The Dentist's Network #60


	Practice Transitions In 2009 Employee Termination

Thomas L. Snyder, DMD, MBA
Managing Partner
The Snyder Group, LLC
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What Lies Ahead For Practice Transitions In 2009

With this economic recession coupled to tremendous uncertainty in the credit and capital markets, practice transition planning will be significantly altered in 2009. For many potential seller retirees, losing 30% to 40% of pension assets certainly will create a significant change in plans for a potential sale in 2009. Many practitioners will now have to consider practicing additional years to hopefully regain some of the losses they have incurred. For some potential sellers, however, the economic calamity that we’ve experienced will not affect practice transition plans. This is because a growing number of practitioners are selling their practices to relocate to different parts of the country; in most instances, they will continue to practice as owners or associates. Whether you can retire by selling or are considering relocation, there are some factors brewing in the lending community that may raise some cause for concern.

Most major dental lenders are experiencing significant changes in underwriting requirements as many banks are becoming more risk-averse. Don’t be surprised if the lender asks a seller to hold paper for a period of time in order to take on some of the risk that was formerly underwritten at 100%! This may not be what you had in mind, but if you still want to sell your practice, it may be the only path you can take. Several banks, however, have not changed their underwriting requirements, so with them it’s still business as usual. Therefore, it’s important for purchasers to conduct careful screening of lenders because there may be wide variations in the type of loan commitments they may qualify for.

We have been told (albeit unofficially) that FICO scores for purchasers have increased with many lenders, potentially disqualifying some individuals who might have been able to obtain financing prior to the market crash. Cosigning a loan if a purchaser was married was usually required, but now in certain instances we are finding that real estate may have to be pledged, such as a second mortgage on a purchaser’s home. Some banks are now considering more critically the liquidity of a purchaser, namely how much savings or home equity is available.

We predict this will become a more common occurrence in small rural areas where qualified buyers are less available, so if a qualified buyer comes along and they are unable to get financing and the seller wants to retire, “becoming the bank” or being a substantial contributor to a loan may be the only option. For those who remember the early 1980s, seller financing was common when prime interest rate was 18%. Therefore many practice sales were financed by the Seller at rates lower than what was available on the commercial market. We may return then, with certain transactions, to more conservative underwriting and lending prerequisites. We’ve also been told that practice start-ups have increased in sheer numbers due to the frustration of many young doctors not being able to find a good practice for sale in their particular area. Whether the liberal lending for start-ups will continue as in the past is a potential source for concern. As the credit markets stabilize, some of these issues may dissipate and lending patterns will ease.

We are also seeing a growing trend of deferred transitions. Recruiting qualified candidates today and locking them into future transitions is becoming increasingly more common. In the case of a future sale, the purchaser makes a down payment to take the practice “off the market” as well as to lock in a future value. This strategy allows you to practice several more years and continue to fund your pension plan. Locking in a value today is good economics for purchasers because they may inherit a larger revenue base at the sale but not have to pay for their efforts in building up the practice. It also provides an option for the Seller to remain at work additional years after the sale, providing the Seller with additional income. Typically this transaction is ideal for younger purchasers who need to build up their clinical skills and efficiency. It’s also a great opportunity for mentoring as it relates to more difficult cases. In the deferred sale, the practice’s value is adjusted at the time of sale for inflation and additional asset purchases.

It’s hard to be totally on target with any predictions, but given our current economic climate, proper financial management is becoming more critical regardless of what phase you are in with your practice transition plan. My partners were both involved in commercial lending in the 1980s, so they have a wealth of experience in dealing with difficult lending situations. Please call us if you are experiencing a problem in obtaining financing—we may be of assistance.

Dr. Thomas L. Snyder is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With more than 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can be reached directly at 1.800.988.5674.

If you would like additional help, email Dr. Snyder at drsnyder@thedentistsnetwork.net.

Interested in having Dr. Snyder speak to your dental society or study club? Click here.

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Michael Moore, Esq.
Director McKenzie
HR Solutions
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Terminating The Bad Employee

A consistent theme of inquiries about terminations is how to deal with a nasty, unreasonable employee when it is time to let her/him go. Most doctors are understandably confrontation-averse, and nothing causes the stomach to churn like the fear of a termination turning into a real donnybrook. Fortunately, there are definitely steps you can take to reduce the possibility of an unpleasant or even dangerous confrontation.

