Transitioning Your New Dental Practice
As we begin the 2016 year the market for dental practices in the GTA continues to remain as hot as ever. Many of our dental clients continue to look for that right practice and it is becoming increasingly more difficult. Our advice is to continue to look, sign up for all the broker listings and
as always make sure you are doing your due diligence before you purchase! This post has a couple of different topics which may be of interest to our dentist clients.
Transitioning Your New Dental Practice on and after Closing
The first topic is focused on what happens as you near the purchase of your dental practice. What should you be thinking about to ensure that your practice transition is a smooth one.
Before the closing date of your dental practice you must ensure that you’ve arrange to have insurance on your practice. We are not talking about the PLP insurance all dentists are required to have but rather insurance over your practice such as fire, water and theft. This is a requirement of several important players in your dental practice, namely your bank and your landlord. Your bank will in most cases, require you to obtain insurance
over the practice and make them a loss payee. This protects everyone in the event that something unforeseen happens.
For example, if your dental practice suffers fire or water damage the bank wants to ensure that its investment is adequately protected and that it receives adequate insurance to pay out the bank loan. The lease for your practice will also contain insurance requirements of the landlord. If you don’t comply with those requirements, you will likely be in breach of your lease.
Generally, the following are the main insurance requirements a dentist can expect to see in a lease:
All risk property insurance – this protects your practice from floods, earthquakes and other perils.
Business interruption insurance – this protects you in the event that you have to shut down your practice for a period of time and there is loss of income.
Commercial general liability insurance – this will protect you from injury to employees, patients, accidents, property damage etc.
Before financing, the bank may also require you to obtain life and/or disability insurance on yourself and assign the interest in the insurance to the bank. This protects the bank in the event you should die or become disabled. So as you approach that closing date make sure all the necessary insurance requirements are in place.
Seller as Associate
Another important item to consider as you approach the closing date of your dental practice purchase is whether the seller is going to stay on as an associate to assist in the transition. As part of the purchase negotiation the terms of the seller associateship will be important. You will want to consider the duration of the associateship, what percentage of collected billings the associate will be paid (remember a happy seller makes for an easy transition) and termination provisions (if things don’t work out you will want to have the right to terminate, conversely you don’t want the associate to have the right to terminate for a certain period of time). You will also want your noncompetition and non-solicitation covenants set out in your purchase agreement to carry on in the associate agreement If you are purchasing the practice as an investment and therefore the vendor being an associate is that much more important you may want to consider the following further matters to ensure that the vendor/associate stays on:
Consider giving the associate a further incentive to work hard and continue to try to attract patients – this may be realized through some sort of incentive plan, i.e. raising the vendor/associate’s percentage of collected billings as his/her billings increase; Institute a bonus plan for future years; or Consider having a holdback on the purchase price to be paid to the vendor/associate in future years of the associate relationship.
The associate agreement will be signed on the closing date and with the right terms you can try to ensure that your transition will be a smooth one.
We have talked about due diligence in more detail in past blog posts but it is always worth repeating. The most important thing a dentist can do to ensure an easy transition is to do the proper due diligence during their due diligence period. If you know what you are buying there won’t be any surprises when you take over the practice. If you want to read our past blog post “Due Diligence what you should do and expect from your advisors” click on the link, it is well worth a read. As lawyers we try to protect our clients as much as possible from unforeseen issues but it is your due diligence that will discover these issues before closing.
When buying a practice dentists most often ask about employees. How should they be handled? How can I terminate them? In this market the most common clause we will see is that within 90 days of closing if an employee is terminated the termination costs of that employee will be split equally between the buyer and seller. However, very rarely do we see employees terminated during that time period because the employees are the most integral people in a successful transition. They provide continuance and assurances to the patients who come to the practice. A patient may be hesitant to continue at a practice once a new dentist takes over or if a stranger, newly hired by the purchaser phones to rebook a patient. Once they hear from the same receptionist or see the same receptionist and the same hygienist and assistants at the practice they are provided with comfort. So our advice with respect to employees is keep them on as long as possible to assist with the transition.
Letter of Introduction
In our agreement of purchase and sale we always provide for a letter of introduction to be co-written between the seller and buyer which may go out to patients after closing. This letter must be drafted with great care by you as it will be your 1st introduction to your patients and must assure patients that they will continue to receive continued great care. The timing of sending the letter is made jointly by the seller and buyer. Some purchasers, however, are hesitant to even send out a letter and would prefer to meet with patients as they come in for their bookings. Keep in mind that RCDSO guidelines do encourage new dentists to inform patients of a change of control of the practice (see RCDSO practice advisory February 2007).
