Investing in your practice establishment and operation is fundamental to the viability of your business and your future options.
It can be tempting to simply set up using the cheapest and easiest structure and systems (or not do so at all), but by doing this you can cost yourself in the long run as you may lose tax effectiveness, growth and scalability.
Regardless of the practice’s size, it is essential the structures are in place to ensure effective management and compliance, and in turn allowing doctors to focus on their core business of caring for patients and practising medicine.
You need to ensure your business is prepared and protected before considering expansion or sale.
Some of the basics that need to be considered before opening a new general or specialist medical practice include:
If you are joining an established practice, some basics you need to consider are:
SYSTEMS AND GROWTH
There are some questions you should ask yourself now that you have your business established to ensure that you secure your practice, reputation and business moving forward:
Structure and asset protection
A strong business structure can protect you and support the long-term success of your practice, but it involves more than simply incorporating a company or establishing a trust.
For example, what asset protection do you have? Are you sure your family home is protected under the current business structure? Is that structure also the most tax effective for you?
Has consideration to appropriate levels of service fees and rent been considered and arrived at?
What is your cash flow and where is your exposure?
It’s worth taking the time to consider how service fees are paid, who is obligated to provide which services and how you distribute costs and profits among unitholders, shareholders or beneficiaries.
Remember, the processes you put in place when establishing your practice may now be outdated.
For instance, medical trusts were common trading entities a decade ago, but many doctors now trade as sole-traders. Service entities were commonly trusts but company structures are now on the rise.
What is your employee/contractor roles and expectations?
Another key area to consider within your practice is the need for clearly defined roles, expectations and agreements with your employees and contractors.
Once again, the agreements you put in place during the early days may now be outdated – especially with changes to workplace legislation. This area of the law moves incredibly frequently and frequent updating and review to keep pace and have best practice and compliant standards is a must.
Are your policies and procedures adequate for things such as dealing with employee leave, discrimination and sexual harassment, bullying, IT and security, Workplace Health and Safety, performance management and handling of complaints?
Have you considered your IP?
This is one of the main things that sets your brand apart from your competitors and failing to protect it can leave your business vulnerable to a competitor using your business name or logos.
In this day and age, it is also important to know your websites and patient data are protected.
Generally, this is an inexpensive process, especially compared with the risks of a competitor using your intellectual property or patient data being compromised.
Online patient forms, bookings and so on are changing the way patient data is collected and accessed so clear terms and conditions of use and storage are vital to protect you and your practice.
Do you have a valid will and EPA?
Having a valid will ensures your estate is protected from certain claims or people; your family is looked after and your superannuation and insurances are distributed as you wish.
There are also potential tax advantages that can be gained through a will properly drafted by a lawyer.
Apart from anything else, there can be substantial costs incurred to administer your estate if you die without a valid will.
Subject to the structure of the practice, your practice itself can form part of your estate. Consideration should be given to how other partners may buy out your interest, or clear mechanisms provided for how a practice is sold.
What are your options?
No matter which path you consider, there are some common issues that you should address.
We have considered some of these critical considerations and condensed them into seven key areas.
What are the key considerations for practice succession?
Depending on which route is most appropriate, there may be a number of issues which need to be dealt with, including finance, premises, suppliers and patients, before you can successfully transfer control of your practice.
Prepare the business
No matter which method of succession you are considering, the best method will always be to prepare the practice as though you are selling it to a third party with no prior knowledge of its operation.
Consider the sale structure
There can be drastically different tax, duty and ongoing risk implications for both you and the transferee depending on the structure that you have in place and whether you transfer the practice itself or transfer ownership of the entire underlying structure (such as shares in the company or control of a relevant trust).
Consider alternative funding structures
Regardless of who you sell your business to, there will be risks and you should obtain prudent advice to ensure that you document these arrangements properly and that you are not exposing yourself to undue risk if a buyer does not have the capacity to pay when it is time.
Warranties and indemnities and guarantees should never be given lightly, and it is prudent to seek expert advice about all such matters.
There are a wide variety of options available, such as secured vendor finance, issue of different classes of shares, staged buyouts and many more that can possibly provide you with a superior result or fit better within your plans than a straight sale for cash.
Consider more than the purchase price
Sellers of practices may become blinded by an attractive initial purchase price discussed by a purchaser which, in turn, may see them reluctant to properly consider other issues such as warranty risk, earn-outs, retentions and restraints of trade.
In many instances, a seller may be better off taking a slightly lower price but with drastically reduced warranty risk and little to no earn-out requirements.
Document the deal properly
Even if you are transferring the practice to people you know and trust and who know and trust you, it is important that you properly document the transaction in its entirety and then undertake the transaction in accordance with those documents.
This process will give both parties the most clarity around the transaction and should provide the most protection to the parties if they have been properly advised during the negotiation and drafting of the transaction documentation.
Work with advisors who communicate
Well-performed practice succession requires that you take a holistic approach to the process and consider all the relevant issues.
By sitting down at first instance with all of your advisors to properly understand your current legal and tax positions and align that with your financial and life goals, you stand a much better chance of having a smooth and cost effective practice succession.
Going into private practice is not a set and forget decision.
Having a good team of lawyers, accountants, IT providers and financiers will enable you to minimise risk and focus on what you do best and make growing/operating your business a more financially and personally rewarding process.
This article was originally published by The Private Practice – see original blog here
The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.