00:00:07:20 – 00:00:45:23
Welcome to Shorr Solutions: The Podcast. I’m one of the hosts, Mara Shorr, I’m a partner in the medical practice management company. Yes, Shorr Solutions. Who’s the other host, you may ask? Easy answer. That would be my father, our founding partner. Jay Shorr. Together, we now have an amazing team and clients across the country. Listen as we chat, converse, strategize and commiserate over life in the aesthetic medical industry.
It’s time for you to listen, learn, and be inspired as we help you kick start your practice. Because who doesn’t want a little more help? Welcome to Shorr Solutions: The Podcast.
00:00:55:06 – 00:01:15:01
Welcome to another episode of Shorr Solutions: The Podcast. Today. Not only is it myself, Mara Shorr with Shorr Solutions. The other half of this partnership that we adore so much is my partner in crime, Jay Shorr. Jay, do you want to say hello?
00:01:15:03 – 00:01:19:03
Greetings, everybody, and thank you for taking the time.
00:01:19:05 – 00:03:47:15
And Jay is not only my business partner, but Jay is, of course, my father, my pops. So you will see and enjoy all of the father daughter banter that genuinely just occurs. With us today is the one and only Brad Adatto, and Brad is a longtime colleague, long time friend that we have known for years and years and if you have been listening, if you’ve been watching and attending our webinars, you know that ByrdAdatto of which Brad is the Adatto of the ByrdAdatto health care law firm, they are one of our go to law firms, especially when the chaotic years that were 2020 and 2021, although they really have been a
true resource to us for a very, very long time. But holy moly, did we have a lot of conversations with with Brad and his team there, So today we are going to be talking about navigating the risk and reward of selling your medical practice. Now, this is a topic that we continue to honestly get questions about again and again and again.
When the three of us were speaking the other day, we were saying that this is something that both of us both Shorr solutions and ByrdAdatto really have more and more questions coming at us. So we wanted to make sure that we carved out this time to speak with you. With that, we are going to dive right in and you’re going to notice that I may be the moderator slash wrangler of conversations between these two gentlemen, because quite honestly, they get so fired up and so excited about the topic.
Sometimes I have to reel them back in like a fisher woman. So if you are you’ve seen here that that is my role. So the number one first thing we’re going to talk about and I’m going to pose this question to Jay first and then Brad, I’d love for you to jump in is what are the top action steps, a physician or medical provider, So whether that is a physician, surgeon, non surgeon, or a different level provider should consider when they are selling their practice? And I know this is such a long question. A long answer, possibly, but what would you say is the 1 to 2 top action steps that somebody could include? So, Jay, you go first and then, Brad, you’re up next.
00:03:47:17 – 00:04:50:06
The one thing that I hear all the time and having been a former practice owner in a very large dermatology cosmetic plastic surgery practice, and let me make a disclaimer first, which I make in each and every lecture speech and whatever I give is I am not a physician. And the reason I make this disclaimer is simply because when I talk about my practice in the state of Florida, you were allowed to own a practice as a non-physician.
So I will refer to it as my former practice. I was the practice administrator and a partner in a very large practice here. But when you’re carving out an exit strategy or a reason to sell your practice, you have to figure out what is the one main reason that I want to sell my practice. And then underneath that you can get that could be the Roman numeral one, and then you can have a) what’s the main reason you want to sell?
Is it because you’re more mature in age like me and it’s time to call it a day?
00:04:50:10 – 00:04:52:13
I love how you phrase that, you’re more mature.
00:04:52:14 – 00:05:37:20
More mature. Is it time because I’ve had my fun, I’ve had my run, and it’s time to exit into my retirement. That’s number one. I want to sell my practice. Is it because, unfortunately, I’ve become disabled? Number three, if you are part of the trust or an estate and you want to sell a practice, unfortunately, is it because of an untimely demise?
Premature death. Number four, the real quickly, is it because I want to bring on a partner, groom my partner, and let he or she take it from there? And that brings up a whole other set of questions about which we’ll get into later is the evaluation and evaluation of my practice.
00:05:37:22 – 00:05:48:19
And we’ll certainly absolutely, we have some time carved out just for that. Brad, what would you add on to what Jay had so maturely noted?
00:05:48:21 – 00:07:11:21
Well, that doesn’t start with that question alone. If I have to be mature, I may never be able to sell my practice. I am just going to say, okay, now that’s going to be a very big difficult leap for me. But I completely agree. You know, we call those the what if moments as Jay was kind of walking you through.
Those what if moments tend to happen because something happened. You know, there’s a triggering mechanism that a death or a disability or the thought of retirement starts coming in to the planning side of it. So someone starts considering that. I do know, I think, you know, when we were sitting here talking about you were talking about how during Covid we spent a lot of time speaking and doing presentations or at that time.
Well, one of the reasons why I think this topic is so hot is it really made people reevaluate everything about their lifestyle, their work style. And I think I feel like at least at this at this time, I’ve gotten more calls from even a young plastic surgeon, young dermatologist, who still are like, okay, now I want to understand how I exit.
And it’s not like they’re exiting in five years or it’s much further, but they’re at least I think people are starting to think about it a lot more because of what they what occurred during the pandemic. And so I agree with Jay. There is typically a triggering mechanism that gets them going to start thinking about it.
