The Elephant in the Room - Have You Made a Mistake?
I’ve had three calls in the last week from doctors who tell me they’ve made a mistake, a big mistake. That’s a lot of calls on one subject, and although I am very honored that people do call me and tell me what’s going on with them, but I’m very troubled that this problem seems to be more and more prevalent.
The Elephant in the Room
So, today I’m going to talk today about this Elephant in the Room – The Mistake - with the hopes of shedding light on the subject and getting it out in the open so you can deal with it, and to help others avoid making the same mistake you may have made.
What am I talking about? I’m talking about making a mistake of either:
(1) Buying the wrong practice
(2) Buying a practice at all, or
(3) Spending too much money starting from scratch and not being able to make it
It used to be that all associate jobs paid poorly and were horrible. After graduating from Loma Linda in 1983, I had seven associate job before striking out on my own. All of them were terrible, and I quit five of them thinking there had to be something better out there and I got fired from two of them. I got fired from one of them for “using too many gloves!”
Times Have Changed
Times have changed now and many jobs are not only well-paying but also in quality oriented practices. Having just a job isn’t necessarily a bad thing and it is the right answer for some doctors. You don’t have to worry about the business aspect of the practice, and just concentrate on your dentistry.
The Entrepreneurial Spirit!
However, most of you went to dental school to control your own future, own your own office, call your own shots, set your own hours, and pick your own staff. The entrepreneurial, capitalistic spirit lives on in many of us! Owning your own office is still the dream of most of you, but it doesn’t always end up the way you thought it would. So, let’s talk about it.
Why do some of you become disillusioned about practice ownership? It is almost always the amount of money you are able to make, and the size of your loans. This seems to happen most frequently after about two to five years of ownership. The working capital you probably borrowed is exhausted, and some of you start really struggling.
The problem may come because the seller took Delta Premier and had a lot of Delta patients, and the price wasn’t adjusted to reflect that. It may come because you are really very different than the seller and you lost a lot of patients. It may come because you had kids or have aging parents and need to spend a lot of time with them. And, it may happen just because owning your own practice involves a lot of business acumen and a lot of time and you just want to practice dentistry.
Depression, Embarrassment, and Worse
Many of you start sinking into depression when you aren’t doing as well as you thought you would, or are just outright failing. You may start drinking too much, eating poorly and doing all kinds of other things that can grow out of depression, frustration, anger, embarrassment.
Most of you become deeply ashamed.
Some of you have families who have sunk their futures, financial and otherwise, into you. Your parents and other relatives may brag about their child, the doctor. Your spouse may have even married you because you were a doctor or about to become a doctor.
Bottom line, this is a big, embarrassing problem.
How to Fix It
First, know this is fixable. It may be an expensive mistake but anything at all in life involving money is fixable. There will be consequences, but it isn’t life or death – it isn’t like you had a horrible accident or have a terrible disease. Do your very best to keep it in perspective
You probably feel like you are letting a lot of people down, if you are in this situation - but money issues can always be fixed. The fix may not be what you planned or what you’d like – but there are solutions.
What To Do: #1 Come Clean
The first thing I’d strongly advise to do is to come clean with your spouse and potentially your parents. This may be the most painful conversation you’ve ever had to have, but they do love you and at some point they are going to find out. You really need support, and at very least, you need the spending to stop and a plan to be discussed and implemented. Get the problem into the light. Problems festering in darkness are never solved and can lead you to do go to even darker places. Tell them – regardless of what happens - just tell them.
What To Do: #2 Figure Out Exactly Where You Are
Put pencil to paper and figure out exactly where you are financially. Usually when people are going downhill, they don’t even open bank statements or log on to their accounts. You have to pull your head out of the sand and figure out exactly where you are so you can decide what to do.
You need to know the following things:
1. How much do you owe? Figure out:
a. The exact amount of the loan balance on each of your loans.
b. The interest rate of each of your loans.
c. The term of each of your loans.
d. The exact payment of each of your loans.
e. If you are behind, exactly how much are you behind.
2. What does your lease say? Look for:
a. When does your lease end?
b. The exact amount of your lease payment.
c. Your monthly CAM payment.
