It’s never happened that someone who sold their practice wanted to take back some clients or they wanted to hire one of the staff for another business they had. Never happened? Ain’t so! It happens a lot, along with other breaches.
Here are some suggestions to deal with this:
- You need to be practical. This is a business situation and involves money. Not ego. Not getting angry or feeling hurt and not wanting to get revenge. It is about money and you need to work out the money.
- It’s also about time. Any time spent away from working on your business and servicing clients is a waste of time. You need to understand that wasted time causes you to rush your work to catch up. Rushing creates anxiety and causes mistakes. This never makes sense.
- Suing people, paying lawyers and spending time on litigation is debilitating, depressing and wasteful, even when you win!
Before I continue, consider these three bullet points and decide if you agree with them. If you disagree, then stop reading because this is not for you. If you agree, then read on. Also, reread these three bullets the next time you are on the short end of a deal.
Buying a practice has many triggers that can make something go wrong. What has to be done is assess if the total deal, after the takeaways, makes sense. They usually do since the purpose of buying a practice is either to use it to get into your own practice, to build volume or to add a specialty or staff. With any of those reasons or many others, it usually pays to buy a practice. This is so even if you overpaid, and that is what you would be doing if the seller reneges and you do not get everything you bargained for.
I now have a few suggestions on how to deal with this.
- Make sure the purchase contract is very specific about what you are buying and what you are paying for it. and what the seller has to do and can and cannot do. Be as specific as possible.
- If there is a violation or breach of all or part of the deal, assign an amount that you feel would be equivalent to the amount you lost, would lose or that you paid for that you did not get.
- Try to have a payout period of at least three years, but preferably five years in the original contract. This provides a “fund” that you could deduct from for breaches that you think occurred. As long as you owe for the purchase, you can deduct the amount you feel you were damaged by. If you do not owe any more money, the only thing you can do is sue, and I recommend not doing that. Just eat your loss and move forward.
- If you deduct the amount from your payments, then it is up to the seller to “sue,” and he or she needs to assess that from their standpoint. Make the seller have to take the next move, not you.
- If you feel there was a breach, write a terse letter informing of the breach and the amount you are deducting from your future payments.
- Do not provide reasons, explanations or how you arrived at the amount you are deducting. A sample letter could read something like this: “I just realized that you hired Susan, who was an employee of the practice you sold to me. I will be deducting $10,000 from the next payments that are due to you until the deductions total that amount and then will resume my payments as we agreed.” Or “I just realized that you are working in another practice and are servicing XYZ, which was a client you sold me. I will be deducting $12,000 from the future payments that are due to you until the deductions total that amount and then will resume my payments as we agreed.”
- Use what I wrote as a guide, but definitely consult with an attorney before you send anything in writing. My suggestion is to write as little as possible. I do not believe you can write anything that would help you should you end up in a trial. Resist the temptation to provide a reason.
- Any reason you provide would leave the door open for a response and then you might feel the need to reply to that. Too much wasted time and too much of a record that you might have trouble factually defending.
- You always have the right to give in and pay the amounts you deducted, or reach a compromise, as long as you owe money. If you do not owe any money for the purchase, then fuhgeddaboudit it and move on.
The purpose of a contract is to protect you if there is a breach — not something perfunctory where you do not want to offend the opposing party. Before you sign any contract or agreement, assume something would go wrong and understand how you are protected. Further, the contract is meaningless unless it is properly used in litigation. All it does is present part of your case and it is not a conclusive emblem of your position. Provide for the worse and hope it is wasted energy.
Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions or about engagements you might not be able to perform.
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