00:07:11:23 – 00:08:34:06
We, at this point are probably fielding at least 1 to 2 leads a week of as Shorr Solutions of practices that are coming to us and practice owners that are coming to us and saying that either they’re ready much, much sooner and much earlier than they had expected, or just like you said, Brad, that they they don’t want to be preparing when it’s too late.
So they want to know Now. There is also things that nobody could have expected, a global pandemic. So whether that would have been in anyone’s contingency plan, not entirely sure. But to have that plan in place and be able to plan for those what ifs. So once a practice owner has some sort of idea that they are ready to to sell in, let’s say somewhere between now ish or in the next 3 to 5 years, Because though that is really, I think, what we consider a more immediate future.
Here is my next question for you both, is that how can they make sure to sell their practice at the highest possible dollar and value if they have to sell right now? And then how can they make sure to sell their practice at the highest possible dollar if they have a little bit of time to plan?
00:08:34:08 – 00:11:02:21
Let me start off and then I’ll lead some questions in for Brad, because there’s never a time that the two main points I’m going to bring up, you know, in how do you do that? Because when it comes time to actually memorialize everything, that’s where the ByrdAdatto team come in, because contractually a lot of things go into the physical sale, which we’ll get into in some of the corporate and non-corporate practices of medicine states.
However, there are two real main things that you have to understand that before you can sell your business, you really need to have a good evaluation of your business. And an evaluation of your business takes into consideration operational administration financials. Because when we represent a buyer, I’m going to ask the same questions as if we represent the seller, knowing that we’re going to have to deal with the ByrdAdattos on one side or another with whomever we represent.
And there have been times that ByrdAdatto represented the seller and we represented the buyer. And man was I glad it was ByrdAdatto who represented the seller because it went smooth, because we knew everything that was going that was non-adversarial. And that doesn’t always happen. But you need to do an evaluation, all right? And then you do a valuation, because when we go to the attorneys with a valuation, all that means is I am prepared to sell A and sub parts of A for B a price.
And I have to tell you before I turn it over to Brad, that people really think that their business is worth more than it really is. And it’s very hard for people like us as consultants to tell somebody that you have an ugly baby and that it’s not worth what you think it is. And the quicker that you want to exit, the even less value your practice has.
We’ll get into additional questions, but I’ll turn that now back over to Brad.
00:11:02:23 – 00:13:38:06
Yeah, I completely agree. Jay. You know, one thing for everyone to understand is you’re not a publicly traded company where every single day your value is what the public is willing to buy or sell your stock for. You know, ultimately, because you are a private, closely held entity, a lot of times 1 to 5 owners, you really are throwing a dart against the wall.
Now, there are certain things that a good valuation can then narrow down the dart, the dart board itself as to what your valuation is. But I love how you broke up evaluation versus valuation. And the reason why that’s so important is we come in, although the ultimate numbers, but everybody always wants to get right. I want to sell the highest number I could possibly have.
And I completely agree. It’s my baby. I believe it’s worth $10 billion. But ultimately, you have to come down to is what is a willing buyer who wants to show up, who’s going to pay for your practice will pay for that. And I think one of the things that we often talk with our clients on the list on the how do I get there?
How do I get to that highest price if if we have plenty of time to get there? You’ve done three things correctly. You’ve planned correctly, so you have a great plan. You then scaled that plan correctly, and then finally you then positioned yourself to sell and set, you know, setting the stage correctly. If we’re talking about selling, that’s because certain things have happened, right?
It’s either unfortunate, as you said, a death happen or a disability, but the ones you have, the the planning, you can look ahead and they have this incredibly good idea of what they want to do and how they want to get there. Those are the ones that can get it at the highest level. So a conversation you might have with a client is, well, I have right now two locations, but I want to add two more before I sell.
Great. Let’s talk about your locations. Let’s evaluate the two that you have, how well you’re running them. What are your numbers look like? You know, I think that would be where you all come in. Where we come in is how compliant are you? What does your structure look like? How the things that you’re doing are the right people, doing the right things, What type of machines and what are your leases look like?
We would look at it from that perspective on the legal side. And then once we have a good baseline as to, okay, you’re good to go. Let’s repeat this two, three, four more times now where the scaling side of it. And we know that in five years. Well, as we scale will be in a best position to sell the highest number.
Those are the great I mean, those are again, we can come in and I know, Jay, you and I have had this conversation and Mara. You’ll come in at any point. But if you’re trying to sell at the highest point, those are the conversations. You’re talking 5 to 10 years.
00:13:38:08 – 00:14:01:02
And that’s actually beautiful. It’s almost like you knew what my questions were going to be, Brad, It’s almost like we planned ahead of time because the next question was what is an effective timeline for a provider to sell their practice? So, Brad, you’re saying that ideally we would love to have five years, right? Is that what you would say? In an ideal world? In an ideal world, rather.
00:14:01:04 – 00:15:33:14
Yeah, because I will say that, you know, my clients who have a ten year vision as to where they want to go, we have a lot of time to get their house in order to make sure that their documents are what they say they are. We then have the ability to figure out who do we want to bring in and we bring in the right people.
And we also have the ability for them to cash flow their buy ins, depending on obviously the structure, especially the aesthetic market. If we’re talking about your traditional Medicare or Medicaid practices, we have to be much more careful because we have federal scrutiny while we have, you know, your your cosmetic side, you have a lot more leeway as to how we structure that buy in.
