Friday, January 13, 2012

Deadly Combination

Happy Friday to you. I have been talking to a lot of younger guys lately and it seems like all of them have the same story. Guy/gal has been a dentist for a very long time, has built up his/her practice for a long time, has worked hard, but doesn't really save a lot of. Life, school, cars, college, weddings all get in the way of saving money. But don't worry; his/her retirement is going to be selling the practice and either leasing or selling his/her building to the new dentist.

Have you heard this story before? See, practices used to be worth a lot. There used to be lots of buyers with money. Properties used to be worth a lot. Words you should key on are “used to.”

It’s very different now. All the dentists that are ready to retire have seen a drop in production and have seen their practices decrease in value big time over the last 3-4 years. And the rent money they were counting on? It is now about half.

So the guy/gal getting ready to retire is in a bit of a pickle. The associate dentist or new dentist coming out of school might be a couple of things:

1. He/she could be very wise to the way things are going and realize that the practice he/she was going to buy is now worth less. The awesome, money-making practice that he/she was going to buy is now barely paying the bills.


2. He/she might be just getting out of school and have tons of debt and have no credit to go to the bank to borrow money.

Do you see what is going on here? These are deadly combinations.

Now the story I keep hearing is "This guy is crazy!" Dentists my age are getting ready to buy the retiring dentists’ practices and it seems like the sellers still think their practices are worth what they were four years ago. And the same with the rent. I can tell you from experience that my rent is too high. And it has been too high for a long time. But going to MY landlord is pretty tough.

I have a friend who is in an all-out brawl with the guy who owns his building. The guy is on the moon with the prices. His lease is up in September, but my friend knows that moving his practice would cost him an arm and a leg. Getting a new place, architectural drawings, the build-out, equipment. Then there is the simple fact that moving the practice is a pain in the butt. And patients don't like it. Plus, he likes it there. He wants to stay. Staying is good for the practice, but paying ridiculous prices is cost prohibited. Then lawyers are going to have to get involved, and nothing good can come of that.

Now in many cases, including mine, the deal was done on a handshake. This is very,very bad. People forget things, especially those who have been sucking on amalgam dust for the past 15-40 years. At the time when the agreement was made it seemed fair. But now it isn't or someone forgot a detail. Or one of the situations is different and one person can't live up to their end of the bargain and the deal had no clause for that.

I have to tell you that I am moving in the direction of practice transition specialists. I used to think they were so expensive. “Why do we need them? We are both reasonable people." NOT.

If people would just spend $5,000-$10,000 for a transition specialist, all of this would have been drawn out and we could just sit back and relax. Saving of $5,000 five years ago might now cost my friend $50,000-$100,000 in leasing and building out another building.

Are you guys hearing this story? Anybody the seller? Are you being pinched by the present downturn in the dental biz? Anyone about to buy an office?

Have a great weekend. I have to go, I have my transition consultant on the other line.



Anonymous said...

It never goes exactly according to plan. As I said to you way back in the blog when you brought it up before with your Dad. Just ask him his price, give it to him and show him out the door. Make sure you buy the building from him also. Business and family get really ugly sometimes for all the reasons you documented. No matter what you say he will always say you did not pay enough for it. And the simple fact that you are not going to walk away from the deal gives you ABSOLUTELY ZERO barging power. Have him Pick a consultant that has a flat fee. Good luck.

Boulder Dentist said...

Well if you lease your space and establish your practice/identity there you're sure giving the landlord a lot of leverage come time to renew. There is something to be said for owning.

combination ladders said...

no wonder people are having a harder and harder time finding a dentist. You forget sometimes about the people that run them and have to paye these silly prices for rent.


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