Business continuity is an important consideration for all public practice firms, particularly for sole practitioners. The absence of a sole practitioner from their business can be devastating no matter how good a practice they have been running. It is unfortunate that many practitioners have neither a disaster recovery nor a business continuity plan.
All owners of small public practice firms should prepare a business continuity plan to provide direction and instructions on how the practice is to function in the short term and how it should be disposed of in the event of sudden death or disability.
If there isn’t anyone within the practice who can assume your responsibilities, then your business continuity plan will have to include a practice continuation agreement with someone from outside your practice. You might consider consulting with other sole practitioners or small firms in your community to make an arrangement.
This arrangement could be reciprocal but does not necessarily need to be. For example, a sole practitioner might make an arrangement with a three-partner firm whereby the larger firm would assume the sole practitioner’s practice in his or her absence but would not require the sole practitioner to be involved should one of the firm’s partners become incapacitated.
A practice continuation agreement should be prepared for two scenarios. The first scenario would be in the event of a short-term disability where your clients would be served temporarily by the other firm at prearranged billing rates. The second scenario would be in the event of your death or permanent disability that would result in your practice being sold to the other firm at a predetermined pricing formula.
Developing a Practice Continuation Plan
Everyone knows about writing a will and buying life and disability insurance but practitioners often forget about setting up a practice continuation plan in the event of death or disability. According to some research, the value of your practice could evaporate in as little as one to three months. (However our experience shows that it may be even quicker than that!)
The purpose of such a plan is to ensure a smooth sale in the event of the death of a practitioner or the provision of uninterrupted services to clients in the event of temporary or long-term disability. With a plan in place, your heirs will receive full economic value of the practice you spent years building and your clients will know that a qualified business advisor will continue to serve their needs.
The process begins with practitioners gathering information about their practices.
- Names of employees and location of their personnel files;
- Location of accounting and financial records;
- Client listing, including contacts, services provided, and deadlines;
- Location of working papers (including off-site storage) and description of filing system;
- Description of office procedures, including using the computer system, and billing and collection policies.
Practitioners then need to assess their position in the marketplace based on factors such as reputation, specialization, and profitability. With a good understanding of your firm’s position, the next step is to prepare a detailed inventory of clients, services provided, fees, and any service delivery issues. With these tools on hand, practitioners would then be able to develop a realistic value of their practices and begin the search for potential successors. Negotiations will take time and you will need legal advice in drafting up the agreement.