So, yeah, I think the worst case scenario, I think we shared this before with you guys is, you know, I had a client call me up and basically say, you know, 60 days from now I’m moving to London. And I heard you sold my friend’s practice for whatever it was I want to sell for the exact same price.
Our practices are exactly the same. And as Jay alluded to, they’re not exactly the same. Because if you just because your practice is saying the moment you sell your practice evaluation for the moment you stop practicing, your valuation starts going down rapidly. So if you are thinking about at least, you know, five years is beautiful, ten years is wonderful, but sometimes you’re talking 24 months that for the moment you sell, you may still have to hang out there and slowly make sure that those patients continue to come through and you help keep that goodwill, because that’s going to keep the value of the practice at the highest level.
So at the very minimum, you’re looking at least 24 months post-closing that they may start to hang around.
00:15:33:16 – 00:15:48:22
We want to bring up a point, though, Mara, what Brad just talked about, that word, quote unquote, goodwill. People have a misnomer about what goodwill is in the medical practice.
00:15:48:24 – 00:15:52:14
Go ahead Jay, you always say that goodwill is where? come on Jay!
00:15:52:14 – 00:15:58:16
A place that you donate clothing and furniture
00:15:58:17 – 00:15:59:15
Like I’ve heard it before.
00:15:59:21 – 00:18:16:00
The goodwill, honestly, is the goodwill that you as the practitioner, have generated and may not necessarily be the goodwill that will follow with the new buyer example. People want to sell charts at X amount of sense or dollar on a chart, and I’ve got 20 or 30,000 charts or names in my EMR. And I say, You really don’t, because really what I want to know is what is your active database?
And if they haven’t been back to you in two years, they’re not an active patient. Example the 18 to 25 year old female in a plastic surgery practice that comes in for a breast aug does not have the same value as the 45 to 65 female that will come in for tummy tuck, lipo, facelift and post-operative maintenance for life cycle because the young woman may be a one hit wonder.
All right. And then she’s moved on freshly in her life and goes to another area. Therefore, the value of that patient is significantly reduced. Now with two, three, five, ten years down the road. That’s great to plan. However, if that were the person 2 to 3 years ago that thought that and then the pandemic hit, let me caution you that the implosion of the value of your practice would have been cut by 60 to 75% because we have a very difficult time right now evaluating and more valuating a practice with the financials of 21 versus 20, because historically we like to do a three year run.
However, from 18 and 19, 19 to 20, it bombed the 20 year and 21 is so significantly higher over Q2, regardless of how much you’ve increased. So now we have to go back to 2019 because I can’t show value for 2020 right now, and that’s nobody’s fault.
00:18:16:01 – 00:18:19:12
2020, did that exist? You sure?
00:18:19:14 – 00:18:24:04
There is a whole year that just disappeared for most of us, I’m pretty sure.
00:18:24:04 – 00:18:57:14
It was a great year for people who were firemen like us, helping people get out of their problems, like the attorneys who we had to negotiate pennies on the dollar with creditors and things like that. And unfortunately, many practices, many medspas did not survive. Plastic surgery practices did elevate and do better because of the pent up, you know, people that then wanted to come back. And we find that many of our practices are doing better.
00:18:57:16 – 00:20:00:18
Yes, this actually is something that I segways beautifully into the next topic slash question that we wanted to cover. So even though we are now halfway through, we’ll say Q2 almost and almost over with with Q2. But let’s take a look at now that we are very happily out of 2020 and over the hump of 2021 Q1. So what are you seeing between just as far as the changes between the chaotic dumpster fire?
I think Brad? Is a safe way that you were calling 2020 was just dumpster fire year, as was everybody saying that. So what trends are you seeing that people need to be aware of within practices? And what should people currently in practice know, especially if they’re going to be looking to sell their practice about what happened in Q1 from 2021?
So let’s talk about that for a sec.
00:20:00:20 – 00:22:03:11
Absolutely. And you know, as some of this started happening near the in maybe November, December, we saw a huge uptick in our M&A side of our practice. So mergers and acquisitions side. And it was I think it was that pent up energy of 2020 of not knowing what to do eventually starting to feel comfortable that this is what the world is going to be like.
And then as we rolled into the first quarter, the number of transactions on the sales side just exploded. And I think it was for, like I said, a lot of pent up energy as to I was going to do this deal. I didn’t do. It pent up energy. I’ve always wanted to do this deal and I’ve never done it, so I’m ready to go do it.
And I survived the pandemic. I’m ready to go do something else. So I’ve never seen a sales cycle like we’ve had already in this first quarter of just people either jumping in, buying businesses themselves or they’re ready to be acquired or partnering with people and they never thought they would partner with. I know we’re going to talk about private equity at some point today, so we’ll jump into that piece of it.
But just on the sales side, growth wise, you know, and that’s again, that we’re talking about, But the number of brand new businesses that are starting are huge. And I think that’s because they want to obviously, at most it’s the first question I have every single person is when they’re coming in as a kind of do the whole, you know, why are you here?
Where do you see yourself going? What’s your long term goal? Because that actually helps us define what you want to do as a organization, which is now a lot more like, where do I start? I’ll start the end. What’s your goal? So I’m going to form this entity and this my wife and I’m going to run it great.
