Sally McKenzie, CEO McKenzie Management Printer Friendly Version

High Debt Choking Your Practice?
Consider This .

It’s the end of the day for Dr. T. The patients are gone, the staff is wrapping up and he should be winding down. Instead, for Dr. T., this is the most stressful part of the day. Time to face the purest form of torture he knows: going through the mail. Experience has taught him that there is nothing in the stack that is going to bring any good news. No sir, those envelopes are lined up like enemy soldiers, weapons poised and ready to take him down.

The first in line is the $8,000 monthly bill on his practice mortgage; next is the $2,500 installment due on equipment lease #1; another is $3,200 on equipment lease #2. Then there are the two “zero interest” loans that require a nice fat $2,000 pay out each month. And he certainly can’t overlook those three credit card bills on cards that are maxed out, draining another $2,800 from his checking account. Then there’s the monthly chunk that goes to the selling doctor. Dr. T. is looking at well over $20,000 in debt payments for yet another month.

He will ignore the retirement fund once again. As for the college savings accounts, he’s hoping that his kids turn out to be either geniuses or star athletes because scholarships are going to be a must. Dr. T. doesn’t know how he’s going to tell the staff that they have to eke another year out of those aging computers and he’s praying that patient numbers don’t drop and treatment acceptance doesn’t decline so he can continue to hold on by his fingertips. The stress is palpable.

High debt is a very real and frightening scenario for many dentists. What typically happens, explains Jason Tyson, a Regional Business Manager with Bank of America Practice Solutions, is that “dentists take advantage of short-term notes, lease specials, and/or zero interest programs from various suppliers, vendors, etc. Over time, the debt increases and eventually it becomes too much to handle as the bills from multiple companies pile up. Ultimately, the doctor is forced to start making minimum payments, which basically covers the interest and slows payment on principle. It’s the perfect storm of business debt that compromises the cash flow of the practice.”

Certainly, debt is part of running a successful practice, and not all debt is bad debt. The key, notes Mr. Tyson, is to make sure it is structured properly to fit the doctor’s financial situation. He recommends that dentists explore debt consolidation options that will lower their monthly payments and increase cash flow. “Although people sometimes perceive debt consolidation negatively, in reality it’s merely a process of loan restructuring. And it can be a very appropriate option for many business owners, particularly dentists that enables them to simplify their finances quickly and efficiently.”

For example, options are available that would enable a dentist to roll all those monthly payments into one smaller payment, secure a low fixed interest rate and pay off the debt over a 10–15 year period. “There’s less stress at home and at work, and cash flow is improved considerably, which enables the dentist to continue to make the necessary investments in his/her business or personal life.”

The ideal candidate for debt consolidation, explains Mr. Tyson, is a dentist who has a good credit rating and an established practice that is producing well, but who is facing very large overhead, which is creating a cash flow strain. “If the dentist is having problems paying their monthly bills and has multiple obligations from banks, lenders, credit cards, equipment companies, and if they are paying interest rates that are in the 9% range or above, that’s definitely the time to look at refinancing and consolidation. If the debt consolidation is structured properly, in most cases it will enable the dentist to reduce their monthly payments considerably and increase cash flow to the practice immediately,” says Mr. Tyson.

Just consider Dr. T.’s experience. Although the scenario was changed somewhat for this article, he was paying $24,000 in monthly payments—every month. Through consolidation and refinancing, he was able to cut that monthly payment in half, saving him $144,000 annually. Needless to say, his stress has been reduced considerably.

If you would like more information on whether debt consolidation and refinancing would be an option for your practice, check with your local bank or contact Jason Tyson directly at Bank of America Practice Solutions at 877.541.3535 or via email at jason.m.tyson@bankofamerica.com. “Looking at your cash flow and exploring debt restructuring options in the current economy just makes sense,” emphasizes Mr. Tyson.

Sally McKenzie is CEO of McKenzie Management, a nationwide dental management, practice development and educational consulting firm. Working on-site with dentists since 1980, McKenzie Management provides knowledge, guidance and personalized solutions that have propelled thousands of general and specialty practices to realize their potential.

