Nobody wants to deal with uncertainty when they’re managing a small business or practice. From unexpected illnesses to sudden departures, any number of situations can threaten the continuity of your operations.
Fortunately, you can create a practice continuation agreement to keep operations running if you’re required to step away. Private Practice Transitions is here to help by teaching you how to write a practice continuation agreement and explain how you can use this document to keep your business resilient against unforeseen circumstances.
Before drafting a practice continuation agreement, you must clearly understand its purpose.
A practice continuation agreement is essentially a safety net for your business. This formal document outlines the steps to be taken in the event the business owner is unable to continue managing the enterprise, whether due to illness, incapacity, or other unforeseen events. Having a well-crafted agreement keeps your business operations running smoothly.
It’s impossible to overstate the importance of a practice continuation agreement, especially for smaller businesses or practices. This document safeguards against potential disruptions that could affect the business’s financial health and reputation.
This agreement serves multiple purposes. You can provide assurance to clients and customers that your business has a plan in place to maintain operations. You’ll also offer clarity and direction to employees, stakeholders, and successors about their roles and responsibilities during a transition period.
Part of knowing how to write a practice continuation agreement is understanding the key components that go into it. Each section of the agreement promotes the continued success and stability of your business.
First, the agreement should outline the terms of succession, stating who will take over the business operations in the event of the owner’s absence and the extent of their authority. Another important component is the financial arrangements. This section should include information on how your business will handle expenses, debts, and distributions while the owner is absent.
Finally, the agreement should address operational procedures, including guidelines on how to manage day-to-day business activities including defining your processes for client communications, employee management, and decision-making.
Selecting the right successor is one of the most important aspects of your practice continuation agreement. The individual or party that you choose needs to possess the skills, experience, and qualities necessary to manage your business effectively during your absence.
Assess potential successors within your practice. Those who already have some familiarity with the day-to-day aspects of your business and how things usually run are good candidates to start with. Consider their leadership abilities, decision-making skills, and ability to maintain relationships with clients and stakeholders.
If you don’t have a suitable internal candidate for the position, you can consider external options. This may involve hiring an interim manager or working with a business partner or consultant who can step in temporarily. Regardless of the choice, you must provide a clear understanding of the successor’s responsibilities and expectations.
Now that you understand the key components of the document and have a chosen successor, you can start drafting the practice continuation agreement. Translate the plan into a formal document that provides clear instructions and guidance for all parties involved.
Start by clearly defining the scope and purpose of the agreement at the beginning of the document. Use concise, specific language to outline the terms of succession, financial arrangements, and operational procedures. Try to be as clear as possible to avoid misunderstandings or misinterpretations.
Legal compliance is a critical consideration when drafting a practice continuation agreement. Failure to adhere to legal requirements can cause major problems like invalidating your document, which can potentially jeopardize your practice.
Check specific legal obligations or regulations that may apply to your industry or jurisdiction like licensing requirements, tax implications, or contractual obligations that need to be addressed within the agreement.
For full legal clarity, you may want to seek the assistance of a qualified attorney or legal professional to review the agreement. They can provide valuable insights into potential legal pitfalls and ensure that the document complies with all relevant legal standards.
After drafting your document and confirming that it’s up to legal standards, you can finalize the piece by obtaining signatures from all relevant parties and establishing a clear, legally binding agreement.
Schedule a meeting with all stakeholders involved in the agreement. You can use this meeting time to review the document together, address remaining questions or concerns, and confirm that everyone has a clear understanding of their roles and responsibilities as outlined in the agreement.
After confirming the understanding of all relevant parties, you should obtain their signatures for the continuation agreement. You should have a notary or third-party witness present for authenticity and enforceability.
A practice continuation agreement is not a static document. Over time, you may need to review and update it to reflect changes in your business environment, personnel, or legal requirements. This way, the agreement remains relevant and effective.
Schedule periodic reviews of the agreement involving all relevant parties. Assess whether changes are needed based on new circumstances or developments within the business. Some of the more common changes include picking a different successor, revising financial arrangements, or modifying operational procedures.
When you need to make big changes to your practice, trust the experts at Private Practice Transitions. We are well versed in the industry and have many great referral partners, including attorneys, who can assist with the drafting of your practice continuation agreement. We also have experienced brokers to sell a business, if you believe now may be the time to turn over the reigns.
With our expertise and personalized approach, we can help you achieve the best possible outcome for your practice sale. If you have additional questions, comments, or concerns, reach out to us today, and we can discuss your unique needs and explore your options for a smooth, prosperous transition.