Practice Continuation Agreements – the succession solution for solos?

One of the sole practitioner’s many challenges is dealing with this question: “What happens to my practice if I die or become disabled?”

This leads to our discussion on the wisdom of Practice Continuation Agreements (PCAs). These contracts provide for assistance in managing the solo’s practice and perhaps purchasing it in the event of the solo’s death or disability.

Sounds like a no-brainer, right?

While PCAs can be a wise decision for both parties, astute professionals on either side of the desk don’t see it as a no-brainer by any means. There are nuances to PCAs that must be considered; they’re not like an insurance policy that you buy, file away and forget.

Most buyers (the solo’s “partner” in a PCA) have enough challenges running their own firms successfully.  The last thing they want to hear is that a solo they signed a PCA with, perhaps many years ago, just became disabled or passed away. They’ll have to designate a busy partner to drop everything and invest a huge block of time figuring out what needs to be done to continue the firm – with little or no help from the solo.

All the while, the meter is running – if the solo’s clients aren’t contacted by the successors right away, they will go away quicker than you can spell PCA. That’s why many potential buyers are unwilling to enter into PCAs with solos.

To make it work, the two firms should arrange for the solo to adopt the buyer’s business practices and systems so the transition can be as smooth as possible.  Examples include (1) using the same software, (2) following the buyer’s technical standards, product appearance and processes, (3) solo receiving regular training and updates from the buyer, (4) ensuring that the buyer is thoroughly familiar with the solo’s staff, office layout, file locations, status of engagements, WIP and A/R, and (5) ensuring that the buyer has office keys and all passwords.

Not surprisingly, many buyers reason that if they’re going through the above efforts AND negotiating a purchase price in advance, they might as well purchase the solo practice NOW and have the solo continue to work at their firm.

Outright purchases are a lot easier to negotiate because the review and evaluation of the solo’s practice takes place at essentially the same time the sale is consummated, enabling the buyer to set a price commensurate with the state and perceived value of the solo’s practice. But with a PCA, the buyer commits to buy a practice in the future, without answers to such questions as: Are there gaps in billing rates and fees between the two firms? Does the solo’s client work meets minimal standards? Will the solo’s staff come along, and what’s their competence level? Are the solo’s clients a good fit?  How much effort that will be required to adapt the solo’s practices to the buyer’s systems?

Solos tend to be fiercely independent. In the event of a disability they’ll typically choose to remain a solo when they recover. They might think there’s a large universe of willing buyers, but they’d be wrong. Because of the above uncertainties, many potential buyers are unwilling to enter into PCAs unless the solo  agrees to a discounted sales price and is willing to conform the practice to the buyer’s systems immediately.

Well then, all things considered, are solos better off dying at their desks than entering into a PCA?

I always tell people that judgments in life are like a T-account:  there are pluses and minuses to every decision.  Many solos would find it comforting to know that a buyer is in place in the events of death or disability, but fear that the costs outweigh the benefits of (1) continuing to work for as long as they are able (very few solos want to retire at a traditional retirement age) and (2) not having to conform their practices to the buyer’s systems.

Conclusion.  Solos must understand that by signing a PCA, the buyer is essentially doing them a favor.  Therefore, the solo needs to be very accommodating to the buyer and minimize the downside of their taking over the firm in event of death or disability.