Almost Done

I survived the Saturday afternoon event doing a Santa Clause stint at a Chinese Mall and teaching a line dance. Then Sunday morning a four hour presentation involving independent examinations. Now, once I get past a hearing on Wednesday, I have to finish a chapter on Legal Issues in the Alternative Treatment of Cancer. Deadline is Saturday and the clock is ticking. Interesting thing about "pressure" -- when you think about it - most machines and people work under great pressure -- ie. water pressure, oil pressure, work pressure!

Logic

With respect to the continuing saga of the bump on the head -- actually it was a "huge" cut to my forehead. Since I concluded that there is nobody to sue -- I am now blaming the entire event on the full moon. However, I have learned another example of the difference between being a pessimist and being an optimist.

In this case, a pessimist would say that the bandaid on my forehead is indicative of an injury. An optimist would call it a bullseye!

next article

My second article in Dynamic Chiropractic Canada has been posted -- find the link set out below. Not quite as irreverent (as compared to irrelevant) as the first -- I must be mellowing.

By the by, I made the mistake of getting bopped on the noggin yesterday -- once the bleeding stops I should be fine -- but I mentioned to someone that I might be considered an invalid and he proceeded to remind me that the term might be appropriate for me if you change the emphasis on certain letters in the word "invalid" and then change the translation to "null and void" as in "invalid". You figure it out -- my head hurts!!!

results

So I did the dancing and awaited the results. Since it was a Pro-Am Tournament all the old adages apply --ie. "no pain, no gain" and all of the other wonderful sayings including reminding participants of sportsmanship; and it is not whether you win or lose it is how you play the game, etc., etc. I got the results -- 34 dances - 34 first place standings. (there were about 320 dance competitions from 9:45 am to 5:00 pm) I have asked for a recount and I am very nervous that since I had to use a vicks inhaler for my sinuses that there could be a request for drug testing. Seems that some people are questioning the sanity of the judges.

I am continuing to decorate Santa's sleigh for next weeks charity event. Pics to follow.

Have a great day.

Journeys

You just never know where life will take you. One of the lessons that I have learned is that you do not try and swim upstream in a torrential current -- you will just waste a lot of energy, time and enjoyment. Going with the flow can be a lot of fun. However, that statement should not be interpreted to mean that you should not take the road less travelled. Just hop on the bus and see the world.

In June, 2007 I started my wife (and me) on ballroom dance lessons (Arthur Murray - Thornhill School no less) as an anniversary gift. She has excelled and I have just started to untangle by two left feet. I have also just started to be able to count the beats of a song and just about know when to start dancing. ;-)

This past weekend I participated in a Pro-Am Competition at the Royal York Hotel in Toronto. Thirty-four dances comprising (believe it or not) the waltz, tango, fox trot, rhumba, salsa, merangie, swing, cha cha, samba, and hustle. I didn't step on anyone's toes and I didn't fall on my face.

So, I climbed (or crawled) up the hill and got to the top. It was fun and an accomplishment that I would not even have thought about two years ago. I was not swimming upstream and I was not following the crowd -- I merely got on the right bicycle, peddled like the dickens, sweated and worked and went for a great ride!

My advice of the day -- pick a journey and go for the ride -- it will not always be easy but at the end of the journey the view from the hill is fabulous.

!!@###**!!

Want to know what is going in health care in Ontario -- check out the following site -- you can scrounge around to see what is going to be happening to a number of professions (funny thing -- no mention of chiropractic) -- and then do whatever you do to calm down. Have a great day!

http://www.hprac.org/en/projects/Interprofessional_Collaboration.asp

Okay, okay, okay -- I know that I haven't written or posted anything for a little while - but it is not like I haven't been busy. I have had to do a "privacy" presentation. I would tell you about it -- but unfortunately it's private.

I had to do another TBL (team based learning). If you have never participated in a learning session based upon a TBL then you haven't had the pleasure of learning in a format which can actually be informative and active. Much better than a lecture. I had to do another article for DC Canada (one day I will learn how to say no, no, no). Then there are the lost weekends -- lectures, conferences, meetings in Calgary and New Orleans. But I am back in town and getting ready for a ballroom dancing competition (really).

So after I finish doing my chapter on Legal Issues in the Alternative Treatment of Cancer for a new text, I can get back to my diatribes on my Blog and again start posting pictures and generally being a "troller".

have a great day.

ramblings and rantings

I was asked whether there really, really was an Apology Act in Ontario. Yes, Virginia, while it has not yet received Royal Assent, it is on its way. And it is sort of relevant to the world, and it is a shame that it is necessary, somewhat like good samaritan laws.

I can't believe that I am going to mention the Toronto Maple Leafs, but here goes. There is no justice in the world. The Leafs are, as this is being written, unbeaten in the 2008-2009 season and are only in third place -- there is no justice. Even worse, "what do the Toronto Maple Leafs and the Titanic have in common? They both look good until they hit the ice." Go Leafs Go.

When is an Apology an Apology or not an Apology?

An Act respecting apologies

Her Majesty, by and with the advice and consent of the Legislative Assembly of the Province of Ontario, enacts as follows:

Definitions

1. In this Act,

"apology" means an expression of sympathy or regret, a statement that one is sorry or any other words or actions indicating contrition or commiseration, whether or not the words or actions admit or imply an admission of fault in connection with the matter to which the words or actions relate; ("excuses")

"court" includes a tribunal, an arbitrator and any other person who is acting in a judicial or quasi-judicial capacity. ("tribunal")

Effect of apology on liability

2. (1) An apology made by or on behalf of a person in connection with any matter,
(a) does not constitute an express or implied admission of fault or liability by the person in connection with that matter;

(b) does not constitute an acknowledgment of liability in respect of a claim in relation to that matter for the purposes of section 13 of the Limitations Act, 2002 ;

(c) does not, despite any wording to the contrary in any contract of insurance and despite any other enactment or law, void, impair or otherwise affect any insurance coverage that is available, or that would, but for the apology, be available to the person in connection with that matter; and

(d) must not be taken into account in any determination of fault or liability in connection with that matter.