Interested in speaking to Sally about your practice concerns? Email her at sally@thedentistsnetwork.net or call 1.877.777.6151.

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

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Thomas L. Snyder, DMD, MBA Managing Partner The Snyder Group, LLC Printer Friendly Version

Why A Three-Page Term Sheet
May Not Be In Your Best Interest

For those of you who are considering purchasing a practice or patient records this year, simply having your transaction documented by an abbreviated term sheet may not be in your best interest. Often times, Sellers aren’t really as concerned about any post-sale complications, particularly if they are not remaining in the practice. Not spelling out key issues that may arise after a purchase could prove costly to you. Non-dental advisors often do not take into consideration some of these issues that we’ll address in this article. The Snyder Group has developed acomprehensive document called an “Asset Purchase Agreement.” This twenty-eight to thirty-five page document incorporates the key points that must be considered to protect the interests, particularly of a Purchaser. We will address some of the key points that are contained in a well-crafted agreement:

1. Medical Waste
   Are you sure that the Seller has always been operating the practice in compliance with all laws, rules and regulations regarding the treatment, disposal and handling of medical waste? Is Seller now or not ever in violation of any law or rule pertaining to the disposal of handling medical waste?
2. Environmental Matters
   If you are also considering purchasing the professional building with the practice, environmental issues can be quite significant as pertains to any type of toxic waste or other ground contamination that may lie beneath the building.
3. Insurance Plan Participation
   The Seller should warrant that any insurance contracts that will be transferred, particularly those relating to PPO and Capitation Contracts, are in full force and in effect. The Seller should also warrant that he/she has not received any notice of termination, either orally or written, to any plans.

4. Creditors’ Accounts Payable
   Warranties should be included in the agreement stating that all trade creditors have been paid and that all accounts are current and not past due.
5. Deposits/Advanced Payments
   Your agreement should make sure that you are protected against the Seller having been paid in full for services not completed prior to the sale. This is particularly true in orthodontic practices or general practices providing orthodontic services wherein a patient pays in full for treatment at the outset and the treatment has not been completed. Therefore, the Buyer will have to complete the treatment without payment.
6. Collection of Receivables
   As we’ve mentioned in previous articles, the Accounts Receivables normally are not part of the sale price. Therefore, in most cases, the Purchaser will not purchase the Accounts Receivables of the departing Seller, but will collect the receivables on his or her behalf. This can become somewhat complicated as it relates to a significant amount of past due balances. If a patient visits the practice after the closing and there is an outstanding balance, who gets paid first is a key issue. The Buyer, of course, would like to get paid at the time of service for the procedures, but the Seller, who has an outstanding amount due him or her, wants to receive payment as well. Therefore, addressing these scenarios has to be dealt with prior to closing and written explicitly in the Agreement.
7. Remakes and Work In Progress
   Remakes: In the case of remakes, Purchasers may request establishing an escrow account for a specific time period. If the Seller remains, then developing a formula for reduced fees for remakes to be performed by the Seller is a reasonable approach. Many term sheets or other “shelf agreements” do not address these areas carefully, and it can lead to much contention.
   Work In Progress: If the Seller remains with the practice, completing work in progress is not so difficult. If the Seller retires, careful determination of any unfinished cases measured against payments needs to be addressed.
8. Notification of Patients
   If the Seller is retiring, proper notification is mandatory. We suggest that a well-designed letter be written and approved by both parties prior to settlement and mailed on the day of closing and that the actual letter be attached to the Asset Purchase Agreement.

These are only a few of the many points that need to be addressed in a properly designed Asset Purchase Agreement. For additional information about our contract services, please give us a call at 1.800.988.5674.

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 Printer Friendly Version

Treat Employees Like Patients

When I was just out of the Air Force and just married, I went to work for my father-in-law, Dan Hessler. Dan was a brilliant salesman—he literally could sell ice to Eskimos. I went to work in his restaurant as a waiter and “manager.” Over the next few years, I received Dan’s accumulated wisdom.

