowing, and mentoring across all roles.
As the current owner begins their transition, it's crucial to avoid dropping production by reducing practice hours. Implementing a plan to fill the gaps in staffing allows for the current owner to still be involved, while also pursuing other passions outside the practice, making it essential to have a team that understands and can maintain operations.
Q: How should established practice owners communicate their plans to stakeholders?
A: Transitioning a healthcare practice requires a delicate balance of transparency and timing. Often, it is best to maintain confidentiality while finalizing the transition plan. Established practice owners should rely on their trusted advisors to minimize disruptions and help ensure alignment with their successors as they craft a detailed communications plan.
Staff members are sometimes apprehensive about change, so minimizing uncertainty and establishing confidence is essential. If the current owner informs the staff months in advance of a transition, it could lead to turnover, despite the staff potentially embracing the new owner, given the opportunity. Informing both the staff and current patients requires a delicate partnership between the current owner and their successor.
A: Transitioning a healthcare practice requires a delicate balance of transparency and timing. Often, it is best to maintain confidentiality while finalizing the transition plan. Established practice owners should rely on their trusted advisors to minimize disruptions and help ensure alignment with their successors as they craft a detailed communications plan.
Staff members are sometimes apprehensive about change, so minimizing uncertainty and establishing confidence is essential. If the current owner informs the staff months in advance of a transition, it could lead to turnover, despite the staff potentially embracing the new owner, given the opportunity. Informing both the staff and current patients requires a delicate partnership between the current owner and their successor.
Q: How can an established practice owner account for unexpected events in their succession plan (i.e., a changing market)?
A: Healthcare practices generally experience less impact from changes in market conditions, such as recessions, compared to other businesses. Handing over a strong, stabilized practice that has operated consistently year over year sets the new practice owner up for success.
A: Healthcare practices generally experience less impact from changes in market conditions, such as recessions, compared to other businesses. Handing over a strong, stabilized practice that has operated consistently year over year sets the new practice owner up for success.
Q: What are some of the costs when it comes to succession planning?
A: Cost considerations in selling a practice hinge significantly on timing. Advisors often advise against substantial investments in improving an existing practice shortly before selling. However, the number of years remaining for the owner can influence this decision. Costs associated with interior improvements and upgrades to equipment and technology need to be carefully considered based on the established practice owner's long-term plan. Building a team of experts to lean on, a team that typically includes a broker, attorney, CPA, and lender, is essential for effectively navigating this significant event.
A: Cost considerations in selling a practice hinge significantly on timing. Advisors often advise against substantial investments in improving an existing practice shortly before selling. However, the number of years remaining for the owner can influence this decision. Costs associated with interior improvements and upgrades to equipment and technology need to be carefully considered based on the established practice owner's long-term plan. Building a team of experts to lean on, a team that typically includes a broker, attorney, CPA, and lender, is essential for effectively navigating this significant event.
Q: How can established practice owners help ensure their succession plan aligns with their overall exit strategy?
A: Established practice owners need to identify the key measures of success as they relate to a successor. Documenting, understanding, and reflecting on what made their practice successful, and the challenges of the practice, can help ensure the succession plan is sustainable and realistic. Proactively designing a timeline and key activities is another key element, as documented onboarding and maintaining consistent or increased revenue is critical to creating a viable and attainable overall exit strategy.
Many established practice owners would like to spend more time with family and friends, travel more, and focus on other passions as they get closer to the end of their careers. This makes it an ideal time to preemptively identify good candidates to either replace themselves or fill in the gaps, while cutting back hours to enjoy these other activities as part of their overall exit strategy.
A: Established practice owners need to identify the key measures of success as they relate to a successor. Documenting, understanding, and reflecting on what made their practice successful, and the challenges of the practice, can help ensure the succession plan is sustainable and realistic. Proactively designing a timeline and key activities is another key element, as documented onboarding and maintaining consistent or increased revenue is critical to creating a viable and attainable overall exit strategy.
Many established practice owners would like to spend more time with family and friends, travel more, and focus on other passions as they get closer to the end of their careers. This makes it an ideal time to preemptively identify good candidates to either replace themselves or fill in the gaps, while cutting back hours to enjoy these other activities as part of their overall exit strategy.
As I shared earlier, established practice owners need to plan for the unexpected. If an owner is starting their succession plan after an event that forces them to make the change, then it’s too late.
Q: What metrics should be used to measure the success of the succession plan?
A: While certain metrics should be used to measure the anticipated success, each metric should also be weighted based on the ideal scenario for a successful practice. Staff turnover and patient attrition would be the top two weighted indicators assessed for the short-term to measure the success of the plan. In the long-term, it would depend on the stability and performance of the practice.
A: While certain metrics should be used to measure the anticipated success, each metric should also be weighted based on the ideal scenario for a successful practice. Staff turnover and patient attrition would be the top two weighted indicators assessed for the short-term to measure the success of the plan. In the long-term, it would depend on the stability and performance of the practice.
Q: Are there any common myths about succession planning?
A: Again, there is no one-size-fits-all approach to succession planning. For example, some sellers would like to stay around for a prolonged period after they sell the practice. In reality, it must be a unique situation where it’s a sustainable model that works for both the current owner and their successor. Sometimes, having the established practice owner and the successor in the practice for an extended amount of time can confuse the team on who the leader is and the future state of the practice, but in other cases, it works.
A: Again, there is no one-size-fits-all approach to succession planning. For example, some sellers would like to stay around for a prolonged period after they sell the practice. In reality, it must be a unique situation where it’s a sustainable model that works for both the current owner and their successor. Sometimes, having the established practice owner and the successor in the practice for an extended amount of time can confuse the team on who the leader is and the future state of the practice, but in other cases, it works.
Looking for more content related to succession planning? Check out this article by Dr. Amrita Patel, DDS.
This content is for informational purposes and does not constitute the rendering of legal, accounting, tax, or investment advice, or other professional services by neither Provide, its affiliates, nor Fifth Third Bank, and it is being provided without any warranty whatsoever. Please consult with appropriate professionals related to your individual circumstances.
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