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| Issue #66-3.03.09 |  Forward This Newsletter To A Colleague |
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Merging The New And The Old
(Part 1)
I am currently representing a doctor who bought a thriving practice in Florida about eighteen months ago. She is an experienced practitioner, and this is the second practice she has owned. The first she started from scratch, so this is her first transition.
I am representing her in litigation against the seller. The parties agreed that the seller would stay on as a contract provider for a year with two options of one year each after that; he would be a major presence in the office following the sale. Our buyer expected that the seller would make every effort in that time to assure that the goodwill of the practice would be transferred to my client. Her expectations were founded not only on her belief that this was good business, but also upon contractual obligations the seller had assumed in the agreement.
Unfortunately, it never happened. Within a few weeks of the sale, the seller began disparaging my client to his patients. It took her several months to realize the extent of the violation of his obligations. Less than one year into the provider agreement, the client was forced to terminate the seller for cause. Shortly after that, there was an exodus of patients from the practice to another local doctor. The seller also set up a practice about forty minutes away, and started taking patients.
The double whammy for my client, though, was the situation that arose with the seller’s associate doctor. This doctor had been with the seller for several years. During the due diligence, the client asked the broker about this doctor’s interest in buying the practice himself. She was told that the associate was happy just doing dentistry and had no interest in buying, nor any interest in leaving and starting his own practice. The associate was a good producer, and my client believed that his continued presence would enhance the goodwill transfer. This belief, coupled with what she learned from the broker, lulled the client into a sense of security. She had access to the provider agreement, and saw that the territorial limit on the restrictive covenant was only five miles. The seller refused to agree to renegotiate the restrictive covenant for more protection, and the client did not insist. In fact, during the time he was supposed to be promoting our client, the seller was telling patients to go to the other local doctor if they were not happy with the practice.
My client had immediately instituted a program of full periodontal probing and treatment that the seller had neglected. She knew that this would both please the patients and increase revenue as they diagnosed conditions needing attention. The seller had never taken on this responsibility and, compounding the damage, his associate was impairing my client’s efforts to assume the operations.
Interviews with staff have shown that the associate torpedoed the client by failing to respond to the new dental hygienists’ requests that he do periodontal checks of the patients. After waiting for long periods for him to appear, the patients simply walked out of the office without the intervention of the dentist. Because of the personal situation between my client and the seller, and the need for the buyer to keep a lot to herself, she was naturally distracted. Even the new hires began to view her as distant and aloof.
The relationship with the associate was the first to disintegrate. One day, the client learned that the associate was talking about opening his own practice a few miles away. She immediately terminated his employment. Shortly thereafter, she learned that he had been propositioning the practice’s patients. We learned in interviews that the seller had also been talking up the associate’s new practice, and offering to connect the patients with the associate when he opened his practice.
Even the old staff was complicit in driving patients from the practice. Because of the tension that developed between the seller and buyer within a few weeks of the sale, staff began leaving the practice. As my client hired new staff, they were shunned by the old cadre. The new dental assistants began witnessing the seller talking down the practice to patients in the chair. Those working the front desk also began noticing the front desk staff urging patients to leave who were unhappy. The staff was providing the name of the dentist who subsequently benefited by the exodus to the patients.
When you buy a practice, well over three-fourths of the purchase price of the practice is allocated to goodwill. So, the apparently intentional failure of the seller to meet his obligations created a huge loss for my client and huge exposure for the seller in the ensuing litigation.
This remained a very dysfunctional operation as the buyer scrambled to keep the practice together and to try to heal a lot of the wounds. She had to replace two providers at short notice. Only now is the new staff learning what a good boss my client is. But many hundreds of thousands of dollars have been lost directly (from the patient exodus) and hundreds of thousands of dollars more have been lost indirectly. In the next part of this piece, we will address how the doctor could have prevented this hemorrhaging of money and saved herself from more than eighteen months of grief.
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 HR Solutions, 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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Dreading The Staff Meeting?
Do This
Well here it is—time for another staff meeting. You know the drill. Everyone comes together at the appointed hour. (Actually, most of them stroll in within five or ten minutes of the appointed hour.) They take their designated spots around the room. With props in hand—notepads, pens, coffee cups—they dutifully give the appearance that they are prepared to offer their undivided attention. That little charade lasts for roughly three to five minutes.
Soon a glance around the room finds arms locked across chests, one person gazing at the ceiling, another staring at the floor, a third stifling a yawn and the fourth eyeing a stain on the doctor’s coat and wondering how she might suggest that the scheduling coordinator undergo the Rorschach test. Virtually everyone is wondering when the doctor’s going to talk about something important, like raises or vacation time.
Staff meetings are desperately needed, yet deeply despised. The common lament from doctors is, “I’ve tried staff meetings but everyone expects me to do all the talking.” Conversely, team members will assert, “We give input but nothing ever changes.” Oftentimes staff meetings can’t produce results because there isn’t a system or a standard established. Is it any wonder that dentists and dental teams dread staff meetings?
