07 Feb A Contract is not Just a Formality

Many sellers think that a contract is just a formality! To these doctors, the important thing is that the practice is sold and they get their money. Well, nothing could be further from the truth. That contract you sign when you sell your practice becomes the only protection you have once that “total stranger” takes over your practice, assumes your office lease, and has access to all the clinical and financial records of the practice.

If you are currently having a contract drafted, or if you have one that has been completed and is ready for your signature, you should read about some other doctors who sold their practices thinking that their worries were over once the contract was signed and the ink had dried. You will likely decide to re-check your contract to see if it provides the protection that it should!

Incidentally, none of these doctors were our clients when these things happened to them! Some became our clients later and some of these stories we learned about from some of our other clients.

• A seller was denied access to the financial records of the practice after the sale. The purchaser had informed the staff that he didn’t want the patients to pay anything on the seller’s accounts receivable balances ahead of any money owed to the purchaser on current work that had been done on the patient after the purchaser took control of the practice. The seller had no way to even know how much he was owed or by whom and his contract did not allow him the access to the records he needed.
• A seller sold his practice and 75% of the purchase price was financed by the seller. However, the purchaser was not doing well in the practice. The purchaser hired an attorney and transferred all of his assets to his wife and then filed for bankruptcy twelve months later. The seller’s security was only in the assets of the practice (some of which the purchaser had sold to pay bills). As a result, the seller lost the balance of the money due him from the sale of the practice and had no recourse.
• A doctor sold half of his practice. The purchaser had an “option” (not an obligation) to buy the other half. Three years later the seller decided to sell the other half of his practice. His “partner” told the seller that he was not interested in buying the other half. The seller then tried to sell this other half to various doctors outside the practice. However, all of the potential candidates decided not to buy the seller’s remaining half interest because they felt that the doctor’s patients would go to the doctor who had purchased half the practice three years earlier. The seller never sold the other half of his practice and finally just gave up and retired. His “partner” ended up with the entire practice and only had to pay for half!
• A doctor died. The estate sold the practice and financed the acquisition. However, the purchaser never made the first payment to the estate. The estate took the purchaser to court. Sixteen months later, the purchaser filed bankruptcy, vacated the office, moved across the hall (in the same building), and all the patients and staff went with him. He never paid a single penny for the practice!
• A purchaser withheld seller note payments claiming that the seller made certain representations about the practice that were not true. The seller finally settled out of court (after three years and several thousands of dollars in legal fees) for about one-third of the balance owed to him by the purchaser.
• A seller’s negotiations with the purchaser turned very adversarial. After the sale, the staff told the purchaser that the seller had been taking cash payments from some patients and not reporting the income to the I.R.S. The purchaser demanded a decrease in the purchase price and unless he received it he would report the seller to the I.R.S.
• A purchaser refunded a fee to a patient (for the seller’s work) and withheld the refunded amount from the next payment due the seller. The purchaser threatened to tell the patient to take his complaint to the state boards if the seller disagreed with the refund. The seller accepted and the refund was interpreted as an admission of guilt. The seller was sued and lost.
• A purchaser continued to use the seller’s name after the sale. The purchaser slapped a patient during treatment. The patient sued both the purchaser and the seller because of the purchaser’s continued use of the seller’s name on stationary and office signs after the sale. A court determined this to be a partnership. The seller lost thousands of dollars.
• A purchaser refused to release a patient’s records to another doctor. The patient sued the seller for breach of confidentiality for allowing the purchaser access to his records without his permission.
• A purchaser’s corporation bought the practice. One year later the purchaser bankrupted the corporation and ceased all payments to the seller.
• A purchaser bought the practice and then took in an associate. There was no contract between them. The associate worked there for two years and then moved to another office nearby. Over half the practice went with the associate. The purchaser could no longer make the payments to the seller and filed for bankruptcy.

In all these situations, the sellers thought their problems were over once their practices were sold. These situations could have been avoided if the contract for the purchase and sale of the practice had addressed these and other important issues. It takes experience to do it right.

Don’t jeopardize your future. Contact PARAGON today for a complimentary consultation. No obligation… just a very worthwhile education!