Effectively setting up your own practice is fundamental to the viability of your business and your future options.

If you invest in your practice establishment and operation, you will reap the benefits when it comes time to consider expansion or sale.

It can be tempting to simply set up using the cheapest and easiest structure and systems, but by doing this you can cost yourself in the long run as you may lose tax effectiveness, growth and scalability.

Changing your set up or structure at a later stage can be very costly.

Consider if your practice will need to move or garner more premises to practice from in the future. Will you rent or buy that space?

You need to ensure that your business is prepared and protected before considering expansion or sale.

This includes effective contractor agreements, service agreements and protection of your intellectual property.

Practice management

Before the expansion or sale of your practice can be considered you must have a solid foundation for your business.

This means that you have considered and adopted effective agreements to address:

• Contractor engagement
• Services required
• Supplier arrangements
• Where will you be expanding – have you considered the lease/purchase of the new practice premises?
• Protection of your intellectual property and client data
• How your practice will be owned and operated – i.e. will it be a corporate entity with shareholdings or a trust?
• Arrangements between owners if there will be more than one owner

Growing your business

Will you be expanding the business with friends or family (assuming they are in a position to operate the practice)?

Or will you be expanding with existing employees?

Maybe you plan on expanding the business with one or more third parties or other doctors?

No matter which path you consider, 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. 

A good practice should be clear in structure and ownership, simple to operate and most importantly, should be profitable and tax effective.

This means cleaning up and properly documenting any legacy issues that only you are aware of, ensuring that all systems and key agreements are in writing and simple to understand and putting accounts into a form that are readily understood by third party accountants including normalising of accounts. 

We have seen many practices that have not had their service agreements and other key arrangements reviewed for several years (or don’t have them at all), especially if everything had previously been done in house.

This process should be used as an opportunity to also review and modernise all agreements or implement agreements if the practice has traditionally been run with minimal or no formal documents.

This process should enable you to undertake a valuation and should ensure that anybody buying into the practice – a family member, employees or a third party buyer – should be well placed to continue the operation smoothly and also help you maximise its value

Property

While you may have plans for your practice’s growth, where will your practice grow?

Is your plan to grow the practice at the same location you currently operate? If so, have you considered:

• The current term of your lease?
• Whether your current premises have sufficient space to grow?
• Is there space in the same building for you to expand into?

Do you want to introduce practices in other locations? If so, have you considered:

• Where the best geographic locations are for your practice to be set up?
• Are there any competing practices nearby?
• Do you want to rent a premises or are you looking to purchase space and invest through your entity?
• Who will manage the property and practice at this location? 

Intellectual property

Before you can consider expanding your practice you must ensure that your intellectual property is protected.

Intellectual property in this instance is two-fold:

1. Your patient /referrer database; and
2. Your practice name and logo (i.e. your brand)

Your patient/referrer database is arguably your greatest asset as a medical practitioner. Accordingly, it should be afforded protections such as:

• Are your current employees/contractors restrained from using your databases?
• Are your current employees/contractors restrained from practising in competition to you within a certain geographic area?
• Are your current employees/contractors being compensated for these restraints?

While restraints are often included in employee/contractor/service agreements, the enforceability of those restraints can be an incredibly difficult and expensive process.

Particularly where there is no evidence of the restrained party being compensated for the imposed restraints.

In regard to your practice name and logo, we often see practice names that are either related to the founding parties (i.e. Smith and Stevens Orthopaedics) or related to the location where the services are being performed (i.e. Brisbane Surgeons).

While these names are understandably easy to come to, they do not usually provide for the expansion or succession of your practice. You need to consider that other doctors may not want to contribute to building your personal brand name if it is named after yourself and you also need to consider if you envisage being multisite in the medium or long term that a name that contains your location such as “Brisbane Surgeons” will not make much sense at a second practice on the Gold Coast or in Cairns.

They are also incredibly difficult to protect through trademarks and prevent your competitors from passing off as associated with your successful practice in the future.

We recommend that all clients register either their logo or brand name (usually both) to prevent their competitors from passing off as being associated with their business in the future or worse still, registering the same name with IP Australia.

Work with advisors who communicate

Well-performed practice succession requires that you take a holistic approach to the process and consider all of the relevant issues.

For that reason, we advocate choosing advisors who will communicate together to form the best overall strategy for you. 

By sitting down at first instance with all of your advisors to properly understand your current legal and tax position and align that with your financial and life goals, you stand a much better chance of having a smooth and cost effective practice succession.

Document the deal properly

Even if you are expanding the practice with 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.

If you would like to have a discussion about any of your future plans or any of these issues please do not hesitate to reach out. We are here to help.