I’m going to form this entity and make 25 of them. That’s a different story. And again, these are the kind of conversations that we’re having right now this first quarter, but it’s on, you know, on steroids with fire thrown on top of it, with gasoline and everything else. You get that. I mean, I’ve never seen an accelerated first quarter like this ever.
00:22:03:13 – 00:22:51:16
One of the questions was since 2020 was a Covid wash, Do we go back to 2018 for a first quarter comparison? And my answer is no. I would more or less go to 2019 and see the growth from 2018 to 19. I could compare 2019 to 20 because remember, it really didn’t shut down till the end of the first quarter of 2020.
But then look at any substantial growth that you may have had from the two first quarter of 2021. Yes, it was a wash, but going back to 2018 may be a stretch too far because 2019 is more realistic than 2018.
00:22:51:18 – 00:25:05:03
I would even argue that it depends on which state you are in, because some states were obviously shut down much, much longer than other states. I know Brad is in Texas, Shorr Solutions is based in Florida. And so both of our states, just as an example are wide open, pretty stinkin early versus we have clients in California, in Washington state, for instance, that were shut down for quite some time.
I’m not saying what’s right or wrong or should or shouldn’t have been. I’m just stating the facts. As we look back on evaluating what we all saw in 2020. So I think we need to keep that in mind. And Jay and I are now working with some of the practices in seriously reviewing their panels. Some are in growth mode and some are in are in the mode that they are ready to start looking at sales.\And some things that we look at are when we look at online skin care sales, chances are the practice says, Look, I really amped up and ramped up my sales in 2020 for online skin care. Was that because the only choice that your patients felt they had was to have that product ordered online and delivered right to their home versus being able to go somewhere else?
So it was 2020 an anomaly year. What when we look at we have practices that we’re already in a great spot with surgery. We’re in an even better spot. They just if you were doing well, you really did well with surgery. It was just something that we found. And so as everybody, things are starting to start leveling out.
00:24:27:02 – 00:25:00:11
But one thing, the next thing, rather, as we’re talking about the sales and just the different entities, let’s talk about and J I’d love for you to kick off this conversation because we’ve already run into this with it with one client in particular. How do you handle the sale of your practice when you practice in a corporate practice of medicine state and Jay you will get into what that means and and explain that a little bit further for anybody that may not necessarily be aware, but, Jay, do you want to review, because we’ve already run into this with one of our clients where there was a bit of a snafu.
00:25:05:04 – 00:27:29:14
So sure, Let me start off by sharing that. I made a comment that I was a partner in a practice and people say, Well, how is that possible if only a doctor is allowed to be a partner? And there are certain states that actually prohibit non-physician owners and Texas happens to be one of them. Florida is not. And a business corporate entity can own a medical practice.
That doesn’t preclude the fact that you still need a medical director. However, you can be an owner. Whereas in Texas, if you are not a physician, you cannot be. And now there is a new law pending legislation in California that I just read. It may not make it through the Congress chamber this year, but I believe it’s going to come back because in California, people like myself are not allowed.
But you have to have a majority ownership by a doctor and then licensed professionals, for example, nurse practitioner, PA or nurse can be a minor owner but cannot be a major owner. So, you know, I’m going to let Brad get into the legalities behind that. But we were working on a deal most recently and we were getting guidance and bringing ByrdAdatto in that I had a private equity group and a private group that wanted to buy a practice from a client of ours, and they were a non-physician and they were going to keep the medical director on.
However, it couldn’t be done as a stock sale or strictly as an asset purchase agreement. And I’m going to let Brad get into the legalities of it because there are three terminologies. It had to be done with a management service agreement through a management services organization. I know a lot of you people have heard these terms MSO, MSA, APA stock purchase agreement and really don’t know what it means.
So I’m going to turn it over to Brad that in a corporate practice of medicine, state or commonwealth, if there are, those people like me who want to buy a medical practice, may be prohibited in the corporate practice of medicine State,and Brad, please share how that’s supposed to be done.
00:27:29:16 – 00:31:18:02
Yeah, those are all great points there, Jay. It is typically what happens the strong corporate practice of medicine states are prohibiting any non physicians from having any ownership at all. So you, as you said, Florida is obviously a different type of state. While you have states like New York, California, Texas, which have a stronger corporate practice of medicine, which basically either limits it completely, meaning it’s only a doc or with doc with other a known as affiliated health care professional.
So again, very limited. It’s very defined as to who those individuals are. So even in states like California, where the nurse practitioner could own up to 49% of it, if they might be like, Well, yeah, right, but this is my baby. It is my idea. The doc, although is necessary by state law, how do I then capture a larger portion of this revenue?
And that’s where that management service organization model comes into play. And so that MSO can be owned by anyone. So it could be 100% owned by a lawyer in Texas. No. Scary, right. And so that lawyer could then enter into which is known as a management service agreement, as you articulated with that professional entity where it helps run the day to day business, all the non-clinical side.
And you had a very key point, Jay, that was very important, is you still must have a physician who still must be helping making those medical decisions. And those medical decisions are as simple as that person’s really good with doing Botox and fillers, or that’s a really good machine for that type of services we are about to render or these are the proper type of supplies that you need for that type of procedure.
