Health and medical alliance increases depth of expertise

For many years, Prosperity has been building our Health team, specialising in providing medical and allied health professionals with a deliberate, proactive accounting, advisory and financial planning service.  There has been a lot of demand for these services, and with the growth anticipated in the health sector over coming years, we have moved to further strengthen our expertise in this important client segment of our firm.

So I am pleased to announce our alliance with McMasters, a Melbourne based practice with over 20 years of experience in advising the medical industry.  Our alliance arrangements commenced in March and I am pleased to say that our medical and allied health clients are benefiting from this new arrangement that significantly deepens our expertise.

Our Prosperity Health team with the support of McMasters will continue to provide comprehensive support through all the career stages of medical and allied health professionals. Our recent seminar series on minimising tax, growing your practice and planning for succession was enthusiastically received by over 200 participants.

Succession Planning for Professional Services Firms

It takes years to build up a strong, partner-led professional firm, but many businesses can destroy this value quickly by failing to plan for the succession of senior staff.

What is your plan?

Have you considered how you will exit your firm or manage the exit of one of your partners should they get ill, seek retirement, or face an unexpected change of life?

Have you identified the likely successors for your role? What is in place if one of the principals is removed by illness or death? Will your business have ongoing viability if you are no longer part of the team?  Do you know what your firm is worth?  What will be the taxation consequences of a sale of your equity?

If you can’t answer these questions you could be exposing your business to risk should you have a principal of the business retire, resign or confront health issues.

Often professionals are so busy working in the business they don’t work on the business and succession usually isn’t an urgent consideration. It is, however, important to work through the process and develop a plan that will deal with the succession of your business in all circumstances, including an unplanned exit.

Considering your succession options

Consideration should be given to the outcomes for your business if you were to get ill or have to step away from the front line.  Then, once understanding the impact, you should consider the options available for succession and the issues and merits of each option.

Where the firm has multiple principals there should be equity/shareholder agreements in place which identify the roles and responsibilities of the parties can also identify the steps to follow to buy out an exiting party.

It should also outline the method to value the equity interest and what terms will apply to the payment.

A buy/sell agreement that deals with unplanned exits is often funded by an underlying insurance policy that is triggered when the events in the buy/sell occur.

It is better to put these documents in place when there is no immediate requirement to negotiate an exit as they can then be done with no specific agenda in mind.

Business Structure

Other considerations for the succession plan is reviewing your business structure to allow for easy entry and exit of parties and access to any asset protection and taxation concessions where available during operation of the business and in the event of sale.

Financial Review and Improvement

There should also be a financial due diligence to identify the areas for improvement in the practice, including financial reporting programs, growth planning, profitability improvement, systems development and risk management.

When these areas are improved they enhance the value of any business and will result in greater profitability of the business and a smoother transition.

Identifying your successor

It is also important to consider whether there will be an external sale of the business or whether a potential leader can be identified within the current team.

The knowledge and experience that resides in a principal often forms a substantial proportion of the firm’s intellectual property and capital. That knowledge and experience needs to be passed on to potential successors.

Internal succession may also need to be backed by appropriate recruitment of staff who aspire to being a principal, leadership and management programs to provide development, and growth in the practice that facilitates progression of team members to principal.

Well planned succession

Ultimately succession of a principal can be best managed where the business is transition ready, there is a process in place to manage an exit and the process is clear for all parties involved.  That way, when succession becomes an issue, it is not a reason for unnecessary conflict or stress.

 

Debbie Matthews is an Associate Director of Business Services and Taxation at Prosperity Advisers. 

 

Derisking your Business Partnership – Some simple but important steps

Running a business with others whether through a company, trust or partnership is not something that many people step into lightly.  Most get to know their business partners for months or years before they go into business, building trust, rapport and structure around them as they go. 

So it makes sense that many partnerships are now insuring against the unexpected exit of a partner from the business  with Buy/Sell insurance that allows remaining stakeholders to buy a partner out in the event of specific events like death and disability.  

It is an important element of succession planning in partnerships, where individuals rely on each other to run their business and deliver their services or products to the market.

Take for instance the business run by Mark, Jeff and Drew, partners in a firm that sold high profile residential property.  The real estate agency had a premium referral based clientele and a superb reputation that enabled them to live a good life.  Despite their success, the partners had never taken the time out to build a succession plan, put business agreements or insurances in place.

Sadly, Jeff’s lifestyle got the better of him, and he died suddenly and unexpectedly from a heart attack.  His wife, Kathy, who had never really been interested in the business since she left to have children 10 years ago decided return to work again, demanding to be treated like and equal partner by the other two as she was a beneficiary of Jeff’s 33% shareholding.

It soon became obvious to Mark and Drew that Kathy was out of her depth.  Clients who had previously worked with the agency were complaining, two of their best staff resigned and the agency was denied an important regional contract they had held for 12 years.

The hostility and resentment between Kathy  and Mark and Drew grew to the point where Lawyers became their best way of communicating.

The situation was stressful for everyone in the office, and it had virtually destroyed the value of their once buoyant and successful business to the point where it was virtually worthless.  When one of the senior staff left and set up an agency down the road in competition with them, they knew their run was over.

Had Mark, Jeff and Drew sought advice on succession planning their partnership and implemented buy/sell agreements and insurance this situation could have been avoided altogether.  When Jeff died, funding would have immediately triggered to buy Jeff’s ownership share from his estate.  The inclusion of staff incentives schemes in their succession plans may also have kept staff in the business, minimizing the risk of them setting up in competition with the firm.

Are you in a business with others?  What should you do?

  • Seek professional advice to draft a buy/sell agreement
  • Put in place buy/sell insurance
  • Draw up an effective succession plan that take into consideration sudden and planned exits
  • Ensure your buy/sell agreement is regularly revised and amended as circumstances change.
Image source: Flickr: o5com