The year is 1998. Amy is a 23-year-old graduate student at the local university’s masters in psychology program. Amy was passionate about working with individuals with mental health disorders and she found the work very rewarding. After graduating from her program, she worked as a LGPC under an established therapist at her practice, before several years later, making the ambitious and rewarding step of starting her own practice. And so, on a cold winter’s day three years ago, Amy opened a mental health practice in a small, dusty, basement office space.
Slowly and steadily, Amy’s practice began to grow, and before she knew it, she had hired two employees and several contractual clinicians. Her practice now had outgrown that small, dusty basement office and Amy moved the practice to a slightly larger space with two counseling rooms. Besides an expanding practice, her family also was expanding. Amy got married and a short time later gave birth to two beautiful twin daughters. Amy was excited. She was only 35, and her hard work had paid off. She envisioned a long career growing her private practice.
Then, this year, with her practice still growing steadily, Amy decided that she needed to expand her office space yet again. She was able to move the practice to a top floor space with a beautiful waiting room, lots of counseling rooms, and oh yeah, much higher rent. In order to secure the space, Amy had to personally guarantee the entire rent for four years, for a total of $150,000.00. Although she was nervous about personally guaranteeing that much money, Amy felt that with how her practice was growing, it was a risk worth taking. After all, her practice, which had started with just a few clients, had now grown to four employees and six contractual consultants and over 200 clients. As someone who was always diligent and careful, Amy of course had all the right malpractice insurance in place, all the correct HIPAA-approved billing and file management systems, and had run her contracts and other legal documents by her attorney. Although she was a sole-owner of the practice, she always envisioned making one of her favorite employees a partner sometime soon.
And then last week, on her way to the office, a bus skidded out of control, hit Amy’s car, crushing it, killing her immediately.
You didn’t see that coming, did you? Nor did Amy, her family, her patients, her employees, or her contractors.
Suddenly, Amy’s practice, of which she was the sole owner, had no one at the helm directing it. No one paying the bills. No one paying employees and contractors. And, no plan as to how all of that would happen. And what about that four-year personal guarantee for $150,000.00? Was her estate responsible? Would her family have to pay? Could her house be taken or personal assets? If Amy had planned ahead and had some sort of business insurance in place, there might be funds to pay this, so her estate wouldn’t have to. Instead, very likely, her estate may be responsible for it. And what happens to the practice’s 200-plus patients and their records?
Did your stomach just drop? Are the palms of your hand sweating, your mind and heart racing? Perhaps you are one of three in five small business owners in the US who have no succession plan and no insurance benefits for their practices in the event catastrophe occurs. The list of legal and financial issues now facing Amy’s practice and her estate are long: potential issues with patient abandonment and questions over access, issues over control and possession of records, issues with confidentiality and HIPAA, issues with paying employees and contractors, as well as issues with rental and other contractual financial agreements.
Okay, you say, “but my practice is not like Amy’s.” Perhaps you are a sole-owner and practitioner with no contractors or employees, or your practice consists only of you and a sole contractual clinician, or you share the practice with other business partners.
Yet, if you become permanently disabled or die prematurely or unexpectedly, the potential problems facing your practice might not be so different from those facing Amy’s. You still may have office rent. Your practice will still have patients needing services and their records to contend with. What about other bills or financial obligations? Who is going to pay all of those? What plan is in place? And if you do have a business partner(s), what happens to your share of the partnership? Will they have the funds to buy out your share of the partnership? What if you become disabled, but don’t die? More than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age. If you become permanently disabled, what will you do for income?
And lest you think, well, if I die, how can I have ethical obligations to my patients? I’d ask you two questions. First, if you truly care for your patients, as I am sure you do, why would you want to put them through the stress of the unknown, suddenly not having a treatment provider? Unlike in some other medical fields, in the mental health field, you work with a potentially vulnerable population that is often in dire need of stable, continuous treatment. Secondly, let’s not forget your employees, if you have them. They and their families are counting on you and their job at your practice to pay their own bills and expenses. If you die or become incapacitated suddenly without the proper plan or business insurance in place, what happens to your loyal, hardworking employees and their families? And if you have a family or a spouse, or anyone dependent on you and your income, what happens to them if suddenly you pass or become unable to work? Could the personal financial guarantees or other business-related financial obligations affect your spouse or children?
In regards to ethics, per the American Psychological Association, psychologists possibly do have an ethical obligation to make succession planning a priority. Human Relations Section, Rule 3.12 of the American Psychological Association’s Ethical Principles of Psychologists and Code of Conduct states:
Unless otherwise covered by contract, psychologists must make reasonable efforts to plan for facilitating services in the event that psychological services are interrupted by factors such as the psychologist’s illness, death, unavailability, relocation, or retirement.
