I have been asked this question a few times in the past number of years. Each time, many different emotions have arisen during the discussion, such as confusion, empathy, worry and stress. No-one likes to think about illness or death; however, they are a fact of life and can strike at any time.Many of us make arrangements that will ensure our families are financially secure should we die prematurely or become ill, but think less about the consequences for our business should these events occur.
I would like to look at how to handle it from the business prospective under the following headings:
Cash flow effect on the business.
Specified illness in place.
Share of profits and treatment of same.
Valuation of practice.
Coverage from another doctor.
Specific skills of the doctor that is absent.
The cash flow effect: There will be an impact and the implications will be immediate. I suggest you have a meeting with your accountant to get assistance. In the short term, get him or her to meet with your bank and arrange a possible solution with them to help reduce any immediate impact.
Specified illness in place: Check with your financial advisor and see if there are any policies in place that may benefit the practice. It is likely there is a specified illness policy in place; if this is the case, then it will be payable directly to the doctor who is sick and not affect the practice. You need to check the partnership agreement to see if this is covered.
Income protection: There are usually policies in place both to cover the income from the HSE and private practice income. If this is the case, then you need to see how this is being treated within the practice. It may not be clear from your partnership agreement how to deal with this, so you will need a separate discussion with the partners.
Share of profits and how to treat them: In the event of a partner being out sick, it is important to know how to treat the share of profits during the period of sickness. The treatment of the profits will have an effect on the ability to claim income protection and specific advice is needed in relation to this. You should contact your financial and tax advisers to discuss.
Partnership agreement —
illness /injury/incapacity: Review the partnership agreement in line with what was agreed in the event of a partner being absent from the practice for a period of time. Ideally, there should be life and health insurance policies in place, ensuring certainty for the partner’s family and for the practice.
Cover from another doctor/locum: Consideration should be given to whether it would be appropriate to engage the services of a locum, especially where the period of sickness is lengthy. It could be considered whether a long period of sickness would give the other partners the right to terminate the sick partner’s membership or the right to seek a medical report on a sick partner. If you employ another doctor to cover the period of absence, is this doctor to have a patient list of their own and if so, how is this treated from the HSE in terms of pension?
Specific skills of the doctor: Each doctor in practice may have specific skills that are particular to them. There may also be specific allowances that are attached to that doctor. These need to be dealt with from a HSE point of view.
Valuation of practice: Consider the valuation of the practice and the possible effect of illness on this. Thought also needs to be given to whether the unwell partner might wish to sell their share, and knowing the value of the practice will assist in this decision.
Mr Paul Redmond (CPA,QFA, FAIA) is Managing Partner of RDA Accountants Limited. He is a member of the Institute of Certified Public Accountants. He is also a Fellow of the Association of International Accountants and a qualified financial advisor.