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What’s Your Exit Strategy? Planning an Orderly Exit from Your Practice

September 20, 2018

What would happen to your patients if you could no longer practice medicine? Will your practice continue after you retire? What will happen to your staff or your colleagues? Every business owner and professional, no matter how passionate about a career, will eventually leave. Planned and unplanned life events such as retirement, death, physical or cognitive disabilities — or maybe a career change to teaching or writing — can trigger your departure from medicine. Developing an exit strategy will help you make business decisions that lead to a well-planned exit while also preparing for unforeseen circumstances.

He's-in-great-spirits-163640539You might think an exit strategy is only for entrepreneurs and startups looking for a quick cash out for one venture as they move to the next, but physicians are entrepreneurs and individual or group practices are startups. Regardless of the expected longevity of the enterprise, developing an exit strategy is fundamental to all business planning as it’s simply a plan for leaving your business. Yet a full 48% of business owners have no formal exit strategy in place. Many sole proprietors and small business owners are often so involved in day-to-day operations that planning for the future falls by the wayside.

If you are practicing independently or a partner in a small group practice, you may see your business plan as very simple: you take care of patients. Your business operations don’t end with patient care, though, and you consistently make business decisions with or without a plan in place. With an exit strategy in place, you can purposefully navigate important business decisions.

Exit Strategies Protect You and Your Practice and Set the Stage for Business Planning

One business writer describes the need for an exit strategy with a construction analogy. Modern construction codes often require that spaces people occupy have at least two exits so if people need to leave the building quickly in an emergency situation, they have options. A business exit strategy similarly ensures safety in an emergency situation and a sense of comfort and security based on available options and a plan that protects yourself and others.

To create that plan, you may need to carve out dedicated time among your daily tasks of seeing patients, chart documentations, and approving medication refill requests to consider what your short- and long-term goals are and where you are in that journey.

If you haven’t previously thought much about short- and long-range goals, the process may be challenging. When entrepreneur Deborah Mitchell was confronted with that question, she recalls being “stumped,” but after thoughtfully considering what her goals were, Mitchell says she realized she was always “working harder, not smarter.”

Exit Strategies Can Inform Practice Growth and Direction

The example of a small practice at a business crossroads illustrates how an exit strategy can inform business decisions. Three physicians own a small family medicine practice. They are all mid-career physicians who have built an established practice and a reputation in the community for excellent patient care.

They have outgrown their current location. Despite hiring a nurse practitioner to assist in seeing patients, they are increasingly overwhelmed by their current caseload. They own the building where they practice, and the mortgage will be paid off in seven months. They are uncertain how they should manage the need for additional physical space or the increased demand for their services.

These three physicians have several options:

  • Expand their facility by incurring additional debt
  • Recruit additional physician partners to lessen the caseload burden and thus develop a succession plan, but only with additional physical space
  • Refuse to accept new patients and continue business operations in the same location and still show increased profitability once their mortgage is paid in full
  • Sell their practice to a large hospital system that employs physicians and manages their practices

The three physicians meet to discuss their situation. After practicing medicine together for years, this conversation is the first where they voice their wishes about retiring. One of the physicians has been considering leaving practice to pursue mission work. Another foresees retiring in about 10 years while the third expresses her wish to continue practicing medicine as long as possible.

As they consider their personal goals, they realize they prefer the flexibility of leaving the practice at different stages in their lives, and they share a concern that their staff have secure employment opportunities even as they each exit the practice. Given their individual preferences for exiting the practice of medicine, their discussion turns to the best way to manage their current situation that will benefit them both now and in the future. They realize that an exit strategy can help them make better decisions now.

The three physicians develop a multi-layered plan:

  • Renovate now — They agree to renovate their current facility.
  • Recruit a new partner now — The renovations will accommodate bringing at least one additional physician partner on board in anticipation of one physician’s early retirement.
  • Limit new patient acquisition — They also agree to limit the number of new patients they take on each year to help them adequately serve their current patients.
  • Recruit an additional partner later — Their long-term strategy will be to recruit an additional partner within 8 to 9 years to prepare for the exit of the partner who wishes to retire in about 10 years.
  • Develop a succession plan — Their exit strategy develops a succession plan that allows the third current partner to continue in practice as long as she wishes.