Those are actually factors. Now, the MSO can go out and find those individuals, find the supplies, find the equipment, but if it’s going to be used for medical purposes, then that physician has to have that control. You can’t be an absentee physician. You know, the law that you were talking about that just that was out in California. It is, as you said, it’s kind of locked up in committee and the way the law was written.
And so in California, Jay was referencing that they’re trying to basically make MSOs illegal in California. It’s a very strong term. But when you read the rules in the way it was described, it gave a lot of leeway to the medical board and the licensing board about how to govern that. And that’s what made everybody nervous because the exceptions in a way was written.
It was pretty clean and clear as to who that we felt pretty comfortable that our clients in California that would be safe by a statute. But the applications are very important. So let’s get back to that. What we’re really here to talk about, which is the MSO side of it. And so if you are growing your practice and you’re that non-physician, you want to lock up all the assets that you can inside that MSO.
So that can be the equipment, that can be the space, most importantly, the intellectual property, the website, the phone number, any type of the name itself, trademarks, copyright is all owned by that management service organization. And through that management service agreement that Jay was referencing and then allows that professional entity to use it. And there are certain limitations in some states what you can do with that, that’s the base model.
What has happened in this space is as you grow, you have you’ve built value in that management service organization. And when someone comes along and wants to acquire this concept, the enterprise itself, if we may, that would then go back to their looking at the enterprise and they want to see who has the value. So your MSA, the contract says sales are very important.
The contracts that the professional entity has with its employees are something they look at and then obviously is who and how have you locked up all the important names website, all those kind of things. Those are all factors that build value in the MSO.
00:31:18:04 – 00:34:03:22
So let’s backtrack for a second because there’s a lot of letters and acronyms. So the MSO is the entity itself, the management service organization. What governs the agreement between the MSO and the physician is the management service agreement. And then there’s a document or the agreement, which is the asset purchase agreement, which are tangible and intangible assets that have a fixed price, you know, attached to them.
Now all understand at the same time that you are not purchasing the stock of the corporation or the LLC. And I’ll let Brad now get into that as it separates the difference between the management service organization that has an agreement with the doctor versus an outright stock purchase agreement versus an APA in and of itself, because we’ve done both.
00:32:20:02 – 00:32:47:22
Yeah. So the APA and SPA, they’re both purchase agreements. One is just obviously acquiring the assets itself, which is I’m going to pick and choose what things that you own as a corporation, and I’m going to take those and I’m not going to have any liability associated with those assets unless I otherwise agree. So typically how I’ll come in and acquire the assets and there’s the machinery here that still has a, it’s being leased.
So I’ll paid, I’ll acquire that lease or I have a landlord that I’m paying rent to, so I’ll sign that lease over to you. So the asset purchase agreement, we’re representing the buyer. We love it because we want to minimize that purchaser’s liability. While a stock purchase agreement is the complete opposite, I’ve come in and acquired your ownership of the entity itself.
Now, the entity may own all those assets, obviously, but you don’t you’re not actually acquiring assets. You’re actually quoting the entity and everything it owns. And in that you actually are acquiring the liability of that entity less anything that the seller reduces. So it’s the complete opposite. And so again, if I’m representing the purchaser when I come in, I have to do a stock purchase agreement.
A lot of those deals have to do with either contracts that are with that particular entity that are not assignable, that are so important, especially when you have a licensed facility like a lab or a pharmacy or something like that. Sometimes they have really or sometimes with certain doctor groups have such great contracts that we have to do a stock purchase agreement cause they’re not assignable.
But then we want to reduce the overall liability by having good reps and warranties and indemnity clauses which then protect those purchaser. But again, as Jay knows, I’m on both sides of these deals all the time.
00:34:03:24 – 00:34:47:03
Okay. So that brings up a very good point, because when you purchase the stock sale versus just the assets, you are buying the skeletons in that closet for known and potential unknown liabilities that may or may not have been disclosed. And then, Brad, how many times do you have to carve out indemnity clauses for those unknowns if you’re purchasing something like that, that it might be pending or I don’t want to take over the assignable lease, actually.
All right. However, when you take over the stock sale, you’re basically taking everything good and bad and the ugly.
00:34:47:05 – 00:36:20:10
Absolutely. And so that’s another perspective is when you are coming in, you better we always talk about due diligence. A lot of people do understand that means when we say due diligence, that’s really a fancy word of saying you really investigated and understand what you’re getting into. We call it the underwear drawer moment where if doing the stock purchase agreement, you need to look at those underwear drawers or, as you said, skeletons to find out what you are acquiring.
And so some things would be known was a lawsuit out there. We know about that lawsuit. So we think our worst day in court, we may pay out $4,000. So we’re going to set aside escrow for $4,000 on that one. Then other times we have unquantifiable ones. We had a huge deal. It was I think it was like 35, $40 million deal that blew up because this person made a mistake.
They didn’t realize it was a mistake. It was it was unquantifiable as to the risk associated with this. And this is one of those deals with a purchaser had to buy the business to keep the license. But we’re talking about federal law issues that there was no way that we could figure out how the federal government viewed it without going and having the federal government come in.
The seller was not interested in bringing the federal government in. And so the buyer backed out and we got brought in after the fact to see if we could help clean it up. And so we basically tell the buyer how to clean it up so that this case, the seller, how to clean it up, the seller again, was not interested in cleaning it up.
So he had a basic up almost a $35-$40 million dollar business. But because the unquantifiable liability with the federal government was so large no one wanted to acquire.
