Nephrology Practice Succession Planning: What Owners Should Know
Planning for the future of a nephrology practice involves more than deciding when to retire. A succession plan can help determine who will take over ownership, how the transition will occur, and how the practice can continue operating with minimal disruption. For physicians considering nephrology practice financing, succession planning can also help identify potential financing needs before an ownership transition takes place.
What Is Nephrology Practice Succession Planning?
Succession planning is the process of preparing for a future change in practice ownership or leadership.
The transition could involve:
- Selling the practice to another physician
- Transferring ownership to an existing partner
- Bringing an associate into ownership
- Selling to an outside organization
- Gradually reducing the owner’s role
- Preparing for an unexpected departure of an owner
The right approach depends on the owner’s goals, the practice’s structure, and the available successor.
Start Planning Before You Need to
Succession planning is easier when the owner has time to prepare.
Waiting until retirement is approaching or an unexpected ownership change occurs can leave fewer options available.
Starting early gives the practice owner time to identify potential successors, strengthen the business, organize financial records, and develop a transition strategy.
Identify Potential Successors
One of the first questions to answer is who could eventually take over the practice.
A potential successor could be an existing partner, associate, physician employee, or outside buyer.
If an internal successor is being considered, the owner should evaluate whether that physician has the experience, financial resources, leadership ability, and interest necessary to become an owner.
Prepare the Next Owner
Succession planning is not only about transferring ownership.
The future owner may also need to understand how the practice operates.
This can include exposure to:
- Financial management
- Staffing decisions
- Vendor relationships
- Patient and referral relationships
- Administrative responsibilities
- Practice growth decisions
Giving a potential successor greater responsibility over time can make the eventual transition easier.
Review the Practice’s Financial Position
A strong financial foundation can make an ownership transition easier to manage.
Owners should have a clear understanding of revenue, expenses, profitability, debt obligations, accounts receivable, and other important financial information.
Clean and organized financial records can also make it easier for a successor and their financing professionals to evaluate the transaction.
Consider How the Buyout Will Be Financed
If an existing partner or associate will purchase an ownership interest, financing may become an important part of the succession plan.
The buyer may need financing to fund the purchase while the selling physician may need a clear understanding of how and when they will receive proceeds.
Planning for financing early can help both parties understand what may be possible before finalizing the transition.
Review Partnership and Ownership Agreements
Existing ownership documents should be reviewed well before a transition.
Depending on the practice structure, agreements may address what happens when an owner retires, becomes disabled, dies, or wants to sell their interest.
Owners should work with qualified legal and financial professionals to review these provisions and determine whether updates are appropriate.
Plan for Patient Continuity
Patients are an important part of any medical practice transition.
A succession plan should consider how patients will be introduced to a new physician or owner and how continuity of care will be maintained.
A gradual transition may provide an opportunity for the outgoing physician to introduce the successor and help patients become comfortable with the change.
Prepare the Practice Staff
Employees can also be affected by an ownership transition.
Owners should consider how and when staff will be informed, who will communicate the changes, and how responsibilities may change after the transition.
A well-planned transition can help minimize uncertainty and maintain stability for the practice team.
Don’t Overlook Key Relationships
A nephrology practice may depend on relationships with hospitals, referral sources, vendors, laboratories, technology providers, and other organizations.
Owners should identify important relationships and determine how they will be handled when ownership changes.
The successor should understand which relationships are critical to the practice and how those relationships are maintained.
Create a Backup Plan
Succession planning should not only address a planned retirement.
An owner could become unable to practice unexpectedly, experience a prolonged absence, or decide to leave the business sooner than anticipated.
Having a basic contingency plan can help the practice respond if an unexpected ownership or leadership change occurs.
Consider the Owner’s Long-Term Goals
Every succession plan should reflect what the current owner actually wants.
Some physicians may want a complete exit from the practice. Others may want to remain involved clinically for a period of time, retain an ownership interest, or continue working with the practice after the transition.
Defining these goals early can make it easier to structure the transition around the owner’s priorities.
Give Yourself Time to Make Changes
A succession plan can reveal areas of the practice that need attention.
There may be outdated agreements, financial issues, staffing challenges, operational dependencies, or other matters that should be addressed before ownership changes.
The earlier these issues are identified, the more time the owner has to resolve them.
Work With the Right Professionals
A practice succession can involve legal, tax, financial, valuation, and financing considerations.
Depending on the situation, a physician may want to work with:
- A healthcare attorney
- A CPA or tax professional
- A practice valuation professional
- A healthcare transaction advisor
- A financing professional
Each professional can address a different part of the transition and help the owner make informed decisions.
Final Thought
Succession planning gives nephrology practice owners an opportunity to prepare for the future instead of reacting to an ownership change when it happens.
Whether the eventual transition involves a partner, associate, family member, outside buyer, or another physician, preparing early can make the process more organized and give the owner more control over the outcome.
A thoughtful succession plan can also help protect the continuity, financial stability, and long-term future of the nephrology practice.
