Do you own a veterinary practice? Do you have a succession plan and exit strategy? As a specialist veterinary care team, we have plenty of experience helping clients create and carry out an exit strategy. However, there are a number of key legal aspects to be aware of when succession planning ourselves.
What is succession planning?
Succession planning is the process of deciding what will happen to your business in the future. It helps your business to continue to operate when a significant change occurs – in particular when an owner wishes to exit. This is of particular interest and importance to those who own or run veterinary practices with other surgeons who have already “learned the ropes” for the sake of continuity and familiarity with your clients.
[Succession planning] helps your business to continue to operate when a significant change occurs – in particular when an owner wishes to exit
Whether you are a sole trader, a company owner or a partner in a business, you can create a path for succession by:
- Introducing key personnel to take over the ownership structure
- Transferring your interest to the other parties if the business is held jointly with others
- Finding an unrelated third party willing to acquire the practice, whether in whole or in parts
- Winding the business up
What are the benefits of succession planning?
We recommend having a succession plan in mind regardless of whether you are considering an exit. The plan can be updated and adapted as circumstances change while helping all interested parties understand your intentions.
Succession planning allows you and your business to prepare for the unexpected and provides more clarity surrounding retirement plans. If you’re planning to retire, planning as far ahead as possible is advised regardless of whether you’re selling up or passing the practice on to a colleague.
Asking for help from a team of legal experts is recommended, as they can work closely with trusted advisors to ensure your succession plan is formally documented. (These are considered in terms of tax treatment, the legal process and commercial sense.) These specialised teams are also there to support you every step of the way, from implementation to updating the plan at relevant junctures and supporting you if you decide to exit your business.
Key legal considerations for veterinary practice owners looking to exit
The most common way businesses are owned is through a limited company or a partnership. Companies and partnerships are two very distinct legal entities, and while the end result will be the same, there are different legal processes you must go through to arrive at an exit.
You should engage your legal advisors early in the process, even if you are not considering an exit, to ensure the steps are in place and your intentions can be legally implemented once you are ready.
If you run your practice through a business (ie a limited company or a partnership) that does not have bespoke articles of association, shareholders’ agreement or a partnership agreement in place, but you know you will be looking to exit in the coming years, you should consider putting them in place now. This is because these documents can include specific mechanisms to allow for the transfer of your interests in the business.
If you run your practice through a business that does not have bespoke articles of association, shareholders’ agreement or a partnership agreement in place […] you should consider putting them in place now
If you decide to sell to a third party, the process can seem daunting, particularly if you are trying to carry out the process in addition to your everyday responsibilities of owning a veterinary practice. This is likely to be equally true if you’ve built the practice up over years of hard work, gaining the trust of your clients and becoming a successful business. The thought of “leaving it all behind” after years or even decades can be difficult. Nevertheless, it’s important to have a succession plan in place.
Creating a successful succession plan
1) Define your aim
What would you like to achieve? Who do you want to take over the practice, how much do you want to sell it for, and what is your plan after you have exited?
2) Value your veterinary practice
Understanding your veterinary practice’s current value is important information to help you plan how you achieve your key objectives. For example, you may establish that you need to grow your business by a set amount each year for the next decade to generate enough income for your retirement. This could present problems of its own – if you run a practice in a village or hamlet, your income may be significantly different to those who run their business on Harley Street.
3) Identify your successors
What skills are needed to keep your practice running smoothly? Are there any other people in your management team who can fill these skills gaps?
4) Communicate your plans carefully
Even if you do not want to share your plans with all your team members, a few key members must know what will happen when you leave the business. They may also be instrumental in that success, whether by stepping into your shoes or assisting you with the sale process.
Even if you do not want to share your plans with all your team members, a few key members must know what will happen when you leave the business
5) Ensure the necessary documents are in place
As mentioned above, the shareholders’ agreement, partnership agreement or articles of association will set out the way your interests in the practice can be transferred. If you do not have one in place, the process to exit can become protracted as you may have to negotiate terms with other members. If an agreement is already in place, the process should be a lot smoother.
6) Tax considerations
Whichever way you look to exit or create a succession plan, you will need to consider your tax position. Working closely with a number of specialist tax advisors can help with this. Always strive to get clear tax advice at the outset so you can ensure the structure of any transaction is right in terms of your tax treatment.
|The veterinary care team at Harrison Clark Rickerbys can offer veterinary practices a multidisciplinary approach and help you navigate your way through the life cycle of your veterinary practice.|