Planning Strategies
Do You Have an Exit Strategy?
It's never too early to begin planning for the sale of your practice.

Owners of small and closely held medical practices are now looking for financial liquidity and exit strategies earlier than ever before. Despite Ponce de Leon's admirable efforts to extend youth, you won't live forever and won't want to run or own your practice forever.

This month, I'll examine a concept called transition management, which is the process of transitioning the leadership and ownership of a closely held medical practice to the next generation of leaders and owners.

START PLANNING EARLY

It's been estimated that as few as 20% of all small and closely held businesses in the U.S. have a formal succession or transition plan currently in place. Failing to plan is planning to fail. Why do so many business owners neglect to place a high priority on this critically important task?

Here are some reasons:

• inability to accept one's own mortality (the "Ponce de Leon" syndrome)
• family politics and infighting, which prevents consensus building
• fear that getting good advice will be too expensive
• inability to delegate or give up control over the business
• confusion about succession planning alternatives
• confusion or misunderstanding over the tax and financial aspects of succession planning
• fear that discussions of succession will scare away key employees or somehow show weakness to competitors.

If you can get past these obstacles, you'll still have to consider a wide variety of factors including:

• the level of your current and future financial needs
• the tax implications of the type of sale strategy you've selected
• the current and projected performance or valuation of the business
• third parties (such as physician employees, patients, vendors, licensees, lenders, landlords and others) who might be directly or indirectly affected by the selected strategy
• the existence of any agreements, such as shareholders' agreements or commercial loan requirements
• trends within the eyecare industry
• the overall health of the local economic marketplace.

STAY WITH YOUR STRENGTHS

In developing your transition plan, don't lose sight of the factors that helped you achieve your success. Your exit strategy should be consistent with the history and culture of your organization. For example, if being a small and nimble practice has driven your success, then an exit strategy that involves selling to a much larger competitor may destroy the current value of your business. A well-developed plan will:

• maximize the present value of the net liquid capital that you'll realize from the sale or transfer (thereby minimizing the tax consequences of the proposed transaction)
• recognize that the future ownership and management team must be trained, mentored and properly prepared well in advance of the actual transition
• account for the impact on your employees, your family and the surrounding community.

MAKE THE TRANSITION SEAMLESS

It's important to remember that the most successful transition plans are those that are seamless and painless to those who are affected, mutually beneficial from an economic and psychological perspective to those who participate in them, and respectful of the practice's history by preserving its culture and values. The best plans honor the legacy of the founder who's handing over the baton while embracing the new leader who's accepting it.

The transition plan that evolves with changes in the marketplace, technology or family circumstances -- and that acknowledges the practice's mission statement while allowing for fresh perspectives -- is the plan that will endure over generations. 

Dr. Gable is chief executive officer of Dynamic Health Connections, Inc., in Lake Forest, Calif., which provides specialized consulting expertise for subspecialty physician groups, managed care organizations and other medical organizations. You can reach him at dhc38@aol.com.