01 Nov Losing Everything
The following is a true story…
Dr. A just had his fifth consecutive year of increased practice growth. In fact, he has averaged 36% growth in each of the past 2 years and 31% growth the year before that. Of course, he still must work 6 full days each week, but the growth is coming on strong. He hired a hygienist 6 months ago and is really starting to see great growth in that phase of his practice. Finally on the third try, Dr. A has a great receptionist. Practice growth is good and his staff is solid. Dr. A is actually starting to put a little money away in savings and paid off the second mortgage on his home 3 months ago.
Dr. A should be very happy, right? Wrong!
Dr. A’s annual practice production is still 62% less than his practice grossed only 6 short years ago. And oh, by the way, Dr. A is 63 years old and has only funded about a quarter of what his financial advisor says he needs to be able to retire at age 65. The truth of the matter is that Dr. A will probably never be financially independent enough to retire. But only 6 years ago, Dr. A was on pace for early retirement at age 60!
What happened to Dr. A?
An associate without a contract happened! And, to make matters even worse, the associate was his own flesh and blood!
Dr. A always wanted children but due to medical reasons his wife was unable to have kids. Back about 30 years ago, Dr. A’s sister had a son. Dr. A loved his nephew like a son and did everything he could with the boy. Football games, baseball games, hunting, fishing… they did it all together. When his nephew was only 11 years old, the boy’s father was killed in an accident with very little in the way of life insurance. From that point on, Dr. A became even more of a father figure to his nephew and, in fact, began funding the boy’s private school tuition and putting money aside for his college education.
The families lived in a college town. Dr. A was a major contributor to the local university. While it can’t be confirmed (for university sanctioning reasons), it is widely believed that the nephew received a baseball scholarship his junior year of college because of Dr. A’s influence with the university. Dr. A had already funded the boy’s entire private school education in from age 11 until the scholarship was received when the young man was a junior in college.
Dr. A’s nephew announced that he had decided to become a dentist just like his uncle and would come back to work with his uncle in his practice after graduation from dental school. To say the least, Dr. A was both proud and delighted. Dr. A immediately began working to get his nephew accepted into dental school. He was successful and gladly paid all 4 years of the nephew’s dental school tuition, room and board.
Once he graduated from dental school, Dr. A’s nephew did indeed become Dr. A’s associate. Dr. A did everything he could to make things easy for his nephew and the nephew became an immediate success as a dentist. He quickly picked up speed and “real world” techniques from his uncle. They were together late into the evenings working on cases together. Dr. A was transferring many of his quality patients to his nephew. In fact, the nephew was actually producing just over 55% of the practice total doctor production by the end of his second year with Dr. A. Dr. A was able to take a little more time off. It was truly like a dream come true for both of them. Life could not be better!
Dr. A was rejuvenated as a practitioner again. He and his nephew had grown the practice to an annual income level that was 250% greater than before the nephew came into the practice. Dr. A was making more money than he had ever made in his life and his nephew was far ahead in both production and personal income than any of his dental school classmates. Dr. A and his wife were beginning to do some long awaited traveling. Life could not be better!
The nephew began dating the hygienist. Dr. A really liked his hygienist and thought she was great for his nephew. He encouraged the relationship. During the nephew’s third year in the practice, the nephew and the hygienist were married. Dr. A was asked and gladly accepted to stand up with the nephew as his best man. Life could not be better!
Dr. A was now 57 years old and thinking about his retirement. He was considering age 60 as a target age – just 3 more years. As the end of the nephew’s third year approached, Dr. A decided he would sell half of his practice to his nephew and they could become equal partners. Dr. A’s intention was to work another 3 years and then retire. The practice was grossing enough now that Dr. A figured the dollars he would get from selling the practice would be plenty enough for him to retire at age 60. They had never really talked about any of this before but Dr. A knew this is what the nephew wanted too. With about 2 months remaining until the nephew’s third anniversary, Dr. A took him to dinner to break the great news to him.
What happened next was the shock of a lifetime. Before Dr. A could even announce his intentions; the nephew revealed that he would be leaving the practice to set up a practice down the street. He intended to have everything arranged within 3 months. He announced that he had already purchased the new equipment and had lined up some of his new staff.
Dr. A was flabbergasted. He did not understand at all. And the nephew really could not understand why Dr. A was upset. After all, this is what he had been told in dental school to do… work a few years with an older doctor until you gain some experience and then set up a practice of your own nearby. He was told that he should have a decent patient following after a few years with the older doctor that would give him a good start on his own practice. The nephew always wanted his own practice just as Dr. A had wanted when he broke away from his host doctor nearly 30 years earlier.
Dr. A was so devastated and depressed that he could hardly come to work for the next several weeks. Then his depression turned to anger and he lashed out at his nephew reminding him of everything he had done for him over the course of the nephew’s life. He told his nephew that it was duty and his obligation to purchase the practice. The nephew continued to say that it was never his intention to purchase the practice. He said the practice was much too large and would cost far too much.
Things got worse, words were said that were hard to take back and the nephew left a month earlier than he had originally planned. He also took the hygienist (his wife) with him. She had originally planned to stay with Dr. A until Dr. A retired. Three months later the receptionist left Dr. A to go to work for the nephew. She wanted the job security of the younger dentist. Dr. A had told her several months earlier that he was considering retirement.
Dr. A decided the only thing he could do was to file a law suit against his nephew. Dr. A’s attorney asked to see the contract between Dr. A and the nephew. The attorney was especially interested in the restrictive covenant and non-solicitation portion of the agreement. The attorney also wanted to see the practice buy-in and buy-out provisions in the agreement. Dr. A told his attorney that there was NO CONTRACT. Dr. A said he never even considered the need for a contract with his nephew since it was family!
Dr. A was informed by his attorney that he had no grounds to file a law suit. If there had only been a contract, he could have forced the nephew far enough away to salvage most of Dr. A’s practice. But since there was no contract in place, there was absolutely nothing legally that Dr. A could do to recover any of his financial losses. Dr. A fell into deeper depression and could not work at all for about 4 months. His wife was very worried about suicide!
When the dust finally settled, Dr. A had lost over 90% of his practice income to his “son-like” nephew. He also lost the best part of his staff and almost all of his quality patients. Dr. A’s plans of retirement were totally dashed. Without the sale of his dental practice he simply did not have the resources to retire. And, now his dental practice had virtually no value at all!
Dr. A finally realized he would be forced to build a practice from scratch at age 58! Not for retirement, but just so he and his wife could live from month to month. He got a second mortgage on his home to provide for current living expenses and to upgrade some of his older dental equipment.
As you know from the beginning of this article, Dr. A is now slowly but surely coming back. But, Dr. A realizes he will likely have to work until he dies or until he can’t physically work any longer. He actually hopes that it will be until he dies because he will probably never have enough money to retire and certainly does not have enough money for he and his wife to live if a disability forces Dr. A to stop practicing!
This very sad story is not as rare as you may think. We have heard numerous stories just as terrible. Don’t let this happen to you when it is really so easy to fully protect yourself and your practice.
Contact PARAGON to schedule a complimentary consultation. No obligation… just a very worthwhile education.