So is it time to abandon this tired business ritual? No. In fact, I recommend you invest more energy and effort in it. Why? Because most critical business decisions are made in meetings. Such is the case when it comes to the business of dentistry. It is in staff meetings that the team identifies and solves problems, examines areas of responsibility/systems, establishes policies, presents information, motivates and educates one another, exchanges ideas—all of which are vitally important not only to building a thriving practice but also maintaining one.
But how do you create effective meetings? First, look at them not from the standpoint of revenue lost but rather the potential for significant revenue gain. Second, treat meetings as you would any other system. Establish expectations and standards.
Monthly meetings must have an agenda that includes items the practice is continuously monitoring. Specifically, you want to discuss all areas affecting the profitability/success of the practice. For example: numbers of new patients, recall, collections, treatment acceptance, production, accounts receivables, unscheduled time units for doctor and hygiene, uncollected insurance revenues over 60 days, overhead, etc.
One person—not the dentist—is responsible for compiling and distributing the agenda to doctor and staff in advance of the meeting. However, this person is not in charge of developing the entire agenda. That task is the responsibility of the full team.
Post the agenda in the break room or other area where staff will see it frequently and can add items as they come up during the month. Issues that arise regularly in the daily huddle but require more discussion go on the monthly agenda.
When putting the final agenda together, put the most critical issues highest on the list. Determine how much time you will spend discussing each matter, avoid getting bogged down on unrelated topics and insist that team members come prepared to discuss the items listed.
Each month, rotate a facilitator (someone other than the doctor) to guide the group in discussion. Talk about only what is on the agenda. First, cover the key systems. Individual team members should report on their specific areas. The group can discuss if the practice is on track with its goals. Are there system barriers that are preventing specific areas and the practice from achieving goals? Use the collective problem solving skills of the team to develop strategies to identify solutions to problems occurring in key systems.
Seek input from everyone, and don’t be afraid of conflicting views. The facilitator should ask questions such as, “How do you feel about this? What is your reaction? As the patient, how would you respond? What are the advantages of this approach? What are the disadvantages?” Team participation is essential to the success of not only the meeting but also in implementing recommendations that may result from discussions. Delegate responsibility and establish deadlines for completing tasks identified during the staff meetings.
Evaluate the quality of your monthly business meeting on these points: Were the discussion topics known prior to the meeting? Did everyone participate in discussion? Did anyone dominate the meeting? Were minutes distributed after the meeting to document what was discussed? Were recommended actions given deadlines for completion? Was each topic given adequate time? Were there outside interruptions? Did the meeting start and finish on time?
Run correctly, meetings are the most effective means to identify and solve problems, share information, exchange ideas and motivate each other.
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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Selling Your Real Estate With Your Dental Practice: It’s Not Always Easy!
Many practitioners have made the wise decision to purchase real estate instead of being a tenant. Based on where you practice, the value of your real estate may be quite substantial. Unfortunately, in today’s economy, considering the sale of your real estate along with your practice may not be the best financial decision to make today. Whether you defer your real estate decision or not, we have found that when the value of your real estate is in excess of the value of your dental practice, it is often very difficult to sell both assets simultaneously. Purchasers of commercial real estate face a down payment requirement of anywhere from 15–20%. Here are a few options to consider if you want to sell your practice but are indecisive on the real estate:
Become a Landlord: Some national dental lenders will loan the down payment or a portion of it for the mortgage and fold it in with the practice acquisition loan. However, if the practice is worth less than the real estate, chances are this will not work. Therefore, buyers must have their own assets to provide the real estate down payment; not all potential buyers will. If you are faced with this dilemma and you want to retire, you may consider remaining as a landlord. Even if you plan to leave the area, you can engage a property management company to maintain your property in your absence. Besides, the rental income you’ll receive may be good supplemental income.
In this instance you offer the purchaser a right of first refusal to purchase the building at a future date at a current fair market value. Even though many purchasers do not buy the real estate initially, in two to three years they often have a change of heart. Why keep paying rent when you can purchase the building and begin to build up equity? A few years later they may be in a better financial position to afford the down payment.
Selling to a Non-Dental Investor: If the value of the real estate is considerably higher than the practice’s value, you may have to find an independent buyer to purchase your real estate. Dentists are considered great tenants and the non-dental purchaser can be assured of a long-term tenant. If you have additional tenants in your facility who are paying a lot of rent you may even have a great number of non-dental buyers interested in your property.
Sell Your Patient Base and Refit Your Professional Space: If you have a practice with lower revenue in an attractive building and location, it may be harder to sell the practice. Therefore, you may consider finding someone to purchase your patient list while refitting your dental space so that it is acceptable to a wide range of non-dental buyers. Although this may cost you a good deal of money to do so, if your real estate value is substantial this strategy may make the most sense.
The bottom line is that when your practice is worth considerably less than your building, you need to be prepared for the possibilities and how they may affect you.
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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