What would happen if one of the Practice GPs decided to emigrate or retire tomorrow, would you have a plan in place?
Or would panic strike. In any business having a strategy in place is key for its successful continuation, and by this I don’t mean just having a quick five-minute chat about it but a fully structured plan.
Whether the Practice is run through a partnership model or a limited company, the partnership agreement or the articles of association will govern the entities decision making process. Therefore this is the starting point to see if there are any restrictions, but do not fret it may be possible to have things altered if needed and all parties are in agreement.
Communication is key in this strategy, knowing what others plans are, well in advance of the actual event will mean that there is plenty of time to prepare. For example by getting a Salaried GP or introducing a new partner.
So how do you plan?
One way of doing this is by using a one-page plan, this will help you focus on where you are right now, where you want the practice to be in say 1,5 or 10 years and how you are going to get there. It is important to work through things in this order, but it may be helpful to have an external facilitator to assist with this, as it can be difficult if parties have different goals and objectives.
What choices do we have?
With the potential retirement of one partner this does not necessarily mean that a new partner should be sort straight away or even at all. There may not be a need to replace like-for-like. Work previously performed by the partners may be able to be dealt with by additional Salaried GPs picking up sessions, recruitment of additional staff into the management team or utilising some of the ARRS roles, the need for a replacement partner may actually be diluted. Thinking differently could help future proof the Practice, whilst assisting in the everyday.
Looking at the current level of GP’s in the UK, there is a worrying trend as the graph shows:-
With fewer new GPs seeking partnership roles, coupled with the general decline in GPs per the above is stressing the partnership model. Exploring all options to protect the business is becoming more and more important
We have seen there is a trend towards working at scale initially into PCNs, but the direction of travel for commissioning is looking to be contracting with larger entities at Place level. Therefore, may this be an opportunity to grow in size by merging with another practice now to be in a better position?
We are not going to explore the complexities and issues of a merger but merely noting here that it is an option to be considered to help gain critical mass and to potentially fulfil the succession planning needs. If you would like to explore this option more, then we would suggest speaking to your MHA local Healthcare team.
Practicalities of someone exiting:
In short, yes, cashflow is another big factor to take into account with changes to the partnership's structure. Especially considering the drop in income some practices have seen, whilst others may have an increase but not by much and with such high inflation, cash is definitely key and having additional liabilities could prove detrimental to any Practice. Does the Practice actually know the current situation to be able to deal with a sudden exit? This is where having the right people and the right systems in place, for example Xero or Quickbooks can assist in these types of concerns, as when properly implemented, these can give efficient access to near real time data enabling good financial decisions.
Good accounting software can provide cashflow forecasts based on historic data or by utilising the budgeting tools within them. This gives a much better picture of what is actually happening in the Practice.
Questions you may need to consider:
- How accurate is the current account?
- Any historic superannuation issues to resolve?
- Would the practice realistically have enough to be able to make a pay out of the Retiring partner's account?
- If there are tax reserves are there sufficient amounts to pay, particularly if it’s a non March year end?
If the money isn’t there, then there needs to be something in place to fulfil this obligation, and that maybe where a new partner comes in.
If this is the expectation, then those in line for partnership will need to be forewarned in order to get everything in place to enable them to do this. It may be that the incoming partner's money is what pays for the outgoing partner.
However, if there is enough time, then suitable reserves can be built up to deal with these issues, and if financing anything, starting discussions with your bankers as early as possible.
There may be a need for short term funding if there is a gap between an exiting partner and a new partner coming in.
If the former then the lease agreement must be reviewed, as this may constitute a change in partnership and an unscrupulous landlord could exploit this situation and demand that a rent review be completed. Solicitors’ advice should be sought in order to make sure everything is understood by all parties.
If the premise is currently owned by the partners, is the exiting partner expected to sell their share of the property or is the partnership agreement silent on this and therefore this needs to be discussed. If the partnership agreement includes any cross options, the timing stipulated needs to be fully understood to ensure that deadlines are not missed. Get legal advice and ensure you understand the position, as missing deadlines can impact Business Asset Disposal Relief (BADR).
If any incoming partners are expected to purchase their share of the property from the exiting partner, again this will need to be communicated and appropriate financing put in place.
If they were the Senior Partner, the relinquishing of control or the thought of giving it up may be a hard pill to swallow, but there needs to be an emphasis on the positivity that planning will bring to the Practice. This may be a very sensitive issue and therefore conversations need to be handled delicately.
The exiting partner should seek advice over their tax position. Generally, the current account balance will be free of tax when withdrawn, but any interest in partnership premises may have a capital gain to disclose if being disposed of. Some relief is available known as Business Asset Disposal Relief, if structured appropriately, so take advice.
Additional thought needs to be given to what happens next particularly if there are any historic pension issues. To gain tax relief on pension contributions, an individual needs to have earned income to offset this against aka "net relevant earnings". Pension income does not meet this criteria so will there be any other relevant income. If not advice should be sought.
This will need to be considered and should be discussed with your accountant.
If moving from a position of employment to self-employment, for some this is very daunting. Things such as, the requirement to register with HMRC, providing for tax and being responsible for staff and strategic business decisions can be daunting."
Getting early advice to potential candidates to explain the processes in place to mitigate the risks involved, and clearly lay out a plan for tax and drawings can make the difference to the candidates decision.
Continuing partners should always seek to protect the business. The use of probationary periods and other useful clauses can all be included in partnership agreements to ensure all parties are suitably protected. Seek legal advice.
Ensure that the partnership agreement is signed before entry into the partnership and has effect from the appropriate date.
Conclusion
The three key take aways for successful succession planning are:
- Starting those conversation with your fellow partners, discussing where you and your practice are now and where everyone would like to be within a fixed time frame are a necessity.
- Draw up a suitable plan with ideal scenarios (new partner, new salaried, new mixture of non-gp staff or potential for merger with local practice).
- Reaching out to your local MHA Healthcare team if you need support.
Download our Succession Planning one page plan template
Succession Planning one page plan template
