Preparing For Practice Transition
Written by: Tom W Schramm
Have you begun planning for your retirement or early exit from practice ownership?
The following are some items you may want to consider:
- Do you know what you are going to do when you retire? Having a hobby or some other activity is important when you are considering retirement. Many doctors retire/transition out of the practice and then find the free time is more than they expected and then begin to look for something else to keep them busy.
- Do you know how much you will need to fund your retirement? Speaking with your financial advisor should help you prepare a budget and recognize the necessary funds to maintain your current lifestyle. An appraisal of your practice, which is probably one of your largest assets, early in the planning process can assist in realizing the maximum value when you decide to sell.
- Have you incorporated your practice? You should check with your accountant to establish the potential for the tax free capital gains on the sale of shares in a corporation versus an asset sale. This should be considered two years prior to the planned sale of your practice to ensure that you qualify under the rules of the CRA.
- Have you considered what will happen if you become disabled or suddenly pass? We can arrange a plan to prepare your practice, in advance, in case of a sudden need to sell. This would include having an appraisal prepared ahead of time, which could quickly be updated, assisting with locating a locum to continue the practice and avoid a sudden loss of patients Ultimately we would move quickly to maintain the value to be left for your estate.
- Do you have a proper premise lease in place? Your lease should have at least a ten year period , including options to renew, to allow a purchaser the timing. This is normally a requirement for financing for a purchaser from the financial institutions. You would also want to ensure that you can assign the lease to a new tenant with the landlord’s consent, not to be unreasonable withheld. Another clause you would try to negotiate is to be released from any liabilities after the assignment or at a minimum after the current term expires. A very popular clause nowadays is a demolition clause which will create a myriad of problems and decrease the value of the goodwill of your practice.
- Do you have contracts with your staff? Staffing is another of the major issues you should address prior to the sale/transition of your practice. Office manuals and contracts for your staff will increase the value of your practice when it is appraised and produce a higher sale price and a smoother transition. Purchasers are concerned about the possible substantial termination costs involved if they take over the practice and find that they just can’t work with certain staff members and must terminate them. Solid contracts that limit the termination costs to the amounts stipulated in the Employment Standards Act will alleviate these concerns and remove another obstacle in the negotiations of the sale. There are numerous other important aspects to be covered in the employment contracts, such as the assignability of the contract to a new owner. It would be advisable to contact an employment lawyer, such as MBC Legal, to assist with these issues.
These are some of the important factors to consider in preparing your practice for a sale/transition whether it is planned or unplanned. If you wish to discuss anything further, we are always glad to accommodate you. We provide both individual and round table complimentary discussions.