A good succession plan protects practice assets
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June 11, 2002
Florida Medical Business
 Q:
I am a family physician who is approaching retirement and considering bringing
in a partner to eventually take over my medical practice. What is the best
way to put a succession plan in place?
A: A succession plan enables a physician to take control of the inevitable.
Without one, the tax burdens on a physician's estate when a practice is bequeathed
to his/her heirs are significant, and it is extremely difficult to get the
maximum value for the practice.
Estate taxes can claim up to 50 percent of a taxable estate, which often forces
businesses to liquidate or take on debt, and the value of medical practices
after owners die are typically based solely on their accounts receivable and
physical assets.
The ideal succession plan for medical practices is to transition ownership
to a partner or partners. Typically, the founding partner and majority owner
start by meeting with the firm's accountant to determine the value of the business.
Afterwards, the partners meet with the accountant to discuss and agree upon
the value of the practice and its shares.
The primary factors that the accountant considers in determining the value
are its gross annual billings, accounts receivable and assets. Most practices
are typically valued from 1 to 1.5 times their yearly revenues.
Once the value is agreed upon, the partners should enter into a buy-sell agreement
with the help of a qualified business attorney. Most agreements call for payment
of the share of the business owned by the departing partner over a period of
time. In addition, funding vehicles such as life insurance, annuities and disability
insurance could also help to facilitate these payments and the overall transaction.
Once the buy-sell value is agreed upon, it should be re-evaluated on a yearly
basis to update the value of the business and its shares. There are also other
factors, including the health and retirement plans of the departing partner
that also could necessitate changes to the succession plan and payment schedule.
Donald T. Cohen, CPA, is a founder and director of Newman & Cohen
Financial Management, in Boca Raton and Miami, 561-988-8890, www.newman-cohen.com
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