Did you buy the “practice” you thought you were buying? As a dental broker representing both buyers and sellers (but never at the same time!) and a practice-management consultant, I have been engaged by lenders and buyers to help them work their way through practice purchases that appear to be going sour. In 80 percent of the situations, the problems they are confronting should never have happened - and wouldn’t have happened had they had good representation!
Let me give you an example of one of these situations. Doctor A had a successful dental practice in a small, rural community. At age 55, he was encouraged by a dental broker to sell his practice and work as an employee in the practice until he decided to retire. He was told it would improve the “quality of his life.” That was the first step to the unfortunate situation in which he found himself. Things did not work out in terms of being an employee in the practice he had owned, so he left it and went to work as an employee in a large dental clinic. Because of the covenant-not-to-compete with the buyer of his practice, this necessitated that he and his family move. After a couple of years with the clinic, he found out that if you can be hired, you also can be fired!
Dr. A then decided that he needed to buy another practice and work there until he was ready to retire. As an employee, he had not made enough money to live on, so he had started taking some of his retirement money to pay the bills. This was something he did not want to continue to do.
The doctor found what he thought would be a nice, medium-sized practice in a good area. The office looked good and the selling doctor seemed to be a nice person. He did not want to purchase a practice with a lot of managed-care patients (HMO or PPO). The seller told Dr. A that he was not signed up for any managed-care programs.
That statement was correct. However, what the seller did not tell Dr. A was that four months earlier, he had dropped all the managed-care contracts he had. Prior to dropping these contracts, 60 percent of his patients were managed-care patients. When the seller sent a letter to his patients announcing he was no longer a managed-care provider, he made no attempts to keep those who had managed-care insurance plans as patients.
Dr. A did not find out about this situation until after he purchased the practice. Yet, he also made no effort to contact the managed-care patients to inform them that he had purchased the practice and he would like to keep them in the practice.
To add to Dr. A’s problems, the seller had attended a practice-management seminar 10 months prior to the sale in which the speaker told the attendees that they should not schedule hygiene patients for their next appointment at their current visit. As a result of this and the exit of the managed-care patients, Dr. A inherited a recall program that was falling apart and he had to let the hygienist go. Dr. A’s wife came to work for him and he dismissed his front-desk person. He also dismissed one of his chairside assistants. He now found himself in a situation where he could not pay his bills without taking even more money from his retirement. It was truly a sad situation.
At that point, I was asked by the lender to see if there was something that could be done to keep Dr. A from going bankrupt. It took two years and a lot of effort, but Dr. A is now making enough money to pay his bills, have enough to live on, and he is starting to put money back into his retirement plan.
This is only one of many situations that probably could have been prevented had the buyer sought knowledgeable and experienced help. Had he looked through the patient records, computer reports, and asked the right questions, he would have had a better sense of what the practice he bought was all about. I am amazed at how many buyers are afraid to ask questions for fear they will upset the seller. The majority of buyers never count the files to determine how many active patients the practice has and what the number means. Many do not review the patient charts to get an overview of the patients. Others do not understand what the numbers or information they do receive means.
Whether you’re a buyer or a seller, don’t leave yourself open to surprises. Make sure you do your homework and ask all the necessary questions. If you don’t know what questions to ask, hire a consultant who does!
Tom Smeed is founder and president of Healthcare Practice Management, Inc., a dental brokerage, appraisal, and dental practice-management firm. Currently, Healthcare Practice Management services clients in 16 states. He has been a presenter at ADA meetings and has lectured in the United States and Australia. He is one of the founding members and past president of American Dental Sales. Contact him at (913) 642-1988 or t.smeed@worldnet.att.net.
