Practice Sales, Like Baseball, Are About the Legacy

I’m sorry for consecutive blog posts to have a baseball theme but the timing seemed right. I recently used the glove pictured below in the Royal’s “Relay the Way” fundraiser on opening day at the “K.” (Kauffman Stadium – for those who either don’t follow baseball or or not from Kansas City.) This is not just any glove.  If you look carefully you can see where my father burned my name on to the thumb area somewhere close to 55 years ago. I wore this glove when my Little League team won the area championship in Fort Worth, Texas back in the early 60s. I was a weak-hitting second baseman on a team full of kids I never saw again – but I was none the less hooked on baseball.

The glove that has accompanied Dr. Steve Wolff from Little League play in the early 60s to (watching) the 2015 world champion Royals

The glove that has accompanied Dr. Steve Wolff from Little League play in the early 60s to (watching) the 2015 world champion Royals

My grandfather, this glove and I saw a lot of games together at the old Municipal Stadium in Kansas City. And what I wouldn’t give to have another game of catch with my dad, a la Kevin Costner in Field of Dreams. (To me, plowing up a corn field to make a baseball diamond seems perfectly reasonable.) The tradition continues. To me it’s great fun to watch everything from T-ball to playoff games with my kids and grandkids. After catching thousands of balls in its webbing, and after we attended the infamous American League Wild Card game in 2014, Debbie had the glove repaired. She finally understood why I listened to or watched 140-plus Royals games every year.

So what in the world does this have to do with dental practice transitions and sales? Well, the fact is that the same emotion that brings baseball fans together is what motivates many of our retirement-aged clients to ask for our help. Finding someone to continue the legacy of care that they have provided to their patients and staff for decades is their primary charge to us. Our clients “have enough” monetarily, and are not relying on the sale of their practice to be the cornerstone of their retirement account. If they are, we will probably disappoint them as working for a couple more years will almost always result in more money in their pockets than the proceeds of a sale.

On the contrary, our clients are concerned that patients can continue to be treated in a place where they are known and respected. Retaining staff members (sometimes including single moms) and their jobs has kept more than one client working chair-side long after they “had enough.” While no one wants to give away their hard earned practice assets, in our experience, retirement-aged docs cherish the memories and relationships that 35 or 40 years of practice has brought them – more than money. I’ll tell you that helping them carry on their legacy and getting newcomers started on a history of their own is our greatest reward.

Practice sales, like baseball, are indeed about the legacy.

Steve Wolff, DDS, UMKC Class of ‘77

Play Ball!

What could be better than Opening Day at the “K” (Kauffman Stadium), on a beautiful sunny day, with the World Champion Royals off to a great home start versus their 2015 World Series opponent Mets.) To top it off, fourteen members of our family, known as the Wolff Pack (clever huh?), participated in the “Relay the Way” to raise money for the Urban Youth Academy. We tossed the ball from one to another in twenty foot increments for over nine miles, reportedly raising over $100,000 for the cause. Over 2500 folks lined the streets from Union Station to the “K” to wait for their moment in the spotlight. Everyone had a good time and given that it was the first time it had ever been done, it was very well organized. Thanks especially the Kansas City Police Department for making the street a safe place to stand while on that long blue line.

"The Wolff Pack" participating in Opening Day "Relay the Way" - to raise funds for The Urban Youth Academy

“The Wolff Pack” participating in Opening Day “Relay the Way” – to raise funds for The Urban Youth Academy (That’s Dr. Steve Wolff on the far left, back.)

 In what can only be described as a very poor and self-promotional segue way, the MDA Focus Magazine published an article I wrote in the current issue titled: “It’s a Whole New Ballgame”. While there is not a single baseball statistic in the text, I hope it will provide some insight about our Baby Boomer Sellers trying to do business with Millennial Buyers. (The site itself is password protected. Members can take a look by clicking here. PS: That’s me on the far left of the back row.)

Steve Wolff, DDS, UMKC Class of ‘77

Best Day Ever!

 

Dr. Steve Wolff addresses a class of 3rd year dental students at the UNL School of Dentistry

Dr. Steve Wolff addresses a class of 3rd year dental students at the UNL School of Dentistry

I don’t think there is any doubt in my mind that my best business day of the year is spent at the front of the classroom in the University Of Nebraska’s School of Dentistry with the third year (D3s) students. Drs. David Dunning and Brian Lange run a tremendous business and management program that gives their students a great head start, not only in managing their business but also in valuing, acquiring and owning practices. I was asked to write the chapter on practice valuation for their textbook and am honored to be asked to lecture on that subject. I am always impressed about how knowledgeable they are and by what a tremendous advantage they will have in the marketplace.  With the latest edition of their book coming out later this year, I’m hopeful that this annual event will continue. I want to especially thank Dr. Dunning and his students for their attention and hospitality. Lectures about formulas and statistics can get a little tedious at times and I appreciate their tolerance.

