Exit Strategies For Physicians

An "exit strategy" is one's plan for closing or, preferably, selling a medical practice or more traditional business when one retires, becomes ill, dies, or, for any number of other reasons, decides to sell one's business to someone else or simply close it down. It can also be a plan to ultimately find a new job, switch careers, or retire from one's current occupation.

Business owners always think about starting a business, but generally give little or no thought to exiting a business until they are ready (or forced) to do so. Similarly, people entering new careers seldom give any thought, early on, to ending or transitioning out of their career. Neglecting this important element can result in a person entering the wrong career or business to begin with, leaving them (or their partners and heirs) unprepared when the business ultimately (or suddenly) closes or changes hands, or leaving them in a potentially unhappy mental and financial state at the end of their career.

Before a physician starts a new career, or starts a traditional business, an optimal exit strategy should always be considered long before the actual exit. In fact, an exit strategy should be considered before the new career or business ever gets started. Careers and business ownership never continue indefinitely, never. Unending ownership of a business by the same individual or individuals, or an unending career, is simply impossible.

Given this unbending law of nature, individuals should plan for this inevitability-sooner rather than later. Planning an exit strategy before starting a business or career is optimal, because it helps the person better understand the ultimate lifestyle and financial implications of starting and running a potential business, or starting a new career.

When I decided to enter family practice, and later psychiatry, I gave no thought to how much money I would make over my respective careers. I did not give much thought to lifestyle considerations, and gave no thought to an ultimate exit strategy when selecting my career. Now, after many years in practice, the financial and lifestyle implications of my decisions have become more important-but it's too late to reconsider those decisions.

Physicians contemplating a new clinical career, a non-clinical career, or starting a traditional business, should think about their exit strategy before taking action. If still in medical school, which career path you take will have very significant implications for what type of lifestyle you lead, and your lifetime income. Think about these issues carefully before making any decision. What are your financial, professional, and lifestyle goals? What is your timeframe?

For those contemplating a non-clinical career, what are the risks and rewards of obtaining additional training? What about getting an MBA or other advanced degree?

For those going into medicine or starting a small business, do you want to be an employee, an entrepreneur (physicians owning their own practices fall into this category), or a partner? What business decisions along the way will optimize your ultimate situation? For example, should you rent or lease equipment? What are the financial and tax implications of renting versus buying real estate? What about employees and the associated workers' comp, health insurance, and other potential expenses?

What are the implications of partnership? Most often, entrepreneurs form partnerships with family members or close friends. Needless to say, there are numerous potential risks and benefits in doing so. Given the unnerving fact that more than half of businesses fail (or change ownership) within five years of starting, forming a partnership with a close friend or loved one can cause a great deal of strain in the relationship.

A partner (or you) may become disabled, incarcerated, or even die. Because of this, individuals forming any type of partnership (including corporations) should also agree to, and sign, what is called a "buy-sell" agreement (this is described in more detail in our book, Mega Options for Physicians). This should be considered prior to starting a new medical practice or small business.

The ultimate sale of a business is obviously better than simply closing its doors. Business valuation can be simple or complex, depending upon many factors. For medical practices, basic valuation depends upon assets and liabilities, as well as current and potential cash flow.

For larger and more complex businesses, the most basic elements of valuation include the current and depreciating (rarely appreciating) value of assets; liabilities; current and potential cash flow; intellectual property as well as innovation history and potential; alliances and partnerships; current and potential market share; board membership and governance; strength of the management team; barriers to entry for new competitors and relative strength of current competitors; brand value; distribution and logistics capability; customer base; sales force; company and industry technology; and, position in the industry business cycle (growth potential).

In summary, don't just think about starting a business or new career-think about how it's going to end, because some day it will (for you). While we want to enjoy our work life and have a great lifestyle, fundamentally, we are "in business" to make money. The relative priority we place on money and lifestyle varies from person to person. Thinking about retiring, selling our business, or changing jobs, early on will make the transition easier and potentially more satisfying, for us and-if we have them-our partners and/or spouses as well. Don't just think about the beginning; think about the end (and beyond).

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Exit Strategies For Physicians