Following these steps will protect your practice value if emergency strikes
Following these steps will protect your practice value if emergency strikes
Practice owners are busy dealing with the needs of their patients every day — and it can be challenging to find enough time to develop an emergency plan. However, this plan is crucial to minimize disruptions if an unexpected illness or injury takes you out of your practice. An emergency plan can help you ensure:
- External operational contingency
- Internal operational contingency
- Financial contingency
Discover the factors that you should consider when developing an emergency plan and explore a case study showing how an emergency plan can help protect the value of your practice while you are away.
What would happen to the value of your practice if you were unexpectedly absent? The value of every practice is ultimately based on the consistent flow through of patients and cash — and any disruption to that flow caused by an emergency can lead to decreasing value.
The article Top 10 things for practice owners to tackle in 2024 and beyond discussed the importance of creating an emergency plan for your practice. This plan is crucial to ensure that you, your practice, and the people who help you run it will be taken care of — and can continue to operate in your absence.
Let’s review the barriers to creating an emergency plan and the top three contingencies your emergency plan needs to cover to keep your practice running smoothly. We’ll also share a hypothetical case study to show the practical steps of making an emergency plan.
What are the barriers to emergency planning?
You may face several challenges in developing a comprehensive emergency plan to protect your practice, including:
Lack of time
Practice owners are busy caring for the needs of patients and handling urgent priorities. It may be difficult to find enough time to sit down and create an emergency plan to keep your practice running smoothly if you are absent for several weeks or even months.
Scheduling an hour to sit down with an advisor to discuss your specific needs can help you save time over the long term. An advisor can also review your information and help you develop an emergency framework to protect your practice in the case of your absence.
Complex planning process
An emergency plan includes many complex factors — such as how to ensure your employees are still getting paid while you are away, designating somebody to implement your plan, and more. Ensuring that your emergency plan covers everything can feel overwhelming.
An advisor can support your emergency planning process to ensure that your plan covers everything you need to keep your practice running while you’re away. This can help give you the peace of mind you need to focus on growing your practice.
What should you include in an emergency plan?
An emergency plan is vital to protect your practice if you are unexpectedly absent due to an injury or illness. It provides a roadmap to keep your practice running smoothly until you return weeks or even months later — ensuring that you will be able to pick up where you left off before the injury.
It is vital to include both operational and financial contingencies in your emergency plan. Addressing these three areas first will get you 80 percent of the way to creating a full emergency plan and help ensure your practice has the support it needs to keep running while you are away:
External operational contingency
It is crucial to designate a business Power of Attorney (POA) to handle your affairs to ensure your practice continues to operate during your absence. Your POA can handle real estate leases, taxes, managing assets, and any financial practice considerations.
Collect all the legal, financial, and insurance documents that your POA will need to keep your practice running. Additionally, it is important to ensure that your POA has the professional background and experience to handle the needs of your practice effectively.
Internal operational contingency
The people who help run your practice play a crucial role in ensuring it continues to operate during your absence. Your emergency plan should clearly define the roles and responsibilities of each employee to keep your practice running while you are away.
This may include responsibilities such as managing payroll, scheduling appointments, payments to vendors, and patient communications. This can help your practice maintain its operations and minimize disruptions until you are able to return.
Financial contingency
Setting up external and internal contingencies can help avoid disruptions to your cash flow if an unexpected injury or illness takes you out of your practice. However, financial contingencies can also help ensure you have the resources you need to keep your practice running.
Disability insurance, critical illness insurance, or overhead insurance can all help ensure your practice won’t come to a halt while you are away. Ensuring you have the proper coverage in place can help protect your practice and ensure continuity in your absence.
Case study: How to make an emergency plan
To illustrate how to make an emergency plan, consider the example of Simon Smith (a composite character), a practicing dentist. His office was buzzing with patients until a cycling accident abruptly took Simon away from work. The lack of an emergency plan created chaos. Patients were frustrated because of abrupt cancellations without explanation, employees were not paid and the bank downgraded his loan, leading to a rate increase. Months later, Simon met with a business valuator and found out his practice had lost 30 percent of its value.
These problems are avoidable. Use Simon as an example and learn about the steps of making an emergency plan.
Understand what is at risk
A recent study determined non-financial (including business value) assets account for nearly two thirds of business and practice owners’ total assets, compared to only one third of employees’ total assets. This means most of business owners’ wealth is tied up in their business or practice.
Simon’s action: Simon documents and updates his personal net worth statement regularly. As part of this, he works with his accountant to understand what tax would be payable on his estate and to ensure he has the right types and amounts of insurance for practice continuity and estate planning.
Be clear about your intentions for handling unexpected absences
Determine who is in charge if you are not there and what they should do. Creating a step-by-step action plan for dealing with patients, suppliers, bankers, professional advisors, and family minimizes disruption to patients and cash flow.
Simon’s action: Simon designates members of his staff to take certain roles in case of emergency. His receptionist is responsible for connecting with patients and suppliers and one of his dental hygienists or a family member communicates with bankers and advisors.
Create a signing authority system for emergency situations
If an emergency happens and you cannot sign documents, you risk missing bill payments or payroll. To avoid this, create a “two out of three” signing authority policy. If only one person can sign off, you could put your practice in financial jeopardy.
Another option is creating a well-written power of attorney to grant authority to someone trusted and allow them to make decisions on your behalf when you are unable.
Simon’s action: Simon creates a two out of three-signing authority policy, designating two other staff and / or family members as the other signers. He also meets with his lawyer to work through a detailed Power of Attorney plan.
Consider your family’s protection and what they need to know
Stress runs high in emergency situations. You can ease the tension by sharing your plans and wishes with family members ahead of time, providing your family with a simple roadmap to follow.
Simon’s action: Simon develops a plan in case of absence and compiles that in a folder with important documents like insurance, powers of attorney and a will. He shares this with his family, his staff, and his professional advisors, as appropriate, to ensure these documents are accessible if needed.
Take the next steps
Putting an emergency plan in place is vital to keep your practice running in your absence — whether you are away for a short or long period of time. Designating a business Power of Attorney, clearly delegating the roles and responsibilities of your team, and ensuring you have the right insurance coverage in place is vital to minimize disruptions until you are ready to return.
For more information, contact a member of MNP’s Professionals team. We have the knowledge to support your practice from start-up to succession and can work with you to build customized strategies in areas like tax planning to support your future success.
Kerry Smith CPA, CA, TEP
Insights
-
December 19, 2024
How MNP’s Voting and Election Services supported Calgary Co-op through the election process
-
Progress
December 18, 2024
How your dealership can build a more gender-diverse workforce
With only 23 percent of employees in new car dealerships being women, the gender gap continues to persist in the automotive industry.
-
Performance
How will the CRA’s significant GST/HST update impact your dental and orthodontic practice?
How will the recent GST/HST update impact your dental practice? Understand the new requirements for claiming ITCs and opportunities for GST/HST refund claims.