Let us begin with the observation that even the best employee can—and sometimes does—metamorphose into a vindictive, impossible burden. Sometimes, too, a really evil person can hide his/her true nature until joining the team. It happens all too often.

The truth is, though, that in almost all situations there is a good deal of advance warning. Employee behaviors tend to deteriorate over time. Seldom, if your eyes are open, should a crisis come as a surprise.

If you have a solid policy in background-checking applicants, you can often identify the “Employee from Transylvania” before she/he is on the payroll. If you have a well-constructed, affirmative employment relations policy that you conscientiously follow, your chances of ameliorating the behaviors that lead to termination are greatly increased. This can save thousands of dollars in replacing that employee.

But even in the best run offices, the worst sometimes happens, and the special dangers surrounding these situations cannot be underestimated.

Who is the Employee from Transylvania?
The answer to that question is that we know them when we interact with them. Doctors frequently consult me about the productive long-term employee whose behavior has always been challenging, but who recently has been driving away good employees and patients. The doctor has developed an increasing reliance on that employee over the years, and may often consider him/her a friend. The decision on what to do is a challenge from both an organizational and personal standpoint.

The other common scenario is the employee who has been with the practice just a few months, who was originally an okay (if not exemplary) employee, and then the doctor begins to hear through the grapevine that this person is complaining, abrasive and intimidating with colleagues and even patients.

Any doubts you might have had about how serious the situation is are put to rest when you try to counsel these employees. It is not unusual for such employees, when confronted with their behaviors and performance issues, to become immediately hostile and threatening. Whether they do so in your presence during the meeting or you hear about it shortly after from other people, inevitably things will rapidly go downhill from that point on.

I was recently consulted by a doctor who was stunned to hear, when she presented a chronically low performing assistant with a final warning, that she could do a better job “if Raymond [the general manager] was not sexually harassing me.” This bombshell created a whole new set of hazards to be navigated—which we did with this employee—but the message came out loud and clear. There was no saving that relationship.

Legal liability for a termination gone wrong
An IT company called CinCom Systems, Inc. learned the hard way how not to handle a contentious termination. Carl Uebelacker was a sales rep whose relationship with his supervisor, Veith, deteriorated (as the court described it). Ubelacker complained to Veith’s supervisor, who (as the jury found) minimized the issue and told Ubelacker he would talk with Veith.

What happened next was that Ubelacker received from Veith a “Final Warning of Dismissal,” to which he responded to with a memo challenging the performance issues set out in the warning. Veith’s superior eventually approved the termination.

One afternoon, Veith showed up at Ubelacker’s cubicle with two employees, Butler and Ream, who were carrying boxes. Veith told Ubelacker he was fired, and demanded that he immediately gather his personal belongings, put them in the boxes and be escorted from the building.

The jury found that at that point, when Ubelacker demanded to speak with the personnel office, Veith “became incensed” and stopped Ubelacker from calling on the phone by grabbing his wrist while Butler stood in the cubicle entrance, blocking his exit. This incident spanned only a few minutes.

Ubelacker sued, alleging, among other claims, false imprisonment, assault and battery, defamation and intentional infliction of emotional distress. After numerous court hearings, including a grant of judgment for CinCom that was reversed by the Court of Appeals, a trial was held on Ubelacker’s claims.

The jury awarded him $100.00 damages on each of the claims, and $90,000.00 in punitive damages. The court then awarded Ubelacker all his attorney fees and costs and assessed them against the company. On appeal, the judgment against CinCom was upheld.

The award of compensatory damages is very small in this case, so the potential hit was substantially greater than the amount CinCom actually had to pay. This single example—and there are many more—reveals the catastrophe that a termination can be. Having a solid policy can dramatically reduce the possibility of that employee leading you into a crisis, and potential legal liabilities.

Mike Moore is ranked among the best in employment law and has been named one of the top 10 lawyers in Ohio. As Director of McKenzie's HRSolutions, Mike is the creator of the Employment Policy and Handbook, geared to providing dentists who are unsophisticated in the legal arena with a step-by-step policy manual.

Click here to hear Mike present “7 Elements of an Effective Employment Policy.” Email Mike at mike@thedentistsnetwork.net.

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