Reducing Risk (Of Conflict) With Succession Planning

You have spent your entire career building and growing your practice.  Maybe you were even the founder of the practice.  It represents your blood, sweat, and all too often ... tears, from years of dedicated work.

Now it's time to cash out.  Retirement here I come!  I see the big nest egg that my practice buy-out will provide me.  Maui ... here I come!

It's Time To Buy Me Out!

But hold on there cowboy!

There is a problem. What you think your practice is worth and what you should get from it, isn't necessarily the value offered by your partners that you are leaving behind.  Maybe they see the practice value far lower than you do.

Now what?

Perhaps the last thing you want when you leave your practice is to have it a contentious event.  There is nothing more potent than money when it comes to poisoning a relationship.  Everyone typically overvalues their own contribution and undervalues everyone else's. 

A retirement buy-out is no different.

So what to do?

The solution to this problem is probably reasonably simple, yet rarely occurs.  It's about addressing the issue far before it occurs.  This is good advice for just about any topic.  Think about it...isn't it easier to talk about planning for something far ahead of time, rather than at the last minute, or perhaps while it's happening?  It's no different for succession planning.

Leadership 101: Succession Planning 

If you are the leader of a group...or even just an older member of a group, it's better to bring up retirement planning ahead of time.  By doing that, you can take the time to consider all of the various aspects that need to be addressed for this important, and common, event.

• Deciding on criteria for retirement
• Part-time options for transition
• Valuation of the buyout
• Timeframe for buyouts
• Malpractice tail-coverage
• Announcement lead-time
• Medical insurance or other benefits extensions
• Other issues

 Take The Lead. It's In Your Best Interest.

If it's you that is getting ready to retire and there isn't a plan in place, then it's up to you to start the conversation.  If you are the leader of a group, then it's certainly your responsibility to ensure that smooth transitions occur.  If you are a junior member of a group, then yes, it's in your best interest to help establish a defined system where you have your say in transition planning.  

In short, it's in EVERYONE's best interest to create a succession plan.

How To Start The Conversation.

While this topic is huge and probably more than we should cover in this blog, there are some basics that you can work off of.

1. Establish the important points that need to be negotiated and codified for your plan.  Such as...
   1. How much notice needs to be given.
   2. Can you work part-time?  How long?
   3. Do you remain a "partner"? 
   4. Share in profits?
   5. Have a vote for group issues?
   6. How much time off do you have?
   7. How much do you get paid?
   8. More...
2. Once you have your initial list, it's time to create your position on these points.  My suggestion is to be fair to both sides.  Remember that for a plan to be successful, both sides have to feel that they won something.
3. Sit with a team from your group and hammer out the negotiations on each of the points.  Again...work toward fairness.
4. Add in any new items which may come up, and establish a plan for those too.
5. Create a final list of the items and what the agreed upon conditions are.
6. Get them approved in the group. Getting this done is based on the structure of the group.
7. Incorporate them into the governance of the group and implement.  Follow the rules and policies as they have been agreed upon.

In the end, doing this ahead of time provides a great advantage by removing the "me vs. you" mentality.  You are all working toward the common goal of a set of rules that all of you will abide by in the future.  It's in everyone's interest to maximize the benefit for those who will be leaving/retiring as well as those who remain in the practice (at least until they retire.)

Preemptive planning has the potential to provide a better and more productive plan which is fairer to all and has a greater likelihood of being universally accepted.  

WhiteCoat Risk Management provides these articles to help improve general risk awareness in all aspects of your life.  It is not responsible for any actions you take or fail to take regarding any aspect of your financial planning or risk management.  This article is provided for information purposes and is not intended to provide individualized advice. You alone are responsible for your financial decisions.  

Visit or contact WhiteCoat Risk Management at www.WhiteCoatRiskManagement.com or join us on Facebook at https://www.facebook.com/WhiteCoatRisk/ 

Be sure to sign up HERE to receive a notification when new blog posts are published.