The Emergency Transition Plan Every Practice Needs
If you couldn’t work tomorrow,
what would happen?
Most practice owners have given some thought to retirement. But far fewer have prepared for the possibility that they may be unable to work tomorrow. An emergency transition plan gives family and staff a way to act quickly while there is still a functioning practice to protect.
An unexpected accident, disability, or loss of life can transform a healthy practice into a distressed asset almost overnight. Patients still need care. Employees still expect direction and a paycheck. Expenses continue. Yet the person who normally produces much of the revenue and makes every important decision is gone.
The big question is NOT whether you expect an emergency. The 800 lb. gorilla in the room is, “Are your family and staff prepared in case something unexpected happens to you?”
A Practice Can Lose Value Quickly
A dental practice is not a passive investment. Much of its value is tied to continuing patient relationships, an operating staff, recurring revenue, and the expectation that treatment will continue. When an owner is unexpectedly absent, production may stop immediately while overhead continues. Patients begin accepting appointments elsewhere, employees worry about their jobs, and potential buyers see a huge red flag due to unknown patient and staff retention risk.
How quickly can value disappear? Practice-management consultant Dianne Glasscoe, RDH, BS wrote in DentistryIQ that after a dentist’s sudden death or incapacity, “the value of a practice deteriorates anywhere from 1 to 2 percent per day.” That is a published industry estimate, not a measured average or a prediction for every practice, but the practical concern is clear.
In “A tale of three dentists, our friend Earl Douglas, DDS, MBA described in Dental Economics, what happened after a deceased dentist’s practice remained essentially closed for four months. A buyer was eventually found five months after the death. Douglas reported: “The practice sold for one-third of its originally appraised value!” Douglas also described two practices where continued patient care and prompt action helped produce a full-price sale in one case and a sale at 94% of appraised value in the other. These individual cases illustrate why having an emergency transition plan in place matters. A sudden loss does not have to lead to a distressed sale.
Disability insurance may replace some personal income, but it does not preserve the practice. It does not prevent your family from losing possibly $1 million or more in practice value. It does not arrange temporary clinical coverage, reassure employees, keep patients from leaving, or give a family the information and authority needed to act. Those protections require an emergency transition plan.
Planning Protects More Than the Owner
Without written direction, a spouse or family member may be asked to make major financial decisions while caring for an ill owner or grieving a death. A long-time employee may want to help but lack authority. An attorney may understand the estate but know little about operating or selling a dental practice. Valuable time can be lost simply determining who should act.
A plan protects a family from avoidable confusion, gives employees greater stability, supports continuity of patient care, and preserves more of the value accumulated over a career. Practices that are not sold within 90 days of a provider/owner’s departure can lose 90% or more of their initial value.
Keep the Plan Current
Review the plan at least annually and whenever a key employee, adviser, lease, insurance policy, or family circumstance changes. Update the valuation periodically. Confirm that the named decision-maker is still willing and able to serve. Make sure the people who need the plan know that it exists and where it is kept.
Preparation Is Not a Decision to Sell
Some owners resist emergency planning because it feels pessimistic or premature. It is neither. Preparing for an unexpected exit does not mean you expect one, and it does not commit you to selling. It means that if you cannot speak for yourself, the people you trust will know your wishes and have a practical way to carry them out.
You may intend to practice for another five or ten years. That makes protecting the practice during those years even more important. There is a big difference between deciding not to sell now and deciding not to prepare.
If you are uncertain what would happen if you could not work tomorrow, contact Practice Endeavors for a confidential conversation. Our company has provided proprietary Practice Value Acceleration℠ (PVA℠) emergency transition planning services to practice owners for years. An emergency transition plan can protect your family, your employees, your patients, and the value you spent a career building.
Take control of your future
PVA℠ helps practice owners prepare for the inevitable transition of their practices to new ownership.
J. Robert “Bob” Brooks, CEPA, CBI
J. Robert “Bob” Brooks, CEPA, CBI, leads Practice Endeavors, an Ohio-based practice brokerage and dental realty company. His company provides practice owners with the tools they need to prepare well for life after practice ownership and to find the best price/best fit buyers for their seller clients. Bob was integral in starting the first of its kind dental practice broker credentialing for the International Business Brokers Association.