Steve Wolff, DDS, UMKC Class of ‘77

Reflections on the Associate Covenant

[Note: A condensed version will appear in Dental Economics magazine - Spring 2016.]

“I’ve interviewed potential associates that don’t want to sign a restrictive covenant when they start.  I guess I can understand their concerns, but I want to protect my practice.  What’s the solution?”

While this seems like a difficult problem with mutually opposing solutions, the fact is that like most problems, the other party’s needs and fears can be dealt with by a little understanding and flexibility. On this issue, each party has legitimate concerns that must be addressed in order to successfully and productively go forward.

Let’s take a look at the host doctor or Employer’s position first. There are two legitimate reasons the host needs a restrictive covenant agreement with their employees; the first being the most obvious concern that the associate might leave the practice, take patients and staff and do measurable harm to the practice. We have all heard stories to this effect and certainly the host does not want to become another anecdote. Often too, they cannot afford the loss of business and revenue. The second, and perhaps less obvious risk is the loss of value to their practice.  Should they have in their employ an associate who does not have a covenant not to compete, (for the purpose of this discussion, a covenant not to compete and a restrictive covenant will be considered one in the same) in place,  this poses a threat to any potential buyer in diminished  revenue and subsequent value of the practice. Buyers assume enough risk as it is and don’t take kindly to having no control over the associate doctor and what they might do after the sale. The uncertainty will cost the host doctor dearly, perhaps even undoing the sale. Clearly, the host doctor needs an agreement in place.

The associate doctor has another set of problems. While not always the case, the associate is likely to be a recent graduate, just getting started in their career. They cannot afford to drastically limit their future by signing large and long covenant agreements on their first day of employment. I will leave to another discussion what time and distance is acceptable or even enforceable in your state. Just suffice it to say that their motives for not signing an initial covenant agreement are much more about their needs than any designs about destroying the host practice.

So what is the solution? Let’s assume that with the above knowledge about each other’s position that a little common sense will prevail. Obviously the associate doctor cannot sign effective their first day of employment. Likewise, the host doctor has every reason to protect their practice and practice value. An initial honeymoon period of 90 days (maybe 180 in some cases?) should pass before the terms become effective. If the host feels that the new doctor could steal their practice away in less time than this, they may have greater problems than this agreement will solve. In fairness, the associate should not expect to be able to work indefinitely without promising their employer this protection. Frankly, if this problem proves to be difficult to maneuver around, one would wonder how this will ultimately end. My guess is, not good.

Steve Wolff, DDS

UMKC Class of ‘77

Evolution, Not Revolution

(A retro blog post from Dr. Steve Wolff)

A recent article in the AGD Impact journal by Dr. Andy Alas entitled “How to Buy a Good Practice and Ruin It,”  brought to mind this article I first published in 2008.

Dr. Steve Wolff

Those of you who know me very well know that I’m a Car Guy.  This sickness usually sets in very young and continues until they have your graveside service, so naturally I was excited when my son gave me a book entitled “The Toyota Way” by Jeffrey Liker.  My immediate assumption was that all of the intimate details of the Toyota models, from those first produced in the ’30s up to the current high-tech hybrids would be revealed.  Turns out, though, that this is a management textbook. And although you might not think the auto industry would have many similarities to dental practice, you are in for a surprise.  The book explores at great length the well-known Japanese concept of KAIZEN (meaning continuous improvement) which is precisely the attitude operators of dental practices should embrace. Never is this more important than at the time of an acquisition and transition.

Every dentist brings their own perspective on decor and practice style.  I have visited and owned enough offices that I can quickly create a list of changes I would make to every office I see.  It is no surprise that the buyer of a new collectible car will spend $25,000 having the color changed from Screamin’ Yellow to Purple Passion just to satisfy his personal tastes. Likewise, it is very temping for the new owner of a practice to begin immediately to fulfill their vision of what the office should look and feel like. In almost every case our advice is just the opposite.

We will usually advise the new owner to just show up with their lab coat and briefcase and ask the staff where they are supposed to go and what are they supposed to do.  As they begin to get comfortable with the office staff and patients, they can embrace that KAIZEN mentality and begin to plan and implement gradual changes to the facility, its systems and culture.  Consider evolution, not revolution.  We believe that productivity, staff and patient retention will best be maintained and subsequently improved by taking it slow and easy.

Some opportunities could be classified as the “don’t screw it up” variety.  If the office is up to date, profitable, has great staff and treatment systems, we suggest a new owner move veryslowly in making any significant changes.  Change just for the sake of change may well have a negative effect on the bottom line.

Some offices will ultimately need to be moved.  When I speak to young doctors on the hunt for their dream practice, one of the few guarantees I offer them is the fact that they will not finish their careers in the same location they began.  Time, demographics and practice philosophies will cause the need for offices to be moved and redesigned.  Even in those cases where relocation is inevitable, we suggest you stay in the original location for long enough for the practice to become “yours”. It may take anywhere from 6 months to several years, but you will know when the time is right to make the change.

