When acquiring a dental practice or partnership interest, it’s important to work with experts up front on Asset Purchase Agreements and partnership agreements to try and prevent costly, possibly nasty court battles down the road.
After recently completing an acquisition process and getting ready to begin a dental practice on a solo basis or buying into a partnership interest, the practitioner wants the best advice he or she can get to have a good chance at making a profit and building the dental practice into a more valuable asset.
Assuming that a dental CPA was retained to assist the transition process, the seller should be in a good position with the dental practice having just gone through all the due diligence necessary to start building the practice from the purchase date to current state of affairs. Everything seemed to be going smoothly and the patients are in a good place as are the employees of the office.
So, now it’s time for the owner to take stock of what he or she just acquired. Are there any blank spots in the Asset Purchase Agreement? Are the employees following their job descriptions and is the office throwing off the profit that was expected when the transition occurred? Is the lender happy with what is being shown to him or her as the paperwork stated in the loan agreement?
If these areas are all acceptable, the new owner just bought a winner and will do things to keep the practice on track and improve the flow for the patients and employees. New equipment will be able to be acquired and the office will get better. But what happens if there are problems right from the outset? What does the buyer do to minimize these setbacks and to try to keep the practice on the right track?
Problems Occur so What is the Answer?
This is where the Asset Purchase Agreement becomes so important.Everything needed to resolve any issues should be included in the Asset Purchase Agreement for problem resolutions. Once the issues have been addressed, reasonable parties to the agreement should be able to look at it and find the remedy for the problem. For instance, if the heating and air conditioning systems need repair, the agreement should clarify who is responsible and to what extent it is the seller’s or buyer’s responsibility.
Sometimes even when things are very clear, a party to the agreement will be unreasonable and will refuse to honor his or her obligation. If this occurs, the only step left for the resolution is to sue for damages. Something to consider is the cost of a lawsuit and the amount of time that it will take. The preparation for and engagement in litigation requires a huge time commitment and an enormous amount of money to be able to prevail.
The best advice anyone can give is that if the damage is large then sometimes there is no choice other than going ahead with the lawsuit. Dental practices are rarely involved with the courtroom so it is difficult to find an attorney with any type of this kind of experience. Trying to settle the case before the courtroom makes the most sense of all if there is any chance of reaching an agreement. A law suit over a mechanical breakdown is not an easy win but it is easier than litigating over patients or a partnership arrangement and determining who was responsible for what type of damage.
This is a major problem in dental practice disputes. If one is unlucky enough to be involved in this type of litigation, it is possible to resolve it if there is a good partnership agreement available. Just like looking at an Asset Purchase Agreement when a dispute arises over a question involving a transition, the partnership agreement should include just about everything needed for resolution of partnership issues.
Segregation of duties, amounts allowed for spending without cross signatures of the partners for approval and other issues like the responsibility for hiring and firing should all be included in the agreement. If they are not, it is time to sit down together and resolve things reasonably. If that can’t be accomplished, it is time to sit with an attorney and be prepared for spending a great deal of time and money to resolve the problems. Remember that an attorney is an advocate and will fight for his or her client no matter if the client is right or wrong. Adversarial attorneys can’t speak with the client for the other attorney. The attorneys can only speak with their own clients and with the other attorney.
This process keeps the flow of time and money going towards the attorneys. The best advice is to try to resolve the issues reasonably and without going to court. If that is not possible, then off to the courtroom it is. If there is no partnership agreement in place, the courtroom seems like the only choice for a resolution. Spending the time and money to put things in place at the beginning of the partnership will save enormous amounts of time and money later if there is an issue. There almost always is.
Other Types of Litigation
No matter what type of litigation is occurring, the theme is the same in that there will always be a tremendous amount of time and money being spent to try to resolve a problem. If it is at all possible, the parties to the litigation should forget their emotions and try to settle the case without the use of attorneys and the courtroom. If this is not possible be prepared for a lot of time, money and finding documents and other items needed for preparation of the case. Whether it has nothing or something to do with the clinical side of the practice, the amount of effort and money spent will almost always be the same. This is why paying the proper professionals now is a lot better and cheaper than paying later with different professionals who are almost always nastier and don’t have the patience when preparing for the courtroom that the earlier professionals will have.