The Hazards of Buying the Practice of an Orthodontist Who Dies Unexpectedly
Several months ago a good friend of mine was confronted by a situation I see all too often. A local orthodontist died, had no plan to transition the practice, had no coverage agreements and had very little cash flow. When this happens the family almost always overvalues the practice and asks an unreasonably high price. Over the weeks that follow the family tends to reduce the price but not fast enough or low enough to make up for the rapidly diminishing value of the practice as it sits there with no orthodontist and patients who are not being seen. It’s a sad situation that usually ends with the practice dissolving into nothing, dumping a ton of unhappy patients onto the marketplace or with some young orthodontist who doesn’t know any better paying too much for a beartrap that they don’t recognize as such. Anyway, I had time and motivation to help my friend so I wrote down the things I would want when he asked me what I thought about him buying such a practice. I figured why not share this with all of you in the hopes that 1) Orthodontists will create a plan of action for what happens to the practice when you die (and yes, you will die – no one gets out of this thing alive), 2) for young orthodontists who might be considering buying a distressed practice and 3) for established orthodontists who think they need to buy such a practice to “keep out competition”. Here goes, FWIW…
- If you’re seriously considering it I would do a chart audit. Literally look at every one of them and see where they stand and make a list of the patients and then have them pay you or you pay them based on the AR vs amount of work to be done. I would make it very clear and specific that they have to pay you to treat any patient not on the list.
- I’d also want to see that there are no liens or debt or other entanglements.
- I’d want them to indemnify you against all manner of things.
- I’d want a great deal of money held in escrow for undiscovered issues.
- I’d want favorable terms with the landlord and if you can’t get that I’d force them to carry the lease until completion.
- I’d want to see deposit slips and production and collection reports in full detail for the last 4 years.
- I’d want a full list of employees current and over the last 4 years and their total pay and any bonuses and time cards.
- I’d want a full inventory and agree to a level of inventory that cannot change.
- I’d want a big penalty for offering anyone a pay in full incentive after the chart audit is done.
- I’d do an asset sale for sure and want a big non com for all the owners of the selling entity and transfer of past non competes to you from former employees.
- I’d want the purchase agreement written to include everything in the offices and storage sites EXCEPT and make them list item by item anything that is excluded and I’d do a video walk through of everything early on in the negotiations so you document what is there.
- I’d want statements from all employees – current and as many former as you can get – and all doctors and all owners and all managers saying that they don’t know of any current or pending legal, moral, ethical or other negative issues.
- I’d want all phone numbers, websites, etc that they are using.
- I’d want a list of all the marketing, billboard, cleaning, production, lawn care, copier, postage machine, etc contracts and leases and deals and bartering and I would want it clearly stated that none of them are your responsibility unless you state in writing that you want to take it over.
Basically if you buy this you are doing them a favor so you need to protect yourself and your successful practice.