Lastly, read the book.  While the Toyota Production System (TPS) may not be a perfect model for dental practices, you will be amazed at how well the concepts can be used to improve the productivity and profitability of your office.  The fact that Toyota is now one of the ten largest businesses in the world is reason enough to give it your attention.

Steve Wolff, DDS

UMKC Class of ‘77

No one can serve two masters

When it comes to the sale or purchase of a dental practice – no one can serve two masters . . . .

Either you will hate the one and love the other or you will be devoted to one and despise the other. You cannot serve both God and money. Matthew 6:24

In the context of buying or selling a practice, I always have a hard time understanding why blatant dual representation is embraced by dentists as an acceptable business practice. Statements such as “is proud to have represented both parties” or “is pleased to have represented all parties” would be laughable in any other industry, yet it seems that dentists are gullible enough to believe that everyone’s interests will be equally served. I believe my industry colleague Bill Otten of Otten-Ray Dental Sales hit the nail on the head when in a recent newsletter he was advising seller dentists about questions they should have for a practice broker.

“Who do you represent in a sale? It is our belief that a dental practice broker should work diligently to structure a win-win transaction but represent only the seller’s interests in the sale. By exclusively representing the seller, clearly disclosing this fact to the buyer and assisting both parties in building a strong team of advisors (including a knowledgeable accountant and attorney), the broker has the ability to represent the seller’s best interest while ensuring the buyer has proper representation and is positioned for success following the purchase. Beware of working with a broker who advocates dual representation in which they represent both the buyer and seller. (Emphasis added. SW) Under this arrangement, the broker is obligated to share all details with both parties, including any statements made by either party concerning pricing and terms. Since the seller’s and buyer’s interests are typically adverse to one another, it is very difficult for the broker to fairly represent both parties under a dual representation arrangement.”

While the bulk of our business comes from representing sellers, we do on occasion work as buyer representatives but NEVER for both parties at the same time. We accept that we may not be the broker of choice for all doctors just as there are potential clients we cannot help. In any case though, I implore you to seek representation that serves only your best interests.

Steve Wolff, DDS

UMKC Class of ‘77

 

Practice Ownership and Student Loan Debt

A recent article in The McGill Advisory entitled The Hidden Threat of Student Loan Debt brings to the surface an issue we just can’t seem to get around. While the recent grads understand all too well the effects of their indebtedness, doctors seeking to transition their practices – for the most part – remain clueless on how this liability does (or does not) impact the process. Not a week goes by that someone fails to point out to me that “buyers can’t get money to buy my practice” because of their student loan debt. I’m sure that is disappointing for all of the industry lenders to hear in the face of their marketing efforts so let’s set a few things straight:

  1. I can get a qualified buyer 100% financing for a practice purchase PLUS operating capital for cash flow expenses through a number of sources at very competitive rates.
  2. A “Qualified Buyer” does not mean someone without debt. Student loan debts are a fact of life and virtually ALL buyers will have some. Nor does it mean that they have piles of cash in savings. The opposite is the norm.
  3. A buyer’s credit score and work history is more important than their net worth.

FRESH AIR AND ECONOMIC OPPORTUNITY

On some level, I completely understand. In the mid ‘70s, as my prospects of graduating from the UMKC School of Dentistry in the spring of ’77 were improving, it seemed important to begin the search for a career home. You see, in those days the vast majority of graduates left the building and went into immediate ownership of a practice. Whether built, bought or inherited, self-employment was a given. The question, though, was where would our skills be put to use as not everyone from multiple classes of 160 graduates could stay in the Kansas City metro? I personally looked at a small town about an hour away from St. Louis; a river town east of Kansas City; and a college town in the “other” Johnson County.

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Ultimately I decided to stay in my hometown of Raytown. At that time it was a booming first-tier suburb whose dentist population swelled from a handful of old guys in the early ‘70s to 33 practices in 1983. Family and friends? Familiarity? Fear of the unknown? It’s kind of hard to say exactly what caused me to stay locally, but in the long run it worked out.

MERGE RIGHT . . .

(Sneak Peak! A slightly edited version of this article is scheduled to appear in the May issue of Dental Economics.)

As more and more practices established in the 60’s, 70’s and early 80’s come on the market, it seems likely that a good number of them will need to be merged into existing practices in order for the retirees to perpetuate care of their patients and maintain custody of records. With enrollment to local dental schools in our market more than a third less than preMergeRightvious levels, a significant number of retirement age doctors will not find buyers to sustain their practices into the next generation. Positioning their practices for a merger into another may well prove to be the best of exit strategies. As we gain more experience with this model, certain factors contributing to the marketability and successful transition of these practices seem to bubble to the top.

Retaining one or more key staff people: It is no secret that many patients will have more connection with the office manager, assistant or hygienist than they do the doctor and having one or more come to the new office has a very powerful effect on patient retention. Besides their familiarity with the patients, a willingness to promote their new boss goes a long way towards acceptance of the changes the new office and doctor may present. Pre-appointed hygiene visits can be “money in the bank” for the new doctor if properly handled.