PLANNING FOR AN UNEXPECTED SALE OF YOUR PRACTICE
Frye Practice Sales is a full service practice transition consulting and brokerage firm, and we’d like to outline what we believe is the preferred course of action in handling the dental practice sale after the passing of a dentist.
While nobody likes to think about it, accidents and unfortunate events happen. Regrettably, some of you know or know of colleagues who have passed away unexpectedly. These tragic events have left family members and dental staff members overwhelmed and unsure of “what to do next.” So, while it is unpleasant to consider, it does happen, making this an important topic to address.
Just as you would prepare a will or make a loved one aware of your wishes in the unfortunate event of death, you should also plan for your dental practice after your death.
First and foremost, make sure you have a properly prepared and established will or trust in place that addresses the ownership of your company or corporation, and your practice assets. Consult with a knowledgeable and competent attorney to put your affairs in order. If you are incorporated or organized as an LLC, some attorneys recommend having your spouse added as a corporate officer and/or member of the board of directors, or in the case of a limited liability company, added as a manager or member so authority to act on behalf of your corporation or company transfers to them seamlessly. Some states do not allow non-dentists to be owners or officers of a professional corporation or company. Moreover, it may be preferable to avoid the liability exposure created by having a spouse as a co-owner or officer in the practice. In those instances, an alternative solution involves drafting a corporate resolution appointing your spouse as a corporate officer in the event of your passing, or adding a provision to your LLC's operating agreement appointing your spouse as a company manager. When a dentist dies, time is of the essence when it comes to the sale of the practice. A practice loses substantial value the moment its dentist-owner passes away, and it continues to lose value with each passing week before sale. If proper provisions are not in place to allow the practice to continue to operate or sold quickly, precious time may be lost in the estate administration process before the estate can proceed with a sale, which means a potentially greater loss in value.
Prepare a document with important contact names and numbers, along with steps for handling the situation. Once this document is prepared, make your office manager aware of its location and keep a copy with your will and/or trust. Hopefully, your family members and/or staff members will never need to access this information, but if they do, your preparation will be invaluable.
The following are important steps to consider:
First, the estate representative needs to have someone to oversee the operation of the practice until a purchaser is found. This usually requires finding a locum tenens (substitute dentist) so the practice can continue to provide treatment for patients until a purchaser is located and can acquire the practice. Sometimes, this substitute doctor is the same person who will acquire the practice. It may be helpful to enter into an agreement with a dentist pre-death who will agree to act as a temporary associate or buyer. If you have a few colleagues who are willing to share the duties of the locum tenens, regardless of whether or not they would want to acquire your practice, write their names and contact information in the document you are preparing. The State Dental Association can also serve as a resource in this area. Since calls are received by the estate and/or staff members about the practice, it may be wise to have someone (i.e. practice broker or consultant) with a network of other dentists who can help field the calls as they relate to finding a locum tenens dentist and purchaser.
Second, have the practice appraised, or an opinion of value established, as soon as possible. The representatives of the estate (i.e. spouse, children, attorneys, etc.) may lack “credibility” in the eyes of any potential buyer unless these individuals specialize in serving the dental profession. So, seek an appraisal or opinion of value from a professional with knowledge and experience specifically in dental practice sales.
Next, with a reasonable asking price established, every effort should be made to access as many available avenues as possible for finding potential buyers (i.e. study club, trade journals, dental associations, practice brokers, supply representatives, etc.). The estate representative—or whomever the representative has hired to facilitate the sale—needs to expeditiously find an “able and willing” buyer who will pay a fair price for the practice. The operative word here is “fair.” To think about selling a practice immediately after an unfortunate event may seem insensitive and callous. However, as noted above, the practice value may drop as much as 20 percent the day the doctor passes away, and 5 to 10 percent per week thereafter. Unfortunately, the estate does not have the luxury of “holding out” for the highest, all-cash offer. The element of time is paramount to preserving the value of the practice. Usually, the first offer will be the best offer.
Lastly, the transaction should be structured so the potential buyer will acquire the practice in a timely manner. Many estates do not act fast enough because emotions are high, and it is difficult for the spouse and/or heirs to concentrate on keeping the practice going or selling it. Placing undue trust in a friend or individual who does not specialize in dental practice transitions may be another factor contributing to delay. Estates generally seek to save money, so they are understandably reluctant to hire a practice broker/transition consultant. They may perceive that a practice broker will capitalize on the situation by selling the practice below market price in order to generate a commission. While that may be true for some, most are genuinely seeking to do their best for the benefit of the estate.
Hopefully, your spouse and heirs are never faced with this situation, but if they are, you and they will be well served to have reviewed this information and made a plan accordingly.
Frye Practice Sales & Healthcare Real Estate started in 2015 as Karl Frye, Principal Owner and Founder saw the need to provide Dentists, and specifically Practice Owners with a truly fiduciary service that hinged on what was realistic in the ever-changing healthcare market nationwide. Karl has helped hundreds of Dentists nationwide realize their dreams for retirement, ownership, joining a Group or DSO, etc. through exclusive representation both on their business and real estate needs. This way FPS isn't paid until your needs are truly met.
Karl's difference than 99% of the brokers nationwide is that he spent 12+yrs financing the acquisitions, sales, refinances, buildings, for healthcare professionals for national and regional healthcare banks and lenders. This provided him a credit acumen that isn't found elsewhere in the market.
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Karl Frye
Principal
480.599.6958
*The information provided above comes from experience in the marketplace dealing with transitions of this type but should not taken as legal advice or used in the place of discussing your situation with an attorney who is registered in your state to make sure you are handling your specific situation correctly.