00:36:20:12 – 00:36:30:21
Don’t you love when we get because I think that we’re all in similar realms here, in similar situations. When you get called in afterwards to clean it up instead of somebody just coming to ask the questions ahead of time.
00:36:30:24 – 00:37:26:13
Yeah, you know, but you know, that goes back to where we started the planning side. So I just know the client who knows the dental side of our practice. But she has 20 dental practices throughout the state of Texas and. She is going to add about five or six more. So she’s about she’s in the scaling side. But when we got into her corporate side, it was a disaster.
I mean, not a disaster. But she immediately said, well, this doctor kind of owns some of that practice and this person kind of owns some of that practice. And then this guy over here kind of owns that. And some of those kind ofs are dentists. So they could own the practice. Some of those kind ofs are business people, that can’t own the practice.
And so, you know, she wants to scale to sell it. We’re going to have to put together the DSOs, which is dental support organizations, and we’re going to have to clean up to figure out which dentist owns what and how much, all of which is. So again, she’s scaled that. Obviously, she had to hit over 20 practices throughout Texas, but now she has to get it cleaned up so that she can turn around. So.
00:37:27:07 – 00:39:04:24
I know, I caution people, you know, many times when we represent the seller or the buyer, right now we’re representing a lot of the sellers because it is a seller’s market. You know, But when we represent the buyer and they say, well, to do an evaluation, so they’ll call us in to physically do an evaluation of the practice, we’ll travel to the location.
We do take out the underwear out the door. We lift the carpet up to see, you know, what’s underneath the carpet. And I have said to clients, you know, maybe the $10,000, $15,000 that you spend to have somebody like us, or other consultants come out for two or three days to nullify the deal, pick apart the P&Ls, really look at the equipment, look at the credentialed or registered OR to see if it’s everything that they say it is and question the P&L numbers, because they may be very restrictive and it may be worth $10,000 or $15,000 to a consultant, to an attorney, to say, don’t do the deal and save you a hundreds of thousand dollars
or potential millions of liability down the road. And people are very short say that I don’t want to spend that $20,000, $25,000. And Brad, we’ve gone through this, you know, no, I don’t want to spend that money. And it’s like, well, okay, but buyer beware.
00:39:05:01 – 00:40:43:01
I think there’s two great points there, Jay. One is, is that they they may get that unsolicited offer. We’ve talked about this before, where they’re depending on where they are in their life cycle is they had a really crappy month, either personally or professionally, and they get this unsolicited offer where they go, wow, someone’s going to pay $2 million for my practice.
And like, done, they signed it into the letter intent. They start running down the the track and then they come in after back and hire someone like us. Or like you had 2 million in revenue last year. Are you selling for revenue? And true story on that one, by the way. And so that’s the unsolicited side of, as you were talking about it.
And then then are those who then again, we talked about the other side, which is they don’t want to spend the money on it at all because all they see is that in the number, it’s there. They get paid $10 million, I’ll fix it later. And they don’t realize after six a 12 months, depending how big your deal is that you’re running down this road and you’re spending time and effort trying to get this deal done.
They’ll come around and say, Yeah, I know we offered 10 million, but based on our due diligence, we found all this stuff that Jay would have found your underwear drawer and makes us nervous. So we’re going to either cut the price by 2 million or we may escrow three or 4 million. And so all of a sudden, what, you thought you’ve already spent your money, you bought your dream house in Hawaii, you basically pack your bags in your mind and you find out at closing you’re getting 2 million.
The rest is all bet on this unknown, substantive or objective ways in which they’ve kind of built into that letter intent that you weren’t paying attention to.
00:40:43:03 – 00:42:18:06
Yeah, let’s talk about this LOI for a second, because cause I remember a deal that we worked on, I think it was going on three years ago and we had, we were actually negotiating the LOI. You represented the buyer. I represented the buyer as well. And we want to make sure that the LOI is non binding because if you want to back out because the sale of this medical practice was contingent upon also purchasing the real estate.
The real estate happened to be owned by a hospital owned hospital group property, even though it was owned by the surgeon in order to buy the property you had that was on hospital grounds, you had to be credentialed by the hospital. Now, we had a deal. All right. After eight rounds of this LOI, alright, that you represented the buyer and another attorney represented the seller.
The surgeon did not get hospital privileges for one reason or another. I don’t want to get into that. For this purpose of this conversation is the surgeon did not get hospital privileges and therefore the sale was contingent upon not only buying the business but the real estate. So it fell through. Could you talk about the LOI? And making sure that it’s non-binding so you don’t get caught up in that?
00:42:18:08 – 00:44:22:20
Yeah, so do your typical LOI, It will have binding and non-binding provisions and understanding. There are certain things are binding. Certain parts will be that this deal is confidential that you can’t share with other people typically, obviously, or accounts or consultants and stuff like that. They want to lock down that. They keep it confidential. The other piece, which is the binding piece, which is they don’t want you to shop.
So you want to look at the no shop. Means that once you ink that LOI, why you can’t speak with other individuals until such time. Sometimes it’s a 90 day clause, sometimes it’s a six month clause. Basically you’re locking yourself up with these individuals. And so and so that’s the binding. The non-binding pieces, which is funny, will be certain business terms and conditions that you’ll be going back and forth and negotiating.
