Dr. A owned a successful practice in a friendly community. Three years earlier he hired a young dentist as an associate (Dr. B). Dr. B was a former patient who had known Dr. A for many years. He was a nice young man who seemed incredibly grateful for the opportunity to join Dr. A’s practice. Dr. A was thinking about retiring in four or five years and thought Dr. B would be the perfect candidate to buy his practice from him when he was ready to sell.

Since they had known each other for many years, Dr. A did not feel the need for a written contract. After all, they were friends and professionals; a handshake would be sufficient. Besides that, this would give them both time to see how much they liked working with each other. Dr. B was very pleased with the prospect of owning Dr. A's practice someday.

Dr. A’s practice was grossing $975,000 a year when Dr. B joined the practice. To provide Dr. B with enough work, Dr. A began sending many of the patients to Dr. B for treatment. These were Dr. A’s “golden years,” and now he began spending more time away from the office knowing that the patients were being treated in his absence, and when he retired, he felt secure that he would be paid the full value of his practice by Dr. B.

Soon Dr. A's personal gross production kept dropping while Dr. B’s production kept increasing. Everything seemed to be progressing well. Dr. B was paid on a commission basis and was delighted at being so busy. As time went on, most of the money earned by the practice was all paid out as commissions to Dr. B. Thus Dr. A’s income was dropping while Dr. B’s income was steadily increasing.

Midway into the third year of this working relationship, Dr. A discovered he had a serious medical problem and that it was only a matter of time before he would have to quit practicing dentistry. Dr. A had to spend more time away from the office until finally, he decided it was time to sell the practice to Dr. B. He felt fortunate to have at least his “built in buyer” on the premises.

Dr. A informed his now well-established Dr. B that it was time for him to buy the practice. In fairness, Dr. A had the practice appraised based on the collected production that the practice was earning before Dr. B joined the practice. Dr. A did not feel it was fair to have Dr. B pay more money for the additional production added to the practice by Dr. B. The practice was appraised at $725,000 even though its current gross revenues had grown by an additional $300,000 for a total of $1.75M.

Dr. A sat down with Dr. B and explained that it was time for him (Dr. A) to quit, and since the practice value played a significant role in his retirement plan, it was time to work out a purchase agreement. Dr. A told Dr. B that the purchase price was based on the gross collections of the practice for the year before the time Dr. B joined the practice. Dr. B was astonished! He told Dr. A that Dr. A’s current production was only $200,000 for this last year and Dr. A could not understand how the practice could have been appraised that high.

Dr. A told Dr. B that the practice had grossed $975,000 before Dr. B joined the practice, and although Dr. A had lowered his personal production, it was only to accommodate the income needs of the associate.

Dr. B told Dr. A that since he (Dr. B) currently did most of the production, he considered the patients to be his already, and thus would not be willing to “buy what he already owned.” Dr. B said that he was not under any restrictive covenant and would just open his office nearby before he would pay this price for Dr. A’s practice.

Dr. A was flabbergasted. Perhaps Dr. B did not understand, so Dr. A patiently re-explained things to Dr. B., and he said that in anticipation of this discussion he had already spoken to his (Dr.B's) attorney and accountant about buying Dr. A’s practice. They told him that he should purchase the practice only based on Dr. A's current gross production of $200,000, not for the previous gross practice income of $975,000 nor of the current income of $1,275,000. Dr. B then offered to pay $160,000 for the entire practice. He told Dr. A that if this were not acceptable, that he would set up his practice in the immediate area and notify “his” patients accordingly.

Dr. A became outraged and threatened to fire Dr. B, but he knew he could not keep the practice going by himself. Dr. A kept Dr. B working while attempting to locate another purchaser, but no one else was interested in purchasing the practice with Dr. B still practicing on the premises without a restrictive covenant.

Two months later, Dr. B suddenly quits and announced the opening of his new office nearby. Three of Dr. A's staff members went with Dr. B for fear that Dr. A would not practice much longer. Most of Dr. A's former patients became aware of his medical condition and followed Dr. B to his new office. Little remained of Dr. A's practice when this story unfolded.

Dr. A was mentally and physically drained. He was facing retirement with a disability, and his future financial security was in severe jeopardy, but there was little that could be done now with his practice. He knew his practice had little or no value to another doctor. Any potential purchaser would be concerned that any remaining patients of Dr. A would follow Dr. B once Dr. A retired.

Dr. A’s only hope was to get Dr. B to buy what was left of his practice. If he had a written contract before allowing Dr. B to join the practice, this would not have happened. The details should have been worked out in advance. Now he could do nothing but try to salvage what value he could from Dr. B.

Dr. A went once more to talk to Dr. B. By this time, the associate was prepared to offer him only $25,000 for his remaining patient records. Dr. B no longer needed the “outdated” equipment and office space. Dr. A had no choice, he accepted the $25,000 and retired. All this resulted in a loss of $950,000. It was indeed, a very expensive lesson for Dr. A.

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