Notwithstanding, you can comply by advising patients at their next visit as there is no time table for advising.
Advise Suppliers, Change Passwords, Transfer Websites Ensure that you advise your practice suppliers in order that proper billing to your practice will be made. Change any information on your websites that you have taken over and change passwords for all computer related matters. You may also want to contemplate changing locks on your office doors.
The above only provides for a few of the items you want to keep in mind when purchasing your practice, we would also urge you to consider the following:
On the change of control of a dental practice the Ministry of Long Term Health and Care requires you to notify them of the change of the X Ray Equipment Registration. Please ensure you complete the Form 1 and fax it to the ministry.
Your lawyer should be notifying the Royal College of Dental Surgeons (RCDSO) of the change of ownership of the dental practice. If it is a share purchase your Dentistry Professional Corporation and the Vendor’s Dentistry Professional Corporation will amalgamate. Once that happens your lawyer
will inform the RCDSO of the change and will apply on your behalf for a new certificate of authorization as the RCDSO takes the position that the amalgamated corporation is a new corporation and therefore requires a new certificate of authorization at a fee of $750.00 to the college.
Ensure that you change over utilities of the practice into your corporation’s name.
If you want to use a trade name for your practice you can let your lawyer know and they can have the name approved by the RCDSO and can take care of the business name registration. The Dentistry Act regulations only permit you to use the Vendor’s name for one (1) year following closing.
If the Vendor did not collect co-payments, consider how you will commence collecting them as it is your responsibility to make reasonable efforts to collect the balance from the patient or you have the written consent of the third party payer.
If you have any questions about the foregoing, please don’t hesitate to contact us and we would be happy to assist to ensure the transition of your dental practice is a successful one. The following blog post is for informational purposes only and should not be relied on as legal advice.
RECENT EVENTS AT KUTNER LAW LLP
Kutner Law LLP attended the Halton Peel Dental Association Health and Wellness Panel on February 11, 2016. For more information on the event you can
click this link http://hpda.ca/health-wellness-panel/. Kutner Law LLP is a first year sponsor of the HPDA and we have enjoyed meeting all of its dental members.
HEALTHCARE SPENDING ACCOUNTS
We recently sat down with Benji Naiman of Creative Planning Financial Group who told us about an interesting product called Healthcare Spending
Accounts. We thought it may be of some interest to our clients who have their own professional corporations. Benji was kind enough to provide us with the following information, if you’d like more information he can be reached at firstname.lastname@example.org:
A Healthcare Spending Account (HSA) is a cost-effective and flexible way for doctors, dentists and other incorporated professionals to pay for healthcare and dental expenses.
A HSA can be established for any company size, from a sole practitioner to a large corporation.
What is a
healthcare spending account?
A Healthcare Spending Account is a pre-determined amount of money provided to employees at the beginning of each benefit year for coverage of their
medical and dental expenses.
Claims are submitted by employees and reimbursed in a similar fashion to a conventional benefits plan. Eligible expenses are paid at 100% up to the
total dollar amount available in the HSA. A Healthcare Spending Account can replace or exist alongside conventional medical and dental coverage.
How does a
healthcare spending account work?
At the beginning of each benefit year, the plan sponsor decides the amount of HSA dollars available in each employee’s individual account (normally by class of employee). For example, executives could receive $3,600 per year, and all other employees $1,200 per year.
Employees and their families can then claim from these accounts to cover Canada Revenue Agency (CRA) approved health and dental expenses, which they encounter throughout the benefit year. This allows employees to spend the funds on expenses their families incur, rather than restricting them to the dollar limits and specific expenses set out in a conventional benefits plan.
Healthcare Spending Accounts ensure controlled benefit costs for the employer and complete claim flexibility for the employees.
benefits expenses are eligible for coverage?
Under the Income Tax Act, any item that qualifies for the Medical Tax Credit is eligible for coverage through an HSA.
Often this definition of eligible expenses is broader than that of a conventional employee benefits plan, allowing for additional flexibility for employees and executives in particular.
What are the
tax advantages for an employer?
As with a conventional employee benefits plan, the cost of an HSA health plan is a tax deductible business expense, and the benefits are received
tax-free. To be considered a tax deductible expense to the plan sponsor, a Health Care Spending Account must be a pre-set limit, which is 100% employer funded. The funds cannot be used to purchase additional insurance (i.e. Life Insurance). Unused HSA amounts cannot be paid out at year-end as cash to the employees.
Healthcare Spending Accounts provide employers with complete control over claims costs each year, because the employees can only claim up to their individual maximums. Funds that are not used for claims within the specified time period remain the property of the plan sponsor.