And a lot of people were like, Oh, I don’t want to put the non-compete language in my LOI, or I don’t want to put that thing that’s super important to me. And I wouldn’t sign without an LOI. And that ends up handcuffing your attorney after the fact. Because what happens is once the LOI inks, they’re going to start putting it, They’ll do the due diligence phase.
And meanwhile the attorneys might be putting together that purchase agreement, asset or stock or otherwise, and all of a sudden you start trying negotiate certain key elements, super important to you inside of those purchase doctors, number one, and you take a lot longer number two, the attorney drafting is like it’s not an LOI why did my client agree to that and so now you’re fighting attorneys fighting your fight that you should have fought ahead of time as you this is so important to me I would never have signed it and I’ve actually had tell me that like why wouldn’t do the deal unless they would give it to me?
Well, why didn’t you put that in LOI? Well, I thought I could negotiate it in later. And don’t forget, at this point you’ve may have already spent a lot of time and effort during the due diligence phase, you may have hired consultants to kind of look over your books or clean it up. You may have hired attorneys and now you’re 60, 90, 120 days into a deal, which the most important element was something they were never going to give you anyway. And you didn’t think about putting your LOI.
00:44:22:22 – 00:44:54:10
So one of the final questions that I wanted to ask, just as a I’m not going to say state of the industry because that just sounds far too overwhelming. Could be the last and final question. But within the trends and things that we’re seeing now, as far as people that are exiting and buying up practices, are you seeing, Brad, private equity actually ramping up in the purchase of practice? What are you seeing regarding private equity?
00:44:54:12 – 00:46:22:05
Yeah, absolutely. You know, private equity has been around for a long time in different industries. They’ve dominated the dental market for at least a decade now. They’ve definitely been the dermatology market for eight, nine years to now. They’re really they’ve figured out how to deal with those. They’re relatively new into the med spa space, meaning that they’re 3 to 4 years really starting to really start pumping money.
And obviously some have been here longer than I could name a few of them. But the new funds, the people who are stepping into the space, are saying, hey, we see these numbers that are coming out of these med spa’s. So it’s it’s interesting, the fascinating one. I actually had lunch today. I was with a CPA and she was talking to me about this exact same question.
So it’s kind of funny that I basically told the exact same thing about to tell you guys is she said, have you seen what the plastic surgeons, though? Have you had those calls yet? And I said, the fine thing is, I’m having the call. So I have plastic surgeons are like, Hey, all these med spas are being bought by private equity.
What do they think of us? And then we’ve had the luxury of working with some private equity who’s in the med spa space saying, Hey, we’re interested in trying to figure out how to get into the plastic surgery space. So it’s definitely on everyone’s mind. The questions she asked me goes, So have you done the deal yet? I said, No, but I’ve got a lot of interesting conversations with the parties.
00:46:22:07 – 00:46:31:15
And Brad, when you say are you talking about actual board certified plastic surgery practices or just cosmetic surgery practices, In other words, is there a difference.
00:46:31:15 – 00:47:08:03
So far, the conversations I’ve been having have been board certified plastic surgeons on that question alone. But, you know, as as we all know in the cosmetic space, there are a lot of different physicians that are in this space. And so on the med spa space, we’ve done all kinds of deals. It just happened to be the last couple of calls where all board certified plastic surgeons who are asking me about it.
So I don’t know if it just is in their chat room or their little Facebook. But again, and then also the same thing I was having with the the private equity funds are asking to sit in almost verbatim the same questions that the docs are asking.
00:47:08:05 – 00:47:22:20
So as we start to wrap up, that was that was it. From my list of questions, I know I had one or two more things that I wanted to wrap up with, but Jay, Did you have a closing thought that you wanted to share with everybody?
00:47:22:22 – 00:47:23:19
00:47:23:21 – 00:47:26:16
I thought, Jay, you know, had one.
00:47:27:09 – 00:49:49:14
What’s really important about this is that it is never too soon to plan. All right. I’m going to share in 30 seconds. Seriously, the reason why Mara and I got into this so heavily was from a personal tragedy of mine. As I said before, I had a very large dermatology cosmetic facial body, plastic cosmetic plastic gynecology practice here in South Florida back in 2011 had been on for 20 years, and it was one of the larger practices here in South Florida.
And we had thought about an exit strategy at one point in time, I was a partner, and in November of 2011, the medical director was diagnosed with stage four terminal cancer. And in June of 2012, the medical director lost her battle. The reason I became so near dear and personal to me is the medical director was my wife and the business imploded from a value of seven and a half million dollars to a sale of just a little over seven figures.
Now people might say, Well, what are you complaining about? You were able to cash out, you know, with seven figures. Well, if you realize what the assets were, the patient base erodes overnight. The vultures from your industry who you thought were your friends invade because they think they can get things on pennies on the dollar because what are you going to do with it?
And there were some people that offered me an egregious price and I said, living in Florida, I would rather use it as a boat anchor than sell it to you for that. And truth be told, I don’t have a boat. All right. So be careful. Plan ahead. The worst thing that can happen, like anything that Mara and I do as consultants, we tweak the plan, but have a plan, have it memorialized or at least looked at by an attorney.
The money you spend is upfront. Then it’s just called maintenance. But have a plan so that you’re not in a situation like I was and you give up literally millions of dollars and your estate does as well.
