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Articles

The Professional Advisory

  1. Is it Time to Move?
  2. Staging A Dental Practice
  3. The High Cost of Dying
  4. Deal-Busters
  5. Patients - Attract and Retain
  6. Should I Stay or Should I Go?
  7. Is There a Buyer for Every Practice?
  8. Good, Better, Best - The Market has Spoken
  9. Smooth-Sale-ing
  10. Buying Time
  11. Patients, Patience, Patients
  12. A Real Patient
  13. Why Do a Practice Valuation? I'm not Selling
  14. Irrational Exuberance or The New Normal?
  15. Do dental equipment and dental technology affect a practice value?
  16. Finding and Being a Mentor
  17. Bigger is Better
  18. Daves Top Ten List for Buyers (Vendors should read this too!)
  19. How Well Do You Know Your Practice?
  20. Dave
  21. What will happen to dental practice Values in the next 10 years?
  22. Your Premises Lease is an Important Asset
  23. What are Associates Thinking?
  24. There is Life Outside the GTA
  25. When Is the Right Time to Sell My Dental Practice?
  26. Mergers are a Viable Option
  27. Is Your Associate an Asset or a Liability?
  28. Has your Practice Facility Kept Up With Your Billings?
  29. The 100 per cent of Gross Myth
  30. The Past, The Present and The Future
  31. Caveat Emptor
  32. Overpaid Long Term Staff
  33. Selling your Practice in Stages
  34. A Potential Pitfall of Selling Shares
  35. Value in Your Practice Through Balance
  36. Only Trusted Staff Can Defraud You
  37. To Own or Not to Own Practice Real Estate? That is the Question.
  38. Coping With A Large Patient Base
  39. Successful Dental Practice Transitions
  40. Taking Care of Business
  41. The Investing Dentist Phenomenon
  42. Two areas to focus upon that could negatively impact the value of your practice
  43. Organize your Debt in Order to Sell your Practice
  44. Having a Better Team
  45. How Do I Prepare My Practice For Sale
  46. How Do I Prepare My Practice For Sale? Part 3
  47. How Do I Prepare My Practice For Sale? Part 2
  48. How Do I Prepare My Practice For Sale? Part 1
  49. Advice to My Son or Daughter Graduating from Dental School
  50. Transition - What to Expect
  51. Discussion on Digital X-Rays
  52. Partnerships and Shotguns
  53. Strategic Planning - How to Get Started
  54. Calling All Vendors - Practices have Gone Up in Value
  55. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
  56. Matrimonial Practice Valuations
  57. Purchaser's Guide to Affording a Practice
  58. Location Improvements Throughout Your Career
  59. Small Practice Valuations
  60. Partnerships – The Best and The Worst
  61. Changing Location When the Opportunity Comes Along
  62. Visual Presentation of Your Practice
  63. Presentation of Charts
  64. Your Premises Lease Can Be Your Worst Enemy
  65. How to Select an Appraiser for Your Practice
  66. How Are Your Billing Ratios?
  67. It Pays to Invest in Your Tangible Assets
  68. The Importance of Separate Financial Statements
  69. Five Time Frame Levels to Sell a Practice
  70. 12 Suggestions to Safeguard Computer Data
  71. How to Buy a Visible Practice
  72. Why is there a shortage of good practices today?
  73. The Importance of Equipment in the Purchase of a Practice
  74. The Balanced Practice
  75. Will My Practice Be Saleable in The Future?
  76. Buyer Be Aware
  77. Excess Profit - The Second Key
  78. Patients and Profits are the Keys
  79. Plan Ahead

Volume 48: Overpaid Long Term Staff

Download the PDF version now!

Following up from my last article, A Potential Pitfall of Selling Shares in Professional Advisory #46,there are other situations that can be very detrimental to your expectations of the net realizable value of your practice. This next potential problem is overpaid long term staff.

 
You have seen the effect. It is review time and your long term staff member gets her raise of let us say, $1.50 per hour. Sounds innocent enough? So now she is getting $38.00 per hour. She is your assistant, is 55 years old, and has been with you for 30 years and works 40 hours per week and your billings are about $800,000. You are now anticipating selling your practice. Do you think that a purchaser would want to hire this person if they were to purchase your practice? I am afraid not!!
 
So the purchaser wants to purchase your practice but not hire the assistant. She now becomes your problem to terminate. How bad can that be? Statutory law would be one weeks pay per year of employment to a maximum of eight weeks. This would be $12,160. High enough but it could be worse. The common law could require you much greater termination pay than the Statutory minimum. Generally speaking such termination pay could equal one month of pay per year of service, although there is typically a cap of about one year total termination pay but not always.
 
If she sues for wrongful dismissal, under common law it becomes a legal matter. Capped at one year, it would cost about $78,000. Uncapped it could cost $196,000. This is for only one employee. If your entire team is paid well over the standard remuneration for your dental community, your practice may not be salable.
 
How to avoid this problem? 
1) Become informed about the standards of pay in your community.
2) Let your staff know this pay range.
3) Remuneration can take different forms, i.e., gifts, outside training (team trips)
 
Once you have the problem you can:
1) Negotiate to pay the employee a lump sum payment to reduce their salary. But even this has its problems. Negotiation without compensation to the employee would probably not stand up in court. Negotiation without the employee being given an opportunity to consult a lawyer would probably not stand up in court either.
2) A reduction in pay could be construed constructive dismissal and this again could become a legal situation.
3) Give the employee a years working notice. The employee is put on notice that at the end of the one year period, her salary is being reduced, and if she does not agree then her employment is terminated at the end of the one year period. This should reduce your exposure but then you could lose that employee if they find another job and it would put off the sale for the year.
This is a tricky area. Consult your labour lawyer before you make any attempt to solve your problem.
 
The sale could go forward if the Vendor agrees in the sale agreement that the Vendor remains liable for her termination pay for an extended time period if the Purchaser terminates her after closing. Another remedy could be that the Purchaser puts into the sale agreement that the deal is conditional upon the employee agreeing to reduced pay, failing which the Vendor must terminate her at the Vendor’s cost.
 
As you can see, overpaying staff limits your net income on a year over year basis and even the net value of your practice when you sell it.
 
Graham Tuck, H.B.A., C.A. is the broker of record for Professional Practice Sales Ltd., which specializes in the valuation and sales of dental practices. He can be reached at   (905) 472-6000 or 1-888-777-8825 or e-mail at: grtuck@ppsales.com
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