Prior to having children, I naively thought that raising kids was a relatively simple undertaking. Like many armchair experts, I looked upon the situation from afar and concluded that childrearing was much easier than most folks were making it out to be. Keep them fed, clothed reasonably well-educated and entertained and you’ve got your job down. Simple.
Then I actually had children…of my own.
I was progressively enlightened to understand that strange gadgets like child-proof locks were made for a reason, that upset children are able hold their breath far longer than adults and they can outscream and outpoop (if that’s a word) a grown man 6x their size. I survived the toddler and elementary school ages only to find that the teenage years bring a new set of challenges in areas we take for granted. Parents soon discover some children test the limits of a hot water tank while the odor produced by others seems to indicate that there must be a shower or soap malfunction. And while every parenting book, seminar or workshop prepares you for some of these surprises, but none cover it all (that or I’m just blessed with children breaking new ground).
Do You Have the Same Attitude With Your Transition?
My point is not to ponder parenting, but you give you a bit of an angle to approach to your chiropractic practice sale or transition.
Some recent conversations I have had over the past several months inspired me to consider that many chiropractors take a similar “know-it-all” stance towards their practice sale or transition as I once did towards parenting. In fact, for most chiropractors, the sale or transition of their practice is something they have absolutely zero experience with despite the fact that they believe they can handle it on their own.
And while parenting typically affords you many opportunities to redeem your mistakes over the course of the next eighteen or more years you have with your children, the mistakes you make with respect to your chiropractic practice sale or transition can be final (or fatal) and are mostly inflexible.
That said, for today we will talk about one specific mistake you can make in respect to the contract that you will utilize to “seal the deal” on your chiropractic practice sale or transition: the buy-sell agreement.
The Buy-Sell Bombshell
To most chiropractors, any contract will do that spells out a few terms of the sale or transition arrangement. I can’t tell you how many docs have asked me for a sample, as if there is a one-size fits all contract that can simply be inserted trouble free into their transition like some sort of plug-and-play component for your computer.
In fact, many buy-sell agreements are ticking time bombs, ready to explode with virtually any event that occurs after its signing. And depending on the extent of the explosion, the results could be devastating or, at the minimum, very messy to the success of your sale or transition.
Here are a few examples to prove my point:
Exploding Buy-Sell #1: After the Sale Audit Attack
A chiropractor attending one of my billing, coding and documentation seminars asked me a question on how to handle refunds requested by a payer. This is an unfortunately common question I get; but this one had a strange twist. The repayment demands were not made for work this DC had done, but were in reference to the work done by his predecessor from whom he purchased the practice.
When I asked what his Purchase & Sale Agreement stated, I got the blank stare that revealed its contents. There were no provisions made for this scenario, which is incredibly common. Worse, the transaction was handled by a chiropractic practice broker who was well-known in his region but apparently who did not know enough to ensure that an audit clause was in the contract.
Worse still, without any specific contractual language contained in the agreement, there was little the chiropractor could do to “force” the now retired DC into repaying the audit. Ouch.
Exploding Buy-Sell #2: Refund Relapse
Another DC emailed me over a similar bomb that went over after he sold a practice to his associate. This time the explosion was over refunds for pre-paid services.
The Associate who was now the practice owner did not feel that it was his obligation to refund the patient who asked for their pre-pay money back when the former owner retired. Of course, the former owner didn’t feel obligated to pay the Associate for those funds either.
The situation got even uglier when the Associate began to make accusations that other details of the sale were not disclosed and that accounting errors had been made. The Associate even threatened the former owner with reporting them for fraud if he didn’t repay the refunds.
This mess could have easily been solved by a well-written working agreement that spelled out the details of the transaction, made provisions for refunds and was agreed upon by both sides before trouble took place.
Exploding Buy-Sell #3: Conflicting Covenants
The third and final example proves that while there is definite popularity behind many reality TV programs and DIY shows that make all things look easy, not everyone and everything should be considered DIY-friendly and a few things (like you practice sale or transition) might hit you with a deadly dose of reality if you screw them up.
An experienced chiropractor (who should know better) who had previously sold his former practice over a decade ago was ready to sell his current practice and move on to a neighboring town to start a small practice that would allow him to work part-time in semi-retirement.
Not only was this move probably unnecessary (why not arrange an agreement at the current practice to continue working for the new owner?), his mistake proved much greater than his illogical choice of transition options.
The doc dragged out a copy of his former purchase and sale agreement and attempted to produce a new version for the new sale. I say “attempted” only because the document was a mess and full of spelling errors, cut off sentences and paraphrased summaries of key concepts that he obviously didn’t take the time to type out in full.
His shortcuts shortchanged him big time, when he was found guilty of violating his own non-compete clause. Unfortunately, his intent was not to do so, but his contract was so poorly worded that it didn’t convey his intentions properly and when some things went sour with his new buyer, he found himself sued for a princely sum.
You might ask why the owner didn’t consult an attorney either but the answer is simple: the DC was a die hard do-it-yourselfer who had no use for brokers, lawyers, consultants or anyone else telling him how to write up a “simple” buy-sell agreement. As a result, his DIY ways were painfully proven problematic and he is now paying off the equivalent of a mortgage for his contract violations.
There’s More Mistakes Under the Microscope
I’m sure there are some of you who are reading this and concluding that you would never be so dumb to commit one of these obvious errors. I do hope that is true.
But the fact remains that there are many more mistakes that can be found under the microscope. Whether these mistakes lurk inside your contracts or they occur before you even get that far, I return to my original point: there is too little room for error in your exit strategy.
Want to Avoid More Mistakes (And Exit Without Them!)
There are more mistakes to avoid beyond the buy-sell contract for your chiropractic practice sale, so… join us for our Sell, Switch or Slow Down: How to Maximize the Value of Your Chiropractic Practice Sale or Transition and Minimize Costly Mistakes where we will help you transition your practice for the best possible value– without the mistakes!