Succession planning

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succession planning
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It can be easy to get caught up in the day-to-day demands of running a practice, but if you’re approaching retirement, estate planning is an important consideration. Here’s why it matters and how to get it sorted. By Angela Tufvesson 

For many dentists, the thought of estate planning instils a sense of trepidation that invariably leads to procrastination. Figuring out what will happen to your practice after you pass away is a complicated and uncomfortable task, and it can feel far enough into the future that you feel you can keep putting it off.

But here’s the thing: thorough estate planning can mean the difference between protecting your assets, ensuring your family’s financial future and safeguarding the legacy you’ve worked hard to build, and leaving behind a “dog’s breakfast” for someone else to deal with, explains Yves Schoof, director and principal adviser at Affluence Private Wealth, a specialist financial planning firm for healthcare professionals.

“Estate planning can be confronting, it can be expensive and it’s not something that you can resolve in half an hour, but it’s really important for achieving an optimal outcome for your practice,” he says.  

Pinpointing your aspirations

Defining your objective is the first and most important aspect of estate planning for practice owners. What do you want for your practice when you are no longer around to run it or maintain any involvement?

Dental business strategic adviser Carolyn S Dean says there are three main options: sell the practice upon retirement, leave it to a family member to run, or install an operations team to run it on behalf of your family. 

The more popular option is to sell—to a dentist already working in your practice or to someone new. “There might be another dentist or senior dentist that you might have groomed or someone who might have joined the practice with the ultimate plan of taking over and buying the practice,” Schoof says. 

“Or it could be the type of a sale where you ask a business broker to list the practice for sale and it’s basically an open tender. It could be sold to a corporate or another dentist.”

If you also own the building, you’ll need to decide as part of your estate planning whether to include it as part of the sale or hold onto it.  

For situations where you’d like to pass the practice on to a family member, Dean says open and honest conversations can help to tease out any potential issues, especially if the future owner doesn’t have a clinical background. 

“It might be that the mother or father is the dentist or specialist, and their child may want to carry on as a business manager. Or it may be a legacy situation where the child is also a dentist and wants to carry on the family business,” she says.

It’s about having an objective that you want to achieve, then building a plan and surrounding yourself with the right people to make it happen—and realising it’s not going to happen in one years’ time.

Yves Schoof, director, Affluence Private Wealth

“It’s very much about having a family discussion around what the practice will look like in the future, how you hand it over in such a way that the business is in safe hands and that your wishes are clear in terms of how it’s run.”

More than a simple transaction

Despite the administrative vibe, estate planning is more than the mechanics of negotiating a sale or drawing up an inheritance arrangement. Beyond bricks, mortar and dental equipment, a practice is often a dentist’s life work—an entire ecosystem supporting a community of patients and staff. 

“Selling or passing a business to somebody else is a huge step, and it’s not all about the hard numbers. It’s very much an emotional decision even though it’s also a financial decision,” Dean says.

Indeed, being sensitive to the needs of the people you look after and work alongside is an important aspect of estate planning, which can mean emotions win out over maximising financial gain.

“Often dentists just want to make sure their patients end up in good hands. They want to get a fair price, but they’re more concerned about the continuation of patient care, so they’d rather handpick someone and perhaps get a bit less,” Schoof says. 

Future planning

Delaying estate planning is a common tendency. Schoof estimates 80 to 90 per cent of his client base don’t have their affairs in order. “We find that most people leave it quite late because they’re too busy running their practice,” he says. “All of a sudden it dawns on them that they want to retire in 12 months, but you probably need a good three to five years to get the best outcomes.”

Failing to plan ahead, he says, can lead to a lower sale price than expected. “When you’re nearing retirement and you’re in your late 50s or early 60s, you’re probably not going to be working as much as someone who’s 30 or 35. That means the financials of the practice are probably undervalued because the practice is not running at full capacity. 

“If you then want to sell, prospective buyers may look at the financials and think the practice is not that busy and be unwilling to pay a good price.”

Dean says taking the time to get your practice ready to sell or pass on boosts your chances of a better sale price and smoother transition—and helps to maximise earnout. 

“What the next person is buying is goodwill, as the retiring clinician has a reputation and relationships,” she says. “There is absolutely a level of earnout in the vast majority of sales, so planning in advance is absolutely critical, regardless of what the exit looks like.”

Ultimately, Schoof says, getting ahead with estate planning means you’re far better placed to achieve your original goal. “It’s about having an objective that you want to achieve, then building a plan and surrounding yourself with the right people to make it happen—and realising it’s not going to happen in one years’ time.”  

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