We all know that by establishing regular health and dental checks we’ve got a greater chance of preventing problems throughout our lives.
It’s the same reason for establishing regular financial and strategic reviews of your professional practice. Done regularly, this will help you keep focused on identifying key value drivers to maximise the value of your hard earned business investment and to effectively manage risks, potential weaknesses and/or threats.
Effective strategic and succession planning will help you position your practice to maximise value and make your business investment work for you during retirement. What exactly is succession planning? It’s a strategic process which allows you to transition your equity ownership by way of whole or part sale to fund your ongoing income during retirement.
When to do succession planning?
To be successful, it’s about starting early and preparing for the long term. You need to formulate a plan to assess your current position, set out what you want to achieve and develop and implement a plan for getting there.
A new financial year is a great time to reflect on previous year performance, to assess your progress towards achieving your retirement goals and provides an opportunity to identify new strategies for optimal growth, profitability and performance.
Working ‘on’ vs ‘in’ your practice
The first step is investing time to work on your practice, reviewing key business performance measures and industry trends:
- Review financial performance including key performance indicators and use this to compare and benchmark with other successful and leading practices in your industry.
- Review key trends in relation to government, industry, technology, staffing and resources, client/ patient needs and innovation.
- Identify opportunities, strengths, weaknesses and threats.
Step by step plan
The next step is to plan ahead, to identify and prioritise key initiatives for the next 12 months aimed at driving revenue growth, improving profitability, cash flow, performance and ultimately increasing the equity value of your practice.
To be successful, it’s about starting early and preparing for the long term.
Some key initiatives include:
- Reduce reliance on your own personal exertion and knowledge, make the business worth more without you. How? Consider leveraging from other professionals and team members, increasing the scale of your business, training key staff, investing in professional development to enhance level of care and maximising leveraging within the organisation by introducing an effective structured team. Introducing incentives and rewards to encourage performance improvements would also assist.
- Establish client relationships linked to the practice and its brand; not just the individual.
- Develop systems and processes to reduce reliance on key people within the practice.
- Reduce potential threats (including the Medicare freeze, changes to pathology rent agreements etc.) by increasing the range of services offered, introduce private billing, select the right service mix to maximise profits and identify cross service opportunities.
- Introduce new technology to improve client service and build effective client relationships.
- Enhance patient services utilising data analysis and management tools to identify patients who would benefit from proactive collaborative care.
- Effectively use debt to provide capital to expand and grow your practice by acquiring other practices. This strategy can potentially lead to increased revenue growth, profitability and a higher return on investment. It’s important to seek advice and manage the risks, especially during the due diligence process.
- Review the gap between the value the practice is worth now and the value it needs to be when you plan to retire. Consider which of the activities in this article will help you maximise the value of your practice, to ensure it’s sale ready and easily transferable to the new owners when the time comes.
- Make it easier for the purchaser to finance goodwill. Banks will generally support finance funding for goodwill when there is evidence of a comprehensive business and succession plan, financials to support future maintainable profits and an accountant report which assesses key risk and value drivers for the business.
- Increase the tax effectiveness of your invested capital by planning ahead to ensure you maximise the use of available small business capital gains exemptions. Structure the sale contract to favour your after tax outcome and direct the proceeds of sale to an appropriate structure (superfund, family trust, next generation trust etc.) to protect your wealth and maximise after tax returns.
- Prepare your estate planning. Having a professional will, powers of attorney and superannuation binding nominations is a big part of succession planning. Make sure your wishes are well known by those around you to ensure your estate is managed in the way you want.
Break down the activity
Take charge of your business to ensure it’s well positioned for the road ahead. Select and focus on 5 key initiatives for the next 3 months, reflect and measure the benefits achieved and prepare for your next strategic planning cycle.
Too many times we see professionals retire who haven’t spent the time during their career to determine how they will fund their retirement years. This can mean having to work well into their later years just to get by. If you start early, you can make the most of your business so it can be a big nest-egg for your future.