One can read this to mean that psychologists have an ethical obligation to have a plan in place in case of incapacitate or death. If you’re not a psychologist, do you know what your board’s ethical rules are? The above example is why having a viable business succession plan in place before something happens is imperative.
Ok, so now you understand now why it’s so important to have a succession plan, but maybe you are sitting there saying, “But Dan, I get this is important, but what is succession planning?”
Great let’s start there. First, know that you are not alone. A lot of practitioners don’t know much about business succession planning, if national statistics are any indication. If you are a Baby Boomer or a member of Generation X, for example, you may be one of the 68% of small business owners who do not have a succession plan. Interestingly, Millennials tend to be much better at personal succession planning with 61% having some type of plan in place.
So, in a nutshell, a succession plan lays out what the plan is for your practice in advance of your retirement, in case of incapacitation or death. It details what steps will be taken to address any legal, financial or ethical obligations of your practice. No one wants to think of the inevitable, and perhaps you’ll be fortunate enough to remain in good health and able to practice until you’re ready to retire; however, if like Amy, something happens, what’s your plan? What happens to your patients and their records? Is someone buying out your practice, or just certain assets? There will inevitably be tax consequences as well. If your plan is to sell your interest in the practice to a partner(s) how will the transfer work? What is the valuation of your interest? You are not expected to know these answers but you need to reach out to someone who does.
Thus, having a business succession plan means that you have a plan written out that specifies, for example, who will take control of the practice, what should happen with patients and their records in order to minimize interruption to their care, who will pay the bills, and with what money.
In addition to a written business success plan, your practice should also have the proper life insurance, disability, and other insurance policies in place before something happens. Having such policies is crucial because it means there will be a financial safety net in place in the event that something does happen. It will allow your practice to have the financial means to pay its expenses and liabilities, pay your employee salaries, buy out your share of the practice, or even provide you with income if you become incapacitated, but don’t die. Having life insurance policies in place would also act as an income replacement for your family in the short term.
If you already have employees in your practice, or you plan to hire any soon, guess what? You are required by law to provide workers compensation, unemployment, and disability benefits to your employees. What about you? It seems silly and irresponsible that you would provide your employees with disability and unemployment, but not ensure that you have insurance policies for yourself or your practice in case something happens.
Now, if you are reading this blog and you are one of those people who either does not have a business succession plan in place or didn’t know what business succession planning even was prior to now, I am willing to bet that you may also not have a personal estate plan (including a will) in place for yourself either. Or if you do have one, how long has it been since you updated it? If either of these is true, by the way, please contact an attorney and have them help you get one in place for you!
I mention having a personal estate plan, though, because a business succession plan is essentially just an estate plan for your business that lays out what happens to and who is involved with your practice if you suddenly become incapacitated or die prematurely. An estate plan must be in writing, and so should your succession plan. Even if you already have an identified clinician in your practice or maybe one outside your practice who you think would be perfect to take over your practice, is this in writing? A formal business succession plan will make this transition process easy rather than a potential nightmare. A business succession plan and related insurance policies can give you peace of mind by having a plan in place that makes the process of transition as seamless as possible. In other words: put a business success plan in place now, or you may end up paying for it later.
So the next time you read or hear of a tragic story like Amy’s, you won’t feel your stomach tightening, the palms of your hands starting to sweat, or your mind racing because now you will know how to be prepared!
For more information on business succession planning, on your legal rights as a mental health practitioner, or to set up a free consultation, contact Mayer Law, LLC today at (443) 595-M-Law!
1). “Disability Statistics” (March 28, 2018). Retrieved from http://disabilitycanhappen.org/disability-statistic/.
2). American Psychological Association. (January 1, 2017). “Ethical Principles of Psychologists and Code of Conduct, Section 3, Human Relations, 3.12, “Interruption of Psychological Services.” Retrieved from http://www.apa.org/ethics/code/index.aspx.
3). “Nationwide Survey Finds Majority of Business Owners Don’t Have a Succession Plan.” (February 7, 2017). Retrieved from https://www.prnewswire.com/news-releases/nationwide-survey-finds-majority-of-business-owners-dont-have-a-succession-plan-300403316.html.
4). Karin Price Mueller. (October 11, 2010). “Life Insurance: What to Consider as a Business Owner.” Retrieved from https://www.entrepreneur.com/article/217399.
This article is legal information and is not provided as a source for legal advice. It is made available by Mayer Law, LLC firm for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this blog, you understand that there is no attorney-client relationship established between you and Mayer Law, LLC. This blog should not be used as a substitute for competent legal advice and you should consult with an attorney before you rely on this information.