CONSULTING BLOG

Practice Succession- “Planning”

By admin-tmfd on 18 June 15 Dales Blog

Practice Transition – “Planning”

Scenario

I recently purchased a general practice and am struggling with the transition of the patients to me from the previous owner. Although I have owned the office for the past six months my schedule is always less than half full while the previous owner’s schedule remains full. I am now finding it very difficult to manage my finances. Can you offer some advice about turning this situation around? 

Response

I wish I could say that this scenario is uncommon, but with the price of practices and the voracious appetite to buy dental offices, this is becoming a significant and disturbing trend.  Although it wouldn’t be prudent to give advice without the critical information surrounding the specifics of your purchase, I’ll address the question by examining some of the factors that lead to less than ideal practice transitions.

Here’s a case study to illustrate a stress filled post-sale scenario we often encounter as consultants, and the issues that play a role:

Case Study

  • Practice owner has the practice valued
  • Purchaser acquires at 30% above the appraised value
  • Transition will be completed without notifying the office manager or team members
  • New owner appears in the practice day after deal is finalized
  • New owner and seller explain to team the new “normal”

Transaction Outcomes

  • The new owner has immediate debt load above the ability of the practice to produce
  • Team are immediately stressed by uncertainty around the new owner, leadership and practice direction
  • Many team members feel slighted as their employer did not inform them of the sale (given the confidentiality of this transaction)
  • Team have no connection with the new owner and therefore feel they cannot communicate effectively with patients who will have a lot of questions
  • Dentists and team are jolted into the reality that the previous practice no longer exists.  At the same time, the new practice vision and business plan has not been defined or communicated with team members
  •  Seller remains scheduled and the new owner has few patients scheduled as the business has had zero preparation time to add another full time dentist to the practice

You may think all of the above outcomes can be managed over-time with the right leadership and team. However, in most cases the practice survives a poor transition often due to necessity rather than entrepreneurial efforts.

The stark reality here is that with the purchase price being 30% higher than the value, strategies to increase practice growth need to be defined and in motion long before the practice is valued.  The pressure on the new owner to now service the debt and react quickly to expand is enormous.

As with so many purchases, the new owner isn’t focused on changing very many things. He/she has enough on their plate just learning how to integrate with patients, team and another dentist!

Seller Outcomes

  • The seller received over market value
  • An associate agreement was signed as part of the sale with terms negotiated and defined
  • The seller knows their patient hours and terms of remuneration
  • The seller may not mentally or emotionally be prepared to be a professional employee
  • The seller may feel bad about not being able to share information about a sale with team members
  • The seller now has a professional partnership in terms of patient treatment

Although the seller may have received much higher value for the business, the result is a heavy load of stress, not the least of which comes from his team and patients’ reaction.  In order to remain a productive associate, the seller must also have sufficient dentistry to keep his/her schedules full and at the same time, be actively encouraging patients to meet and seek care with the new owner.

The emotional toll of a swift transition on the previous owner cannot be overlooked.  Everyone reacts differently to change, but because this one has been so abrupt, the impact on this dentist’s leadership role in the office is undeniable.  As a dental professional who has invested much time, energy and good old-fashioned sweat into the practice, it’s only wise to plan and execute a professional departure.

It’s clear that there is definite need for a significantly thoughtful and highly effective approach to business succession planning, based on the frequency of less than ideal practice transitions that we are aware of or involved in rectifying.  Whether you are a few years away from a practice succession, in the midst of, or have completed a transaction, we urge you to be fully aware of the repercussions to patients, team, business performance and yourself if it’s poorly managed.

The sale of a practice is the beginning of a new business. Our firm believes in developing succession plans that meet the needs of everyone involved.

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