3. What are your exact collections:
a. Look at last year’s tax returns and see what you collected.
b. Look on your computer or your P&L and see what your collections are year to date this year, and extrapolate that for the entire year.
What To Do: #3 Make a Plan
Now you know reality, you might be able to start seeing answers yourself, or maybe a best friend or spouse can help – and I’m going to tell you what I think.
After you have determined the extent of the problem, what category is it in:
1. Are you paying all your loans, taking home some money, but it really isn’t enough to make it worth it?
2. Are you making some money, but not enough to even pay loans and make payroll?
3. Are you actually losing a lot of money every month?
You have three main solutions.
2. File bankruptcy
3. Figure out a plan, implement it, and make it work.
Brokers like me can help, but none of us can pull rabbits out of hats. We can’t make your problems go away and sell your practice for way more than it is worth. We can rarely convince someone to take on a way too expensive lease (which is why I harp a lot on leases). And, we can never do is sell a startup that has made almost no money for, say, $750,00,000 just because you have that much debt. Remember, a buyer doesn’t care how much you owe on things, they care about what they are buying is worth.
A good broker can sell your practice for fair market value, and you may not like that number. But, a good attorney will attempt to work out a solution with your lender for the shortfall. This isn’t easy, but it is usually possible. That isn’t to say there aren’t financial repercussions but dealing with a $100,000 or $200,000 shortfall is definitely possible and can be a reasonable outcome in this kind of situation.
Startups can be much more devasting financially if things don’t work out. They are usually the scenario where you are actually losing money every month, or aren’t making enough money to even pay loans or make payroll. This might be a situation where you need to file bankruptcy.
The lenders do not like the bankruptcy solution at all, and will advise you heavily against it - because they get no money if you file. However, you’ve got to do what is best for you – and if you really don’t have any other assets in life yet, bankruptcy might be the best option for some of you that are really under water.
I rarely think doctors should stay in the practice and try to make it work, because the situation usually gets worse and worse. Cut your losses as they say, and get out. You usually cannot fix these problems quickly, especially when your mindset is probably at an all-time low.
The Worse Possible Outcome
I hate to say, but I’ve dealt with numerous practices where the doctors took their own life due to not doing as well in their practices as they would have liked, or actually failing - and it certainly wasn’t worth it, to their kids, to their spouses, to their parents.
In all of these cases I’ve dealt with where dentists took their lives, the spouses had absolutely no idea of the dire financial situation they were in. Please remember, money issues can always be solved.
Here’s what not to do if you are in a bad situation:
1. Shut your office down.
2. Buy expensive things in your personal life, “before your credit is wrecked.”
3. Drink too much, take drugs, or do any other kind of self-destructive behavior.
Here’s what to do if you are in a bad situation:
1. If at all possible, condense your schedule and get a job.
2. Take extremely good care of yourself, this is going to be a very stressful time.
3. Find someone to talk to help you through this.
We all went to dental school to become dentists – a creative, hands on field. Then we discovered that most of being a dentist involves business – and few of us wanted to be a business person and got an MBA to help.
How To Avoid Making A Mistake
1. The most important thing is to know yourself. What are you really willing to do?
a. Are you willing to spend considerable time on your off hours on your practice?
b. Are you willing to show up early, every single day, with your game face on and concentrate on making things work?
c. Are you willing to go to community events early mornings or evenings to meet potential new patients?
d. Are you willing to give up your lunch hour and eat at your desk, so you can monitor your practice and reset and plan for the afternoon?
e. Do you generally have a good head for business, and intuitively understand what the right thing to do is with business issues?
f. Are you capable of reading a P&L, Balance Sheet and your Tax Return – or willing to learn?
g. Do you understand that owning your own practice will be a large dose of business, employee management, and marketing – with a side light of actually practicing?
h. Are you willing to be a leader to staff, rather than a friend?
This is only a partial list of what it takes – and I think all of you considering buying
2. Do not sign on the dotted line for a very expensive lease, for a very long time – long time to me is over 5 years.
3. Just don’t do a start up in Los Angeles County, or Orange County or probably even San Diego County unless you are experienced and have done a startup before.
Life is not a bowl of cherries, but you can figure out what you want to do and get over and past hurdles that may come in your way.