I often tell dentists that the first year of them owning a dental practice is typically the worst year. That’s because there’s a lot going on that could result in lost money, lost time, and aggravation. Let’s take a look at some of these things, shall we?
Problem 1: Missing Charts
Hopefully, there are as many active patients as the purchaser had expected. The purchaser should have done their due diligence (i.e. chart audit) and the appraisal and the agreement of purchase and sale should have indicated how many active patients regularly attend the practice. So what happens if all of a sudden charts some of the charts are missing? From time to time, we hear that this happens. The departing dentist may take a chart or two. The agreement of purchase and sale should specify that the charts (which are part of the overall assets being purchased) are not to be removed from the premises. We suggest doing a chart count AFTER the closing to ensure everything is as it should be.
Problem 2: Equipment
We have heard of situations where equipment gets swapped out at the last minute! This means that the equipment that was represented in the agreement of purchase and sale is not actually at the premises after the closing. Again, this could result in a breach of contract claim by the purchaser. Ideally, the purchaser should have an equipment inspector go in and review/test the equipment. Having an asset list is also a great idea (make sure it’s incorporated into the purchase agreement). Also, sometimes the equipment doesn’t work as well as it should have. There may be motor, or suction problems, or damaged tools, etc. Hence, the importance of checking these things out beforehand.
Problem 3: Co-Pay
This is a big issue. Failure to collect co-pay is a type of insurance fraud, as I’ve blogged about over here. When you take over, you may lose on some of the goodwill you’ve paid dearly for when you start to enforce the co-pay. Those patients who simply don’t want to pay the 20% or so from their own pocket will simply leave the practice. If you can anticipate this, you can reduce the purchase price BEFORE you close the deal. Also, make sure the agreement of purchase and sale says that the Vendor promises that they substantially collect co-pay. If it turns out that this isn’t true, then the purchaser may have a claim against them.
Problem 4: Staff
Sometimes, we hear about a dental assistant who works only when the Vendor dentist works, travels with them, and will follow them to the ends of the world. So when a purchaser takes over, all of a sudden the assistant leaves with the Vendor. This may be the beginning of an even larger exodus of associates, hygienists, front desk staff, office managers, etc. People with jobs generally fear change. And transitions like a new owner coming in is often a very scary thing. So staff start looking for a new job, fixing up their resume, and maybe taking advantage of the new owner (if the new owner allows it as they themselves need time to adjust to their new environment).
Problem 5: Patients Leaving the Practice
Some patients attend a practice because of the location. Others because of the personal relationship they have with the dentist and their staff. Others because it’s the same practice that their parents have been going to. But if there’s a new change and the familiar faces aren’t at the practice, the patients might look to abandon the new captain. As a purchaser, you’ll want to make sure that you protect yourself from letting this happen by doing your diligence and getting promises from the Vendor not to compete (i.e. don’t set up shop across the street) or solicit patients or staff. Patients can flock to the selling dentist, but that dentist should not be actively soliciting them.
So you see, there are a lot of things that can and sometimes do go wrong for new owners of dental practices. While we try to mitigate against these risks (e.g. doing chart audit, equipment inspection, having comprehensive agreements of purchase and sale with promises from the Vendor to do or not do certain things, etc.), it’s impossible to prevent a lot of these things from happening. The good news is that it can only get better. You, as the new dentist, will figure out quickly which staff share your vision and will be valuable contributors to your team. You will understand how to operate a dental practice (e.g. ordering supplies, scheduling, marketing, etc.) and you may make mistakes in your first year (which cost you time and money). But that’s OK, because you hopefully won’t be repeating those mistakes. And by your fifth year in practice, things should be moving smoothly. I remind dentists that it typically takes about a few years before you get your feet on the ground. It’s a wild ride during that time, so hang in there, keep your head down and focus on building your practice. In my opinion, tomorrow never comes, so don’t wait for it and hope that one day everything is going to change for the better. You need to focus on the ‘now’ and keep incrementally improving. Then, after a few years, you’ll look back at all that you’ve accomplished and marvel at how you survived that first year!