00:49:49:14 – 00:53:58:22
With that, what I do want to encourage is for everyone to check out. Part of what your growth plan should be to get the most bang for your buck. We are now offering the conversion cascade course online. And so with that, we are talking about step by step sales funnel training in which you can actually teach your staff the steps of the sales process to really smooth out the sales process.
So attracting more patients, converting calls to consults, consults to treatments, keep your patients coming back. All of this is going to increase the value of your practice and all of this information to learn more about it is at shorrsolutions.com/conversioncascade. And we are absolutely thrilled to be able to offer this to you today.
That includes six modules, six training videos if you love listening to me, phenomenal. I’m the one that does the training videos, so we’ll spend more time together. It includes 30 downloadable checklists, phone scripts, spreadsheets, protocols, all of this that you’re able to edit and use for your practice. So as we’re talking about whipping your office into shape and making your practice as profitable as possible so that when Jay and Brad start going either head to head on opposite sides or when they walk hand in hand together as they sort through your underwear drawer, they can absolutely make sure it is worth as much as possible.
So we are absolutely thrilled to offer all of those components. With that, we really want to make sure again, you’re going to go to shorrsolutions.com/conversioncascade. Now, we also want to make sure everybody has the contact information, not just for Shorr Solutions, because we know that you would love us and want to speak with us.
We are at shorrsolutions.com, [email protected] for an email address and all the socials @Shorr Solutions. However, if you want to speak to Brad about your health care attorney needs, Brad is more than happy to speak with you. I know that Brad always offers for brand new clients. We were talking about this the other day.
He does offer a 15 minute free consult. So if you have just a quick question to make sure, maybe speak with them personally. Is ByrdAdatto the right health care law firm for you? I say yes, but that’s just me. You are welcome. I encourage you to email badat[email protected], We’re going to put this in the show notes as well.
Also go to ByrdAdatto.com, if you want more information. If you loved listening to the three of us on today’s webinar, good news. There’s more. There’s more of us just talking. So I encourage you to go to The ByrdAdatto Podcast, which is called the Legal 123s. So I encourage you, listen, you can check out the episode of Jay and I talking more about how we started Shorr Solutions, but also talking about the dumpster fire with a happy ending, we’ll call it.
That is how we got started. That episode is a cautionary tale with ByddAdatto and Shorr Solutions and is available on Apple Podcasts, Spotify, Google podcasts and YouTube. I feel like the Micro Machine man. You are also welcome to schedule a free 30 minute consult with Shorr Solutions. I always encourage, encourage you folks to do that. So if you go to shorrsolutions.com there is a button there to schedule a free 30 minute consult, listen to our podcast, watch our other webinars, several with Brad, several with Brad Adatto and his partner in crime is that we will call you guys partners in crime so.
00:53:58:24 – 00:54:01:24
They’ll call them the other dynamic duo. That’s what they call us.
00:54:01:24 – 00:54:55:06
The other dynamic duo. That’s it. Michael Byrd So if you want to learn more, there are, we have so many different podcast episodes together. So I truly encourage you to go ahead and really embrace all of the knowledge that we love bringing you. So with that gentleman, thank you for sharing so much knowledge and truly everybody listening, everybody watching.
We are all more than happy to help. And so we encourage you to reach out to to any of us. We are here. We are happy to offer a free consult. And with that, thank you so much for joining us today on Shorr Solutions: The Podcast. We look forward to seeing you again soon!
00:54:55:08 – 00:57:51:14
So acquiring, converting and retaining new loyal patients is easier than you think. It requires you mastering the sales funnel in your aesthetic practice. How is it that easy, you ask? Well, it’s easy because we teach you step by step in our conversion cascade online course, a fun and results driven course that you and your team can finish. And less than 5 hours.
Yes, less than 5 hours. Because we know you all are busy. We provide you six training videos that walk you through attracting new patients, converting calls to consults, consults to treatments, and keeping your patients coming back for more. All of this while learning how to talk to your about additional treatments and procedures to achieve their dream results and bonus, Boost your revenue and have them singing your praises to others.
With our course, you also get tangible tools to help you succeed, such as downloadable marketing checklists, phone scripts, conversion tracking spreadsheets and more, all of which are completely customizable and editable for you and your practice and your team. Get started and sign up for our conversion Cascade Online course today. And as a special thank you for being a podcast listener, we’re giving you 10% off.
Yes, 10% off. Just enter the Discount Code PODCAST. Yes, the word podcast to start saving, click the link in our show notes to get started now. Increase revenue and acquire more patients for your practice today.
So that wraps up today’s episode of Shorr Solutions: The Podcast. If we mentioned any quote, links in our show notes, be sure to check them out for the easiest way to discover your best solutions you can find them. Yeah. In our show notes.
We love your help in spreading the word about our podcast. How? Rate us and share this episode with your friends, colleagues, and the rest of your team. Remember to follow us on social media @Shorr Solutions and send us a message directly with your burning questions. We love hearing from you. Just sign up for our newsletter to be the first to find out about our upcoming webinars.
The latest tips on running your practice more efficiently, dealing with the issues of drama and money in your practice, and watch the latest videos and blog posts in your inbox right in real time. Now’s the time to join at www.shorrsolution.com and click on the e-newsletter button in the top right hand corner. We’ll see you next time. And remember to subscribe to this podcast and leave us a review.