Do you have a plan for the unexpected?
We are frequently involved in practice sales triggered by the sudden death of the practice owner. Many of the doctors we’ve worked with did not have a practice value in their records and in many cases no wills were even prepared. You can only imagine the significant turmoil that was created for the families after these doctors’ passing.
Since this is such a critically important topic, we are addressing this again. It is imperative that no matter your age, you develop an “Emergency Exit Strategy” that applies in the event of death or disability. Are you aware that when a dentist passes away the practice’s value can decrease approximately 5% per week? Fifty percent of all practices go unsold upon the untimely death of the practice owner because of delays in getting the practice listed for sale. Additionally, 95% of all dental practices remain unsold 90 days after the owner’s death. This does not have to be the case.
As transition consultants, we place a premium on planning not only for the long term, but for addressing unexpected tragedy. It is important for a business owner to know what their practice is worth. Early financial review also allows for suggestions on how to possibly improve a practice (yielding greater net income now and higher value down the road). So, here are some recommendations to assist you in developing your “Emergency Exit Strategy.”
Step 1 – Have your practice appraised.
Most dentists only consider having their practice appraised when thinking about a practice transition. Since your practice is probably your number one financial asset, don’t you think you should know what it is worth? We recommend that you get your practice appraised now and share that information with your family and trusted advisors. We strongly suggest having your practice appraisal updated annually but at the minimum, every few years, especially if you’ve been experiencing steady growth or have made major purchases of equipment and technology.
Step 2 – Prepare a Letter of Instruction.
A Letter of Instruction is a document that will provide your heirs a quick and orderly way to set the “wheels in motion” to sell your practice immediately. A Letter of Instruction should contain a list of key advisors who will need to be contacted to take appropriate action. Advisors can include your accountant, attorney, dental supply rep, and, if you’ve been working with a transition consultant, include them as well. Within this document you can also include information about your life and disability insurance policies as well as the insurance agent’s contact information. A Letter of Instruction is also applicable in the event of a severe disability whereby you may be incapable of making sound business decisions regarding the disposition of your practice.
Step 3 – Include a Codicil for Your Practice in Your Will.
A Codicil is a supplement to your will. In this case, it is meant to give direction on the operation of your practice if something unexpected were to happen to you. It allows for you to designate someone to ‘take over’ the management of your practice. While this could be anyone, we generally suggest that you avoid placing a family member in that role as they will have many other things to think about and take care of at that time.
Although no one likes to think about these tragedies happening to themselves, they do in fact occur. It is sound business to reemphasize the importance of acting today to protect your family.
Now is when you should be proactively taking the steps necessary to minimize financial losses in the case of disability or death. One of our colleagues who instantly went from being a fully-functioning practitioner to being unable to practice because of a hand injury has summed it up best. “Remember, serendipity is not a plan. Prepare now,” he states in an article he recently coauthored. This most accurately summarizes the need to expect the unexpected.
If you would like to receive a complimentary copy of our Letter of Instruction, click here.