Succession planning can make transition to retirement easier and much more profitable but it’s essential to get started early—or you could leave your practice in the lurch. By Jiyan Dessens
Planning for the succession of your veterinary practice can easily be left until the last minute. However, with the legal preservation age rising and the cost of living in retirement at approximately $1 million, it’s important to put a long-term succession plan in place—both for your own benefit and for the benefit of your veterinary practice. Succession planning is the simplest and easiest way to ensure your practice runs smoothly in the event of your retirement or sudden inability to work. But before you make a commitment, it’s important to do your homework and ensure your plan is the best fit for your practice.
“Succession planning is a huge area,” says Terry McMaster of McMasters’ Accountants, Solicitors and Financial Planners. “And generally we believe that every professional journey should start with the end in mind, and for many vets that will be a sale of a practice at a significant and tax-free capital gain.” But where to start? There’s so much to do in the day-to-day running of a practice that many veterinarians feel overwhelmed when asked to contemplate leaving their business, let alone establishing a well-thought-out exit strategy. “I sold my practice to people who worked for me,” says Dr Graeme Brown, who recently sold and retired from his practice at Merewether Veterinary Hospital in New South Wales. “It had been on the backburner for years, but I didn’t have a plan in writing. I suppose as I got older I started to consider what I’d do when I wanted to retire. And the people I sold it to approached me 18 months ago so we put the plan in place then.” “I also worked at Sydney University as an academic so I was able to cut down my hours of practice while transitioning to retirement and to the new owners. I only retired three months ago and my stepping down went smoothly, though I think I was fortunate in this respect. I’d recommend that vets should go to an accountant and set up a plan. I did have a word with my accountant eventually but it’s always better to get started early.”
A sentiment echoed by Craig West, CEO of dedicated exit planning firm Succession Plus. “Business succession will happen to you, so you can either control and manage it to get the best outcome or watch it happen around you! The best plans ensure the business owner can maximise the value of the business and successfully extract that value upon exit. “Begin with the end in mind,” West continues. “The earlier you start, the better chance you have to maximise value.” Terry McMaster agrees, adding: “Vets in group practices need to look closely at their co-ownership agreements to see what happens if they want to retire, or if their colleagues want them to retire. “Ideally, they can sell down all or part of their share of the practice and then change teams and be employed by the practice as they move into their retirement years. Our standing instructions here are ‘start to retire early and never stop’. Ideally, and health permitting, the vet will be working at a comfortable pace, and a comfortable space, and adding value to the universe. Everyone wins—the vet, the practice and the patients,” says McMaster.
There are many technicalities when it comes to succession planning and it’s always important to ensure that your exit plan takes all of these into account. Chris Wren of Highland Financial, a firm specialising in financial and succession planning, explains: “There’s a range of issues from taxation, legal and business structure issues. But overarching all of these technical issues are key things like how dependent the business is on the owners. Could the business run in their absence and how much goodwill is there in the business? How does the vet see themselves leaving the business—one day selling it, transitioning into retirement by bringing in a younger partner, selling it to an existing partner, or winding it up?” Deciding exactly what you’d like to do with your practice when you retire is a central part of any succession plan. There are many options for vets to consider.
According to Craig West, “That can depend upon the issues raised above but I have seen several practices successfully ‘hold on’ to equity and introduce an Employee Share Ownership Plan [ESOP] to allow key staff to participate in the equity of the business over time (either as a sale strategy, selling the practice over time to an ESOP) or as a strategy to sell down, say, 30 per cent to key staff and retain the balance of ownership in the family.”
Chris Wren elaborates: “If a vet decides to maintain their practice they need to have the ability to hire good vets in their area to act in a locum capacity, who do not wish to have an equity stake in the business. By implementing conditions that encourage performance, management and growth of the business as if it was theirs will go a long way to having a profitable asset. It is also important that the owner continues to reinvest to maintain equipment and strive for best practice otherwise the value will diminish.” These are all important things to consider when deciding on a succession plan, but perhaps most important of all is to ensure you’re getting good advice. “Make sure you are dealing with professionals with the appropriate expertise,” Wren explains. “Our experience is that the accountant, lawyer and financial adviser all should work together in building a succession plan for the best outcome. “If any one of these professionals thinks they can ‘go it alone’ or do without one of the other two, that should be a warning sign that they may not know what they are doing,” Wren continues. “How do you know if someone is expert in the area of succession planning beyond having the relevant professional accreditations? Try asking them these questions and see what responses they come up with!”