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Here are some specific steps and resources to get you started on your own business continuation planning for your medical practice.
We’ve been examining the various types of crisis plans that every business and medical practices in particular must have in place to reduce physical risk, stress, and reputational damage as well as the loss of a partner or practice owner from the practice for any reason. This week, we provide some specific steps and resources that can get you started on your own plan and allow you to have the right conversations with your informed advisors. As always, this is not specific legal or financial advice but rather a summary of the most generally applicable issues to consider.
First, all owners and partners must buy into the idea
The first step is to understand why you need a plan and what it should contain. We’ve addressed this issue in previous parts of this discussion and it must be an item of consensus among all practice partners and owners. You probably understand what your loss would mean to your family, but if you have partners you must take their planning as seriously as your own.
Two simple self-assessment questions I confront my clients with:
If one of your practice partners died today, would you have the liquidity to buy off her family, or would you end up in a legal preceding explaining to a court why your business, that could represent decades of hard work, should not be sold?
If you died, would your partners be able, (let alone willing) to buy your family out in a manner that adequately respects your life’s efforts and contributions to the business without a specific legal obligation and plan to do so?
Update and review the plan and ask: Is it right for today?
Even in cases where a continuity or succession plan is in place and has been funded, we often see cases where it was funded and designed when the practice was in its infancy. Now, a decade or even a few years later the practice may have much higher (or, with issues like compensation decreases, lower) revenues and value, and the “old” appraisal and debt obligations may no longer be valid.
Many physicians either don’t have adequate coverage or in the worst cases, the coverage required has never been implemented. This leads to expense, delay, and in many cases litigation when one partner dies and the surviving spouse and heirs are suddenly trying to get a business appraised and fighting for what is theirs. This can lead to the untimely sale of the business or its assets and really create a mess for the surviving partners; we want to avoid this and can avoid it with a simple insurance policy and legal agreement.
Understand exactly who all the key employees are
We get the issue about owners and partners, but their may be other key executives or producers who are vital to keeping the doors open, including highly compensated executives. Ask yourself:
• Who has critical knowledge on things like operations, management, intellectual property, and technology?
• Who are the key revenue generators vital to profitability and ongoing operations?
• Who maintains key licenses, relationships, and contacts including with your own vendors on both medical and legal and accounting issues?
Look at liability insurance limits, not just “key man” life insurance
Finally, I asked Dallas Cowan, a liability insurance expert with Minard-Ames Insurance Services/Insurica in Phoenix, Ariz., about types of risk or liability insurance coverage that may help.
“Crisis Response - Excess (Umbrella) insurance companies are starting to add coverage for expenses incurred when a catastrophic event happens” said Cowan. “They include coverage for hiring a crisis management firm, psychological counseling, medical and funeral expenses and other costs associated with the crisis. Having a program behind your company should be a key part of your crisis management plan."
He also provided this great sample crisis response program by Chartis that may help your team outline the relevant issues in your practice. I also asked Cowan about additional insurance that might cover short-term income losses as well, a growing concern in today’s lower margin compensation environment.
"Good Question - Business interruption coverage only applies to covered perils (losses) specified in the property policy, such as a fire or flood that cause damage to your business property and shut it down," he said. "In an extreme case where your business has to be shut down by police for investigative reasons, you need to check with the language of your policy in order to make such that such events are covered perils. Some policies exclude civil interruptions or have coverage for a limited time period."
Find out more about Ike Devji and our other Practice Notes bloggers.