Beyond "death do us part"

Her name is Quinn*. She was 34-years-old, had two young children, and was suddenly a widow with a $1,000,000+ practice to sell ...

Randy Marie Daigler

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Her name is Quinn*. She was 34-years-old, had two young children, and was suddenly a widow with a $1,000,000+ practice to sell and mountains of debt. Diagnosed with stage 4 cancer just weeks before his death, Quinn’s husband, Reid, was told to get his affairs in order. But there was not enough time to do all that was required.

The practice was beautiful, with a long-term lease space, state-of-the-art equipment, a facility decorated by an interior designer, and all of it less than three years old. It was first class all the way. The practice was located in a geo-desirable community in a professional building on the main business strip surrounded by a growing residential population. Easy sell, right? It had the hallmarks of a desirable acquisition, and should have had qualified buyers lined up to purchase. So why was Quinn worried about the sale?

The lack of a plan and tangled affairs made Quinn’s road to transition a long and arduous one that took a personal toll. The associate in the practice was not capable of rendering the broad spectrum of treatment provided by the late doctor. Reid, like the majority of dentists, did not plan for his demise just as he was reaching the pinnacle of his career. There was no plan for total coverage in his absence. Many of his colleagues were willing to provide occasional coverage, but it was not consistent.

Reid was an education junkie and held multiple degrees and certifications. He was also a perfectionist. It was up to Quinn to fill the huge professional void left by her husband and to find coverage for all treatment — everything from CEREC to IV sedation, full arch restoration, laminates, implants, periodontics, oral surgery, both straight wire and Invisalign orthodontics — or the practice would perish.

Though Quinn was the office manager, Reid was a true “do-it-yourself” person who took care of many of the financial aspects of the practice, which left her in the dark.

When Quinn and I gathered financial information to value the practice to market it quickly, we found there was a lot of information that neither she nor her advisors had. Only weeks later did Quinn find a hidden file cabinet with some of the data, but even that was not clear. It was difficult to do a thorough practice valuation. Reid trusted his own opinions above those of his advisors, which created a nightmare when it came to the financing practice purchase. His professional corporation owned two commercial real estate properties, neither of which housed the practice. A decision to cross-collateralize the loans for the practice and real estate properties meant that all of the loans had to be paid off in full before clear title could be provided to a practice buyer.

The commercial real estate loans far exceeded the proceeds the practice sale generated, creating a morass of financial problems. Quinn received conflicting advice from her advisors regarding how to resolve the situation. None were totally in the loop nor had the whole picture because Reid had kept a lot of things to himself. He shared only the details he decided were pertinent to the piece of the puzzle a specific advisor dealt with. This left Quinn without a leader during the entire debacle. So I called an advisor meeting to determine who the lead advisor was going to be. We also had to call in other professionals to help untangle the tax and real estate issues that surrounded the transition.

Obtaining financing was a challenge. The failure rate for dental loans was historically less than 1%. However, in the downturn that number jumped to about 3%, which sounded alarm bells for dental lenders. Their response was to tighten lending by demanding increasingly high FICO scores, which sometimes required sellers to “be on the hook” for some portion of the loan, or to work in the practice for a transition phase. In Quinn’s situation, some of the requirements were not options and were out of her control.

Complicating the sale was a downturn in the economy. This made it necessary for Quinn to keep the schedule full enough to pay the bills and run at a profit. Otherwise, attracting quality buyers would be difficult. In a shaky economy, buyers are one of two types — bargain hunters, or those with “the guts to go.” This means they are willing to take on debt in the prevailing economy because they see opportunity where others see only risk.

The problem with this downturn was unlike others in recent history, hitting nationally and involving a diverse sector of businesses. Therefore, the type of buyer Quinn needed was rare — a doctor with not only “the guts to go” to take on a $1,000,000+ practice, but someone who had the skills to continue a very broad treatment spectrum.

We learned many lessons in this transition. The most critical was to have a plan. Regardless of age or practice size, a sudden death or disability throws everything into chaos. Spousal grief, patient coverage, and staff loyalty are all factors. Underpinning all this is the financial aspect.

The majority of dental spouses do not have a clue about how your practice runs. This practice would have failed without Quinn and her knowledge of the practice and her personal ability and strength. As difficult as it is to imagine, none of you will escape leaving this earth at some point.

Guidelines to help you plan for your departure

♦ Join a Mutual Aid Group. Some brokers have groups that hold meetings annually and include spouses. They will also perform practice valuations and update them regularly.
♦ Work with qualified professionals and provide them with total information on your practice, real estate, debt, and other obligations, both personal and professional.

  • Work with your dental CPA, attorney, and dental lender to obtain the correct financing option for your practice.
  • Speak with your dental CPA and insurance specialist to determine what type of coverage meets your financial needs in a thorough and economical manner.

♦ Hold an annual meeting with your spouse and advisors to review the plan and determine the lead advisor.
♦ Create and maintain a relationship with an ethical broker, and introduce your spouse.
♦ Have a Letter of Direction instructing family, staff, and advisors about which broker to engage. Keep it on file with your spouse, practice broker, office manager, dental CPA, and attorney.
♦ At the very least create a file marked “EMERGENCY.” Include detailed finances, passwords, debt, lender and advisor contact information, and the Letter of Direction.

While this specific transition was extremely complicated, I assure you that if such a life event befalls you, your spouse will feel that your situation is complicated enough.

A final word

Rarely have I worked with someone of Quinn’s poise, intelligence, and perseverance. She kept the practice going at production numbers very close to that of her husband’s. Quinn was masterful with her team and the loyalty flowed both ways. Her dedication to the patients was inspiring, and she added the personal touch that an employee might not have managed. She did what the vast majority of spouses could not — maintained the practice’s performance in a down economy, and kept staff and patients happy. I found the elusive buyer and we sold the practice at a reasonable price.

* Note: To protect the privacy of the family, names were changed.

Randy Marie Daigler, Transition Manager of the DBS Companies, has served financial and transition needs of Michigan dentists for more than 25 years. A respected author and speaker, she serves on the ADS executive board, and is a member of Practice Valuation Study Group. Contact her at (888) 419-5590, ext. 989 or at randyd@adstransitions.com.

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