What’s your Back Up Plan if you Die at your Desk?
Firstly, let’s acknowledge that this is a terrible subject to discuss or consider, however it’s because of this awkwardness that so many people, including professionals, fail to plan for such scenarios. As our baby boomer generation continue to work longer, we need to be realistic about the likelihood of more practitioners passing away whilst still being practice owners. Unfortunately my firm is receiving more and more calls each year from those left behind trying to work out what to do with their loved one’s practice.
For the younger practitioners also reading, please don’t think that such events happen to only those over 60. Tragically, we also hear of practitioners who are in their 40’s and 50’s who suffer a heart attack or stroke, resulting in them dying or rendering them incapable of further work.
Just stop for a moment and ask yourself, how your wife / husband / kids or executor would go about dealing with your practice. Yes, you may have life insurance, however this doesn’t address what will happen to the practice or your client base.
Do those left behind simply close the doors?
Does the estate depend on the funds from selling the practice or equity?
Does the estate try to get someone else to run the practice? Who needs to be notified of what?
Who is available to help with what needs to be done?
How does someone obtain the necessary information about the practice to make informed decisions?
How will staff react and will work continue to be completed? Will service levels decline and clients leave?
If part of a multi-partner firm, are buy/sell agreements in place?
Does the firm need to be formally valued as part of the current proprietorship agreement where an equity holder passes away?
There is simply so much to think about and whilst it is the last thing on any practitioner’s mind during the day to day operation of a practice, it is part of practice ownership that is so important to consider and plan. It is surprising the number of practitioners that have not put any steps in place for such a dreadful event and the hardship it causes those left behind during an already emotional and difficult time.
While our firm has a service available to assist sole practitioners with a back up plan for such scenarios called Practice Protection, there is also another possibility which actually acts as a win-win for both sides of the scenario. Again, it may seem a little morbid to be having such discussions, but one can never be too prepared.
Essentially the opportunity is this……..
More and more practices are currently in search of acquisitions. Many practitioners don’t wish to relinquish ownership of their practice just yet and this is particularly risky for sole practitioners. As a practice looking to acquire, perhaps have a look around your current location and identify more senior practitioners who have yet to retire. If you have had a discussion with these practitioners around a transaction now without success, perhaps your firm could act as that sole practitioner’s back up plan should something unexpected happen to them in the future.
Getting this started will obviously be informal initially and may simply represent a loose verbal chat around the larger firm’s ability to help out if need be. However, should both parties progress past initial discussions, the prospective future purchaser may want to learn some more about the sole practitioner’s firm. This can be a double edged sword and we recommend caution here. It’s important but protection is also essential; the execution of confidentiality agreements would be important. Should parties wish to formalise the process even further, then this really should be documented. This may be in the form of a buy/sell agreement or similar, however your solicitor is best to advise here.
Keep in mind however, if you are eyeing off an older practitioner’s practice as a potential acquisition, please don’t comment that the clients are also ageing. Two points for consideration in this respect:
1. A firm’s clients are typically within 10-15 years of the age of the practitioner; and
2. Older clients don’t necessarily mean that they are all retiring and dramatically reducing their requirements.
Like many of our practitioner colleagues, clients in their 60’s are often envisioning growth and this can be further assessed through discussions with the current practitioner.
These types of discussions that may eventually lead to more formal agreements really do offer a back up plan, particularly for sole practitioners who wish to continue in practice but wish to address the issue of what will happen to their firm should they suddenly not be around. This goes a long way to lifting the burden on those left behind.