You’ve worked for decades to build the practice of your dreams. You’ve overcome obstacles and, sure, you’ve seen your share of ups and downs. But in the end, you’re proud of what you’ve accomplished.
What do you do to ensure your dream lives and thrives in the next generation? It’s all dependent on a well-thought-out succession plan.
By developing an effective succession plan, you can feel a bit more confident that your business will be passed on to a qualified and appropriate successor as seamlessly as possible.
Ken White, DVM, Perryville, Mo., and Randall Spragg, DVM, Rogersville, Mo., both have worked on succession plans of their own. They say with a bit of planning and foresight, any veterinarian can ensure a successful future for his or her practice.
The beginning of their dreams
Dr. White began his practice in 1971, upon graduation from the University of Missouri school of veterinary medicine in 1970.
In 1997 his son, Brad, followed in his footsteps, graduating from the Missouri school of veterinary medicine and returning to the home practice. Brad’s wife, Christine, also a veterinarian, began practicing at a clinic 30 miles away.
Before long, Brad had developed a beef marketing alliance with producers in the area and took on public speaking engagements.
“He then went back to school and found his niche,” Dr. White says. “Today, he works at the Kansas State University vet school. He does an excellent job there and he did an excellent job in our practice, too. But he’s now following his passion.”
For Dr. Randall Spragg, the veterinary passion runs in the blood. His father, Robert M. Spragg, began the Spragg Veterinary Clinic in 1959.
Dr. Spragg’s brother, Gary, graduated from the Missouri school of veterinary medicine in 1967 and after a two year term in the Army, returned to the practice in 1970. In 1982, Dr. Spragg received his veterinary degree and immediately joined his father and brother in the practice. And moving into the third generation, Gary’s son, Michael, has joined the practice, as well.
“The clinic has grown from a one-man practice to a three-man practice,” Dr. Spragg says. “We’re seeing more small animals and horses today. And, we see a good amount of cow-calf operations spread out across a greater distance than in the past.”
Although the practices are unique, one concept is the same; the need for a succession plan was realized well before it was actually needed.
Making A Plan
In the mid-’90s, when Dr. White’s son, Brad, was still a part of the practice, he and his wife, Ann, incorporated the business and began a process of distributing business stock to Brad and Christine.
“After a period of years, we would have transitioned the practice to them, without a great deal of money being exchanged,” he says. “It would have worked out very well, had it been the life Brad had wanted.”
Dr. White utilized the assistance of an accountant to begin his succession plan.
“We wanted to be incorporated and we used the help of an accountant and a lawyer,” he says. “We set up the stock and I became ‘president’ of the company.”
Each year, the Whites transferred a certain percentage of stock to Brad and Christine. In addition, life and disability insurance policies were established.
“They were set up with Brad as the beneficiary, so that he would be able to have full ownership of the practice if something happened to me, without any out-of-pocket expenses,” he says.
In addition, Dr. White says he ensured the practice had been evaluated for the value of inventory, equipment and client numbers. Even if you’re not ready to pass on your business, he says, this process can be beneficial.
“Things change over time, and it’s nice to know what you have, even if you’re not ready to walk out the door.”
Dr. Spragg recommends doing your research before deciding on a firm to handle your plan.
“You have to ask a lot of questions and find a good, reputable trust outfit,” he says. “You must be able to rely on and put full faith in whoever you choose.”
Dr. Spragg’s father, Robert, established a trust for the business in 1998 with a local trust attorney in Springfield, Mo.
He says developing a plan does take some investment.
“There is some cost to it,” he says. “But it’s nothing like the inheritance tax and federal tax would be.”
The Spraggs’ practice grew rapidly in the 1990s and 2000s, which could have led to some consequences with the inheritance, Dr. Spragg says.
“My dad passed away in 2006 and the ownership of the property went to my mother and her trust,” he says. “Because of the exclusion amount on federal inheritance tax, we leased the practice from my dad until he passed away. And when my mother passed away in 2010, it was divided equally between my brother and me.”
The Spraggs were lucky to have inherited the practice in 2010, as this was the year of the repeal of the federal income tax, Dr. Spragg says. However, times have changed, making it imperative for practitioners to consider the consequences.
In 2012, the exclusion for federal inheritance tax is $5.12 million. However, according to current law, that will change to $1 million next year.
Now more than ever, Dr. Spragg says, a succession plan is critical for any practice.
“My dad was an astute businessman,” he says. “It’s a good idea to develop a succession plan. Everyone seems to put it off until the last minute, but it’s something that needs to be done—especially in these uncertain times. The government will try to grab revenue any way they can.
We need to protect our businesses as best we can.”
Get It In Writing
Dr. White says he ensured his business succession plan was in writing when it was initially created nearly 20 years ago.
“We wanted to spell out how we planned to transfer the stock, provide the equipment he would need and adapt to a changing practice,” he says.
Because the succession plan has changed with Brad’s move to academia, Dr. White says his new succession plan is a work in progress. One thing is certain; a plan is a “must.”
“It’s important for a practice to develop a plan, as the veterinary medicine business is so unique,” he says. “You must have a transition process in mind to move into the next phase of your life – whether it be a different career within the vet medicine industry, or to retirement.”
It’s not the most pleasant topic, Dr. Spragg says. But it is important.
“It helps to have things somewhat spelled out, and it can certainly save grief or a bad situation from occurring,” he says. “In the case of sudden death or a disabling injury, it helps protect you and your practice.”
The Spraggs’ plan is continually evolving and Dr. Spragg says he and his brother will soon develop a plan to pass the practice onto the next generation.
“My nephew wants to continue on, and I’m sure we’ll get it figured out,” he says. “No one wants to face their own mortality, but life’s just like that. You have to do some planning.”
By taking the time and making the investment of developing a succession plan for your practice, you can ensure your life’s work can carry into future generations.
What better way to allow your legacy to live on?
Practical Tips For Making The Transition
Michael Whitehair, DVM, Abilene, Kan., has helped numerous veterinarians across the country work through the process of succession planning for their businesses. He offers these tips for developing a plan of your own.
1. Think long term. “It takes years to build a solid business, one that someone will want to pay true value for,” Dr. Whitehair says. “I like it best when someone has 10 years left in their professional business life and can take the time to effectively allocate time and resources to the planning process.”
2. Include everyone. If your practice involves multiple owners, ensure everyone is involved in the succession planning.
“You must work together to determine the business’s purpose and value,” Dr. Whitehair says. “Then, from there, you can work together to develop a succession plan.”
3. Ask the experts. Dr. Whitehair says it’s valuable to locate a professional you trust to assist with your succession plan creation. “It can be beneficial to utilize an accountant or attorney, someone who is more versed in the area of tax law and creating these types of documents,” he says. “It can be expensive. But in the end, it can give you a vehicle to get it right and avoid misunderstandings or problems.”