Oral Health Group
Feature

Finance: Unfortunately…

October 1, 2001
by Ron MacKenzie


A dentist has been diagnosed with cancer, with a low survival rate. We have been retained as consultants to evaluate his dental practice and to assist him in the disposition of the practice. The dentist is married with a family (his wife just gave birth) and he is in his mid-thirties.

As indicated, we cannot always plan our strategies around the assumption of good health and timing suitable to us. This is an unfortunate example of timing beyond our control

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In this situation, the dentist has two associates and has not worked at the practice for several months as he undergoes treatment. He will not be returning.

One of the associates works three days per week, and does not have an associate agreement, let alone a Restrictive Covenant. However, the problem is mitigated, hopefully, in that the associate is a relative of the principal’s wife.

The other associate has an agreement, which is very lacking in areas that would now be called upon to protect the goodwill of the practice. Without going into details, the Restrictive Covenant, which any purchaser would look to (it is a rural community) appears to be non-existent. As an aside, from a tax perspective, the agreement is with the dentist, not the dentist’s company (which it should be), therefore CCRA would probably deny the deductions (payments to the associate) to the company.

To make matters worse, the associate with the ‘agreement’ has indicated that he is considering buying a different dental practice in the same small, rural community, and indicated that he is not bound by any restrictions that would stop him from doing so. Clearly, this situation should not have arisen.

Hopefully a lesson can be learned from this unfortunate situation. It’s frustrating and annoying that very simple steps taken at the appropriate time would have prevented this situation. All that was required was a basic, adequate Associate Agreement with each associate prior to the commencement of them working at the practice. This is not a difficult issue nor is it an unfair one.

Take a hard look at all of the relationships that you have, including your Premise Lease, and if you feel they are at all lacking, get professional advice and get it now, before it becomes a bigger problem for you and your family.

Ron MacKenzie, B. Comm., CA, is the principal of MacKenzie & Company, CAs, Practice Consultants restricted to dentists.


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