20 Jun Let’s Get Acquainted First
Dr. Sellerdoc was a 51-year-old dentist who wanted to sell his practice and continue to work for the purchaser for a period of nine years after the sale, and then retire.
Dr. Buyerdoc was a young dentist who wanted to buy a practice. He was introduced to Dr. Sellerdoc. Dr. Buyerdoc liked the area where the practice was located, liked the office facility and the staff, and felt he and Dr. Sellerdoc were compatible. Everything looked good, but then the doctors started talking about the dreaded “What ifs?”
What if we find that we are not compatible? What if the purchaser is incredibly slow and can’t keep up? What if the seller’s patients (or staff) don’t like or get along with the purchaser. What if the practice is not busy enough for two doctors?
Unanswered “What ifs” invariably lead to the “Let’s work together for six months or a year, and if we decide we still want to go through with it, we can complete the sale at some later time” stage.
If you want to doom the transaction to failure, then just try using the “Let’s Get Acquainted First” trial period approach to practice transition.
Let’s first try to answer some of these “What ifs.”
COMPATIBILITY: The seller has “climbed the mountain and slain the dragons.” He is ready to relax and back off a little. The purchaser is beginning his career and is anxious to prove he can also “climb the mountain and slay the dragons.” The purchaser is ready to assume the responsibilities of ownership, and the seller is anxious to give up those same responsibilities. We have one INCREASER and one DECREASER. This makes for a solid foundation for compatibility; the doctors have opposite, yet, compatible needs and goals. What one doctor seeks, the other doctor is willing to give.
Personal compatibility is a bit overrated. The doctors certainly need to get along okay, but the two doctors are not going to “live together.” They are just going to work together. They do not need similar interests because they are likely not going to be spending long hours in each other’s company away from the office anyway. They are certainly not going to have a lot of time to visit with each other during the workday. The only thing that is really required is that the doctors show each other a reasonable amount of professional courtesy and respect, and things should go very well.
CLINICAL SPEED: The average new doctor is slow. This should not come as any big surprise to the experienced practitioner. The seller was slow when he or she first started practicing dentistry as well. The seller and staff will show the purchaser how to pick up speed and complete the treatment in a reasonable period of time. The fact that the purchaser needs to make a sizable debt payment each month is a great incentive for the purchaser to learn to work faster. Without that motivation, a purchaser candidate does not have the same incentive to succeed. Consequently, this often leads to a failed transaction for the wrong reason. As an associate, a prospective purchaser will not have the same incentive to get faster as he or she would as a practice owner with an ongoing overhead and debt service to manage! All doctors eventually learn to work faster once they figure out that dentistry is for income and not for a good grade in school. The purchaser will get faster quicker than you think when he or she must do so!
PATIENT TRANSFERENCE: Get real! Accept reality! The seller’s patients are not going to gladly accept being transferred to the purchaser’s schedule without some resistance. This is a natural occurrence. After all, these patients have trusted the seller all these years and no one really likes or wants change. However, when the time is right, the seller and the staff can do the little things to help this transition. For example, let the purchaser check the seller’s hygiene patients to build a relationship with the patient. Also, the seller should encourage his patients to allow the purchaser to do certain procedures that the seller feels the purchaser is better qualified to do (may or may not be better qualified but that is not important; the patient will trust the seller’s judgment). This could be a procedure such as surgery or root canals. Another patient transition technique is for the seller to be less available to the patients. When a patient calls in for an appointment with the seller, the receptionist explains that the seller is now working fewer days and it will be 4 weeks before the seller has an opening. She further explains that we now have a wonderful new doctor in the office that could see the patient on Wednesday of this week. And finally, let the purchaser handle the emergencies, especially with new patients. There is no reason for the seller to build a relationship with another patient that he will just have to be transitioned over later.
PRACTICE SIZE AND GROWTH POTENTIAL: Last, but not least, is whether or not the practice can support two doctors. Your PARAGON consultant has presented the seller and the buyer with a detailed financial analysis of the practice that included internal growth potential projections. In this analysis process, the seller and the PARAGON consultant will have talked about the type of purchaser that would and would not fit into this practice transition scenario. If you are using PARAGON, then you can be assured that you have a good match for the transition you are trying to facilitate.
Now, what about trial periods? Purchasers often want a trial period to determine whether or not they can make enough money in this practice. This is new to them, and they are very insecure when it comes to making a final decision about buying a practice and assuming a big overhead. Delaying the closing puts off the final decision and it is almost a relief when they discover that the seller has similar thoughts. This is the major pitfall for a practice transition.
The problem is that the young doctor will usually not want to sign a restrictive covenant during the “trial period.” After all, if this purchase does not work out, then the young doctor will not want to be prohibited from practicing in an area nearby. This is understandable and would be unfair for the young doctor to spend a few months in a practice and be forced to relocate to a new city to practice.
On the other hand, the seller would be foolish to hand over a lot of new or established patients to this young doctor since the seller knows he or she is not yet committed to buy the practice and could end up practicing nearby if the sale does not go through. The seller could lose all those patients that he referred to the young doctor, so the young doctor is typically not exposed to a lot of work and thus is not very busy and does not make much money during the trial period.
The young doctor starts to work… and has few or no patients to treat and makes very little income. The young doctor is trying to determine the economic potential of this practice and now finds that he has few, if any patients to treat. So what happens? The young doctor decides the practice cannot support two doctors. Thus, the young doctor leaves and the sale does not go through. The young doctor is grateful that he did not buy the practice, and the seller has to start the whole process all over again.
The decision to sell a practice is not an easy one to make, but once it is made, then be ready to let go. Don’t accept a trial period because it will fail more times than not. You can’t turn patients over to an uncommitted purchaser candidate who may or may not be with you six months from now. In addition, the purchaser will not get a realistic idea of the economic potential of your practice without having the opportunity to treat a lot of your patients.
Commitment from both parties is needed to create a successful practice transition. The request for a “trial period” is a way of holding back that commitment, and you can rest assured that the results will be less than satisfying. Let your instincts be your guide. If both parties are comfortable with each other that is usually all that is needed to make it work. If your instincts say that this is not the right person, then don’t sell or buy. Just don’t do a trial period. It is rarely a fair assessment of the future results of a practice transition.
The practice transition process is complicated, but PARAGON has the experience and the ability to provide you with the results that you need. It’s time to call PARAGON!
