If you’re operating a successful veterinary practice, you have likely already thought about your long-term goals. Among these considerations should be what will happen when you inevitably leave or sell your practice due to retirement or some other significant life event. This is where business succession planning will play a significant role in the future of your practice.
When you adopt a business succession plan, you avoid many of the problems that can arise when you or another owner suddenly leave or sell the business. You also position your practice for future growth and success while reassuring your loyal customers. Find out more about the benefits of succession planning for veterinary professionals and how Mahan Law can serve you.
What May Happen Without a Business Succession Plan?
Life can change suddenly for you or another owner of your veterinary practice. Death, illness, disability, and incapacity can all strike without warning and leave a partner or owner unable to run the business. Retirement or leaving the practice to join another one, or simply wanting to sell off the business, can have the same effect.
Questions then arise: who steps in to fill your shoes, or that of another departing owner or partner? Who is the right person to buy the business and protect the employees, customers, and patients you leave behind? If there is no clear answer as to who fills the leadership void, your practice could be thrown into chaos that includes:
- Incomplete contract negotiations and business plans: You or a partner may have been negotiating a sensitive contract to expand or grow your practice, perhaps by adding another office. A sudden death could easily derail those plans.
- Internal strife and conflict: Imagine you own your veterinary practice with other partners, and you suddenly die. If there is no plan about who acquires your ownership interest, and under what terms and conditions, the risk of strife and conflict increases significantly.
- Legal disputes: The problems could soon make their way into the courtroom as partners fight over who gets to take your ownership stake or unhappy third parties are left with incomplete business negotiations. Court judgments, lawyer’s fees, and stress are inevitable.
- Decreased productivity and depressed morale: All of the above, or the irresponsible sale of the practice to a third party, can divert precious resources, reduce productivity, and depress employee morale. The business may stagnate, lose customers, and lose its reputation.
On the other hand, a well-drafted, comprehensive succession plan will cover all likely exigencies and establish a clear transition plan from old to new leadership or ownership. A skilled veterinary practice attorney can help facilitate this process.
What to Include in Your Veterinary Business Succession Plan
No two business succession plans are identical, so you should work with a knowledgeable lawyer to ensure the plan you adopt is suitable for your practice. Most plans will include at least the following items:
- Defining the departure: There are many reasons someone may leave a veterinary practice, not all of which are permanent. A business partner may take a sabbatical, for instance to care for an ailing loved one, but return at a later date. Your succession plan should define what counts as a “departure” that requires activation of the plan and replacement of the individual.
- Procedure for choosing a successor: Next, you must establish an orderly process for choosing the person who replaces the departing owner or partner. The plan should dictate whether the replacement will come from within (internal succession) or from the outside (external succession), along with criteria and steps for the selection process.
- Transition guidelines: The actual transition from old to new leadership, including the sale of the practice, is delicate. Someone may need to temporarily fill an absence until a permanent replacement is selected, and the plan must properly define that person’s role. Once the new owner or partner is chosen, they should be properly trained before fully assuming their job duties.
- Business valuation: A departing owner or partner will expect to have their interest bought out, but this requires conducting a valuation of the practice. Asset, income, and market valuations are possible, or the plan may set a flat compensation rate. Regardless, the goals are to fairly compensate the departing owner or partner while reducing the risk of future litigation.
Options and Agreements for Your Business Succession Plan
When an owner or partner is ready to leave (or they leave suddenly due to death) or sell the practice, there are options for bringing in new leadership. Here are some examples:
- Buy-sell agreements: Whoever is leaving the practice likely invested resources into it, and so they deserve to be compensated for giving up their share. The buy-sell agreement can dictate when an owner or partner can sell their interest (or must, for instance due to veterinary board discipline problems), on what terms, for what price, and to whom.
- Purchase agreement: If you are the sole owner, or all co-owners wish to leave at or about the same time, you have the option to sell your entire practice to a third party purchaser. You will need to take steps such as business appraisal, valuation, negotiation, and drafting and executing the agreement.
- Mergers and acquisitions: Another veterinary practice or corporation may wish to obtain yours through a merger or acquisition. Steps such as due diligence, negotiations, and various contracts are necessary, but ultimately someone else will take over your practice.
The Objectives of Your Succession Plan
Ultimately, your business succession plan should accomplish the following:
- Preventing internal disputes: The succession plan should clarify who will assume ownership and what the transition will look like so internal conflict does not arise. The last thing your practice needs is a power struggle or ego contests.
- Leadership and employee retention: If one owner or partner leaves, there’s a tendency for others to do the same. Employees may also bail if they do not like the new buyer. Offering incentives is one option for retaining top talent.
- Protecting confidential information: You do not want the departing member to steal your customer lists or proprietary information (eg. trade secrets) and open a competing practice. Confidentiality agreements, non-compete agreements, and non-solicitation agreements help avoid this.
- Reassuring stakeholders: Customers and the community, among other stakeholders, have more confidence in veterinary practices that have clearly prepared for the future. A carefully designed succession can provide the reassurance they need.
- Preserving institutional memory: A new owner or partner will bring new ideas which may alter the culture of your practice. But your plan can preserve certain traditions and values.
- Reducing stress: The absence of a business succession plan could turn your veterinary practice upside down. Having a plan reduces stress by mitigating risks and paving the way for an easy change in ownership.
Contact Our Veterinary Practice Succession Planning Attorney
Are you ready to leave or sell your veterinary practice, or you simply want to prepare for the day when you or another owner does so? Let our dedicated attorneys put together a business succession plan that meets your goals and expectations. Give Mahan Law a call or complete our online contact form to learn more.