Gastroenterology Succession Planning for Practice Owners
Gastroenterology succession planning is the process of deciding who will own and lead your practice when you step back, and how that transition will be paid for. It matters in any specialty, but it is especially pressing in GI. Many independent gastroenterology practices have only a few physicians, so the departure of one owner can affect a large share of procedure volume, referral relationships and endoscopy center ownership.
This article outlines the main succession paths, the documents and decisions that support them and how a successor might finance the transition. Succession planning involves legal, tax and regulatory questions that vary by state, and nothing here is legal, tax or compliance advice. Owners should work with healthcare counsel, accountants and financial advisors.
Why Succession Is Urgent for Small GI Groups
In a larger group, a retiring partner can often be replaced gradually. In a practice with one or two physicians, the owner may be the practice. Without a plan, a retirement, disability or sudden departure can leave patients without care, staff without direction and the owner’s equity at risk.
Recruiting can also take time. Many markets face a limited supply of gastroenterologists, and a successor may need to be identified well before the owner intends to leave.
Succession Paths to Consider
Owners typically evaluate several options:
- Internal successor: recruiting or developing an associate who buys into the practice over time and eventually buys out the founder
- Sale to an outside physician: selling the practice to a gastroenterologist relocating to the area
- Merger with another independent group: combining with a nearby practice that can absorb patients and staff
- Sale to a hospital, health system or private equity group: transferring ownership in exchange for cash, employment terms and in some cases retained equity
- Recapitalization: using bank financing to let some owners take liquidity while others keep the practice independent
The recapitalization path is discussed in our article on bank recapitalization as an alternative to private equity.
The Internal Successor Path
Many owners prefer to hand the practice to a physician who already knows the patients and staff. A typical internal transition may include an employment period, a partial buy-in and a later buyout of the remaining interest. Each stage should be documented in writing, including how the purchase price will be determined.
Associates evaluating this path can read about how to finance a gastroenterology practice buy-in. Lenders reviewing these transactions typically look at the practice’s cash flow, the associate’s production and credit, and the terms of the buy-in agreement.
Key Elements of Gastroenterology Succession Planning
A complete plan usually addresses:
- Timeline: when the owner wants to reduce clinical work and when ownership should change
- Valuation method: how the practice, endoscopy center interests and real estate will be valued
- Buy-sell agreement: what happens on retirement, disability, death or departure, and how buyouts are funded
- Endoscopy center shares: whether the operating agreement requires a departing owner to sell and how the price is set
- Real estate: whether the owner will sell the building, lease it to the successor or keep it
- Referral transition: how relationships with referring physicians will be introduced and maintained
- Staff retention: how key employees will be kept through the change
A current valuation provides a reference point for all of these decisions. Our article on gastroenterology practice valuation explains the main value drivers.
Planning for the Unexpected
Succession planning is not only about retirement. Owners should also consider what would happen if they became unable to practice suddenly. Disability and life insurance, a funded buy-sell agreement and written operating procedures can help protect the practice and the owner’s family. An insurance professional and counsel can help design these protections.
How a Successor Finances the Transition
Most successors will not pay cash for a practice. Financing options may include:
- SBA 7(a) loans, which may finance goodwill and buyouts, subject to eligibility, program rules and lender review
- Conventional practice loans for successors with strong credit and liquidity
- Seller notes, which are typically subordinate to bank debt and may be limited by lender or program rules
Earnouts and other contingent payments may also be limited by lenders or programs. The founder should understand how the successor’s financing will shape the timing and certainty of payment.
If the successor is buying from a founder who is fully retiring, our guide to buying a practice from a retiring gastroenterologist covers the buyer’s perspective.
Signs It Is Time to Start
- You expect to reduce clinical hours in the coming years
- The practice has no written buy-sell agreement or it has not been updated
- You are the primary source of procedure volume and referrals
- You are receiving unsolicited offers and are unsure how to evaluate them
- Your endoscopy center agreement has buyout terms you have not reviewed recently
If a sale is the likely outcome, our article on how to sell a GI practice explains how to prepare. For valuation and transition guidance, our advisory and consulting services can help owners evaluate their options.
Final Thoughts
Gastroenterology succession planning works best when it starts early. Choosing a path, documenting agreements, addressing endoscopy center and real estate interests and understanding how a successor will finance the transition can help protect patients, staff and the value you have built.
US Medical Funding helps gastroenterologists plan transitions and helps successors finance buy-ins, buyouts and acquisitions. Learn more about our gastroenterology practice acquisition financing.