Planning for each partner’s exit has helped them determine the current direction for practice growth and expenditures. Over time, as the original partners depart the practice, the new physician partners should develop exit strategies that meet their various long-term goals.

An Unexpected Exit is Always a Possibility

Just as carrying insurance is a means to protect yourself in the event of an unplanned accident or occurrence, an exit strategy should also provide coverage that protects you and your interests in the event of an unplanned exit from the business. Death, disability, and illness can result in sudden and unplanned exits.

If you’re a solo practitioner, especially, you should consider developing a plan to ensure continuity of care and to help your staff transition in the event of an unplanned business closing. Having formal agreements with trusted advisors and colleagues who will assist in closing your business properly under emergency circumstances is prudent.

Developing an Exit Strategy to Meet Unique Physician Concerns and Obligations

Unlike most entrepreneurs, physicians cannot simply close their doors and walk away from practicing medicine. The unique physician-patient relationship establishes an obligation on your part, so knowing how you will meet that obligation upon your exit is important. That responsibility alone should give you pause if you haven’t yet considered an exit strategy as part of your business plan. In fact, there are liability risks involving claims of patient abandonment and best practices to avoid such risks.

Since your exit from the practice will terminate your physician-patient relationships, you should follow recommended guidelines for patient notification when leaving your practice just as you would if you were terminating the patient relationships for any other reason. You should also consider liability concerns and ensure that you have appropriate malpractice coverage for future claims arising from your former practice (known as "tail coverage"). Contact your medical professional liability carrier to determine what your current coverage is.*

When and How to Build an Effective Physician Exit Strategy

While most business planners suggest that you develop an exit strategy as part of your initial business plan, you can develop an exit strategy now if you don’t already have one. Becker’s Hospital Review published some tips from author John Collard, the CEO of a strategic management firm, that provides an overview of “cash out” options many physicians may want to consider. Reviewing this and other online sources of information may be helpful as an initial step.

Strategic business partners and financial planning advisors who are familiar with you and your business can assist in creating a financial exit strategy that best suits your individual circumstances and goals. Since an exit strategy is not simply a financial endeavor for physicians, taking into account your personal goals upon retirement and planning for patient and staff transitions upon your departure are also important factors to discuss with your advisors. Since your life goals may change over time, it’s also a good idea to periodically review your exit strategy both individually and with your business partners to ensure that it continues to meet your current personal and practice goals.

 

Whether you’re part of the 60% of physicians who reported they would retire now if they could or are passionate about continuing your practice, taking stock of your life and your long-term goals as you develop an exit strategy can be an uplifting experience. Your goals may have changed over time. There may be new and different career paths you wish to explore. You may wish to use your medical skills in different ways. You may want to travel with your family or pursue new hobbies. Whatever your personal long-term goals are, knowing you have a plan in place to get to your desired destination will make the journey more fulfilling.

* The NORCAL Mutual Health Care Professional (HCP) policy includes tail coverage in the event of death or disability, or a retirement. Coverage availability varies by state and restrictions may apply. Contact your agent or NORCAL Customer Service for details and restrictions.

Linked Sources

UBS Investor Watch. “Who’s the Boss? Business Ownership: Whoʼs In, Whoʼs Out and Whoʼs Holding Back.” February 8, 2018. (accessed 6/6/2018)

Hakutizwi, Bruce. “Why Every Business Owner Needs an Exit Strategy.” May 25, 2017. (accessed 6/6/2018)

Mitchell, Deborah. “Why You Need an Exit Strategy for Your Business.” Entrepreneur, August 3, 2015. (accessed 6/6/2018)

Collard, John M. “Exit Strategies for Practice Owners: You Built a Successful Practice, Now Consider Cash Out Alternatives.” Becker’s Hospital Review, October 18, 2016. (accessed 6/6/2018)

Rabinowitz, Ed. “Planning Early the Key to a Successful Exit Strategy.” MD Magazine, April 21, 2014. (accessed 6/6/2018)

Filed under: Article, Practice Manager, Physician, Business Continuity, Personal Finance & Career, Business of Medicine

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