I am a strong believer that your hard-earned money is better kept in your wallet, to spend on things like enjoying high-end tequila/beer/wine, travelling down south or across the world, buying a new house/car, or spoiling the children/grandchildren. And if you agree with me, then why would you decide NOT to put your team members on contract? Why would you decide to negotiate your lease renewal WITHOUT a dental lawyer? And why would you give 10% of the overall purchase price to anyone to find you a buyer? What do these things have to do with money? Everything! Let’s discuss each in turn, shall we?
No Contracts? You’re Wallet is in Jeopardy!
Not having your team members (particularly long-term hygienists, front desk persons, and associates) may cost you thousands when it comes to selling your practice. For starters, the Purchaser will be reluctant to close the deal if there is a lot of build-up employer-related liability. The way it works is like this: the longer an employee has been with the owner without a contract, the more notice or payment in lieu of notice the owner (and even a new owner in certain circumstances) will be required to provide to terminate their employment. In some cases, long-term employees can cost up to 24-26 months of notice (at common law) or 8 weeks of notice (under the Employment Standards Act, 2000). That’s a lot of money.
So how does it play out in real-life transactions? Basically, the Purchaser will want a price reduction to offset the risk of having to let employees go after the deal closes. The Purchaser may also want the seller to give promises to pay (e.g. 50% of the termination costs up to a certain date if the purchaser decides to terminate someone).
How could this have been avoided? Introduce new contracts to your employees prior to the sale which limits their ability to come after you or a new owner in the event of termination. It’s best practices to have these contracts in place and they will prevent you (the seller) from having to make financial and other compromises at the last minute to get the deal done. If you want to know more about how to introduce new contracts to your employees WITHOUT getting sued, click on the link above.
With respect to associates, did you know that they can compete, solicit patients who they were the exclusive provider of dental services to, and employees can leave and join them (after giving appropriate notice) if there was NO contract!!! Don’t believe me? Just read this article I wrote on the topic.
Renewing the Lease? Don’t Put Your Bank Account at Risk!
We’ve seen it before. A dentist trusts the landlord. And the landlord sneaks things into the lease renewal agreement that weren’t part of the original lease. Oh, you know… like … if you ever want to sell the practice, you need to pay the landlord 5% of the purchase price… or a demolition clause that allows the landlord to terminate the lease if it wants to redevelop the building into a condo …. or a relocation clause that allows the landlord to terminate … or the removal of an exclusivity clause (because they want to bring in another dentist into the building). We’ve seen it all. Don’t trust the landlord (read this blog about this topic). We’ve seen how one practice appraised for $1-million sold for $540k in large part because of the presence of a demolition clause.
Thinking of Selling through a Third Party? Why Would you Give them 10% of the Purchase Price?
Historically, dentists have paid up to 10% (or more in certain circumstances) to a third party such as a real estate salesperson, accountant, consultant, etc. to help them find a buyer. Now, seeing as how it’s the lawyers who put together the Letters of Intent, the Agreements of Purchase and Sale, assist in doing the due diligence/financing, Close the Deal and then deal with post-closing items, why would you even think about paying anyone else to help you with the deal, IN ADDITION, to already paying your lawyer? Oh, you need help organizing your affairs (e.g. putting your employees on contract or negotiating a lease renewal or incorporating to take advantage of the lifetime capital gains exemption?)? Guess what: you’re going to need a lawyer for those things too! Or maybe you need help finding a buyer and negotiating a deal? Guess what? We can help you with that too (check out our dental marketplace www.DentalPlace.ca). And we don’t charge a commission!
Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, contact DMC. We are your legal dental team.