The restaurant was located on an exit of a major interstate in Ohio, and business was growing. In my years there, it grew from a hot dog stand to a 125-seat full-service operation. Best thing was, my in-laws closed down from January to April and took off for Florida, taking my wife and me along!  But Dan could not move beyond a business that he could completely control and the tragedy of not being able to trust people to do right by him. What sticks in my mind after all these years is his number one axiom: “Customers are your friends, employees are your enemies.” This axiom is at the farthest reaches of employer-employee relations, but we can treat our employees like enemies simply by neglecting them. And employees, being humans, respond by treating the employer as a belligerent.

Representing employees over the years, I often note that a lawsuit could easily have been avoided if the employer had simply treated the employee—now my client—as he would have a customer. If you want return customers, you treat them right. In those situations where the customer/patient is unhappy, rather than cutting them off, wise doctors take the time to learn what the issue is and remedy it, if possible.

My dentist friends make it a policy to refund a patient’s money if there is unhappiness with the result—or to redo the work gratis. This is in most instances a policy that works. You as the doctor give up the value of your service, but the gesture goes a long way to eliminating the possibility of a complaint to the state dental board or a lawsuit. And a “we’re sorry” is very, very powerful.

My litigator friends who specialize in malpractice cases have confirmed that if every doctor simply apologized for a bad result—even without admitting negligence—and returned the patient’s money, there would be very few lawsuits. People, in fact, are reluctant to see a lawyer and are unconsciously looking for a way not to have to go forward with a legal claim. This is true whether it is a patient or an employee who feels wronged.
Thus, when it becomes apparent that an employee simply is not working out, it is often a good strategy to treat them like an unhappy patient. You can do this by way of a severance agreement.

The severance agreement is a standard tool used by corporations when terminating managers and executives. It works just as effectively in ending a relationship amicably when applied to a dental assistant. The severance agreement is a contract like any other. You provide consideration to the employee, and the employee agrees to release you from any possible claims she/he may have against you. Like any contract, the parties can negotiate to a flexible result that works in the particular situation.

A number of our dental clients have long-term employees on staff; sometimes you buy them with the practice when you take one over. These employees tend to become the most pressing issues for the doctors. As they age, they can develop health conditions that begin to affect performance, they have family issues that take attention away or they just get burned out but cannot make the choice to find something else. It is this employee who is of major concern for bringing a claim against you.

You should consider a mutual parting of the ways with a severance agreement. Even though none of us like the task (or expense) of training a replacement, isn’t it better to have the cooperation of the outgoing staff member rather than having to find that replacement after an abrupt termination and possibly ongoing claims?
Typically, a severance agreement provides for some form of continuing compensation for the departing employee. This can be a lump-sum payment or continuing paycheck for a period of time. Often, the agreement provides that the employer will not contest an application for unemployment compensation after the severance payments expire. You can also craft into the agreement for continuing payments that they cease upon the employee obtaining a job elsewhere during the payment period.

The employee may be required under the agreement to be available to answer questions you may have, or even to assist in orienting a replacement. This continuing obligation is best coupled with the continuing paycheck consideration—it assures that you will get the cooperation when you ask.
The agreement will often call for the employer to provide a letter of reference. (You can’t, obviously, give a glowing report on someone you learned has taken money or property from the practice.) You may even offer assistance to the departing employee, through a service, with finding another job.

What you most want from this, of course, is an iron-clad promise from the employee not to bring any claims of any kind, save the unemployment compensation claim. Remember, the release language must be broad enough to cover any possible claim. Ignorance of a possible claim is no defense to the promise.
Even when your office policies include a mandatory alternative dispute resolution provision, which prohibits employees from bringing court claims over disputes, extending the offer of a severance agreement is a sound business decision.

We offer assistance to our clients in developing and implementing severance agreements. The key is, however, that the agreement must be crafted for the specific situation and must be presented to the employee in a manner that ensures, if not happiness, then certainly cooperation.

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.

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

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