Evidence of apology not admissible in court

(2) Despite any other enactment or law, evidence of an apology made by or on behalf of a person in connection with any matter is not admissible in any court as evidence of the fault or liability of the person in connection with that matter.

Commencement

3. This Act comes into force on the day it receives Royal Assent.
Short title

4. The short title of this Act is the Apology Act, 2008 .

EXPLANATORY NOTE

The Bill provides that an apology made by or on behalf of a person in relation to any civil matter does not constitute an admission of fault or liability by the person or an acknowledgment of liability in respect of a claim in relation to the matter, does not affect the insurance coverage available to the person making the apology and is not admissible in any judicial or quasi-judicial civil proceeding.

STEPHEN WRIGHT'S DEADPAN HUMOR
Courtesy of The Freeman Institute

"Dealing With People Who Drive You Crazy!"®

Here are some Stephen Wright quotes:

Someone sent me a postcard picture of the earth. On the back it said, "Wish you were here."

Last night I played a blank tape at full blast. The mime next door went nuts.

If a person with multiple personalities threatens suicide, is that considered a hostage situation?

Just think how much deeper the ocean would be if sponges didn't live there.

If a cow laughed, would milk come out her nose?

Whatever happened to preparations A through G?

Why do they sterilize needles for lethal injections?

Why don't they just make mouse-flavored cat food?

If it's tourist season, why can't we shoot them?

So, what's the speed of dark?

Isn't Disney World a people trap operated by a mouse?

How come abbreviated is such a long word?

If olive oil comes from olives, where does baby oil come from?

I went for a walk last night and my kids asked me how long I'd be gone. I said, "The whole time."

After eating, do amphibians need to wait an hour before getting OUT of the water?

If you're sending someone some Styrofoam, what do you pack it in?

I just got skylights put in my place. The people who live above me are furious.

Is it true that cannibals don't eat clowns because they taste funny?

Whose cruel idea was it for the word "lisp" to have an "s" in it?

Since light travels faster than sound, isn't that why some people appear bright until you hear them speak?

If it's zero degrees outside today and it's supposed to be twice as cold tomorrow, how cold is it going to be?

Rantings and Ravings

October 5th -- My motorcycle is in the shop for some TLC and since I would otherwise be riding on a Sunday -- I will take out my frustrations on the internet. So here goes:

Questions with no answers?:

1. Why does a chiropractor have to obtain "informed consent" when dealing with orthotics? What is with that -- anyone ever die from fallen arches?

2. Isn't it time that everyone started realizing that there is a huge difference between ensuring knowledge of what is taking place and the specifics of informed consent as in -- doctors have to make sure that patients know what it is going to cost for treatment but that knowledge is different than dealing with risk.

3. Use it or lose it -- abuse it and lose it -- seems to apply to chiropractic use of orthotics and x-rays to more than any other profession.

4. How can practitioners not know the difference between hiring an employee and a consultant when Canada Revenue Agency and everyone else seems to know the difference?

5. You can be an associate and you can be an independent contractor and you can even be both since they are the same!

6. History taking, record keeping, diagnosis and plan of management is not something that chiropractic colleges require from student/interns to keep them busy. They are professional responsibilities.

7. Don't have malpractice insurance -- shame, shame, shame!!

8. You can buy malpractice insurance -- does it come with an undertaking to protect the profession and spend money, time, energy and expertise to deal with the BIG PICTURE. There is only one organization that gives as well as takes.

9. If "IT" doesn't pass the stink test -- it is only a matter of time until (you fill in the blank)!!

10. for whatever reason, my short tenure of doing articles for DC Canada appears over -- so my irreverance, sarcasm, and task of irritating everyone equally will have to be presented on this Blog.

be happy and be well
allan

More of List

things I have done and seen


57 white water rafting
58 London, England
59 a weekend on a boat house
60 Florence, Italy
61 spending a day with Gordie Howe
62 preparing a power point presentation
63 Geneva, Switzerland and Lake Geneva Wisconsin
64 being the only passenger on a Piper Navaho
65 one bar mitzvah, two bar mitzvah, three bar mitzvah
66 a henna tattoo “born to sue”
67 Oslo, Norway
68 cross country skiing
69 ’ 65 triumph spitfire
70 14 weddings in 11 months
71 helicopters landing on a ship
72 Hamburg, Germany
73 go karting
74 a magic trick that works
75 Costa Rica
76 rollerblading
77 ’ 68 mustang and an 8 track tape deck
78 Paris, France
79 gondola ride
80 a convocation speech on two hours notice

Comment of the Day

The issue of the day is the same old same old. For those of you who have not yet been educated on the principle of DEJA MOO -- think of Déjà Vu (as in, I think I have done or seen this before). In the case of Deja Moo – it is -- I have heard or seen this “BS” before.

That being the case, how many times do doctors have to be told to watch what goes on in their offices. If it is the doctor/owner – make sure that what leaves the office is correct. The proverbial “buck” stops at your desk. The latest case involves what might be a fraud on the part of an associate who is providing insurance claims for services that have not been rendered in order to provide the patient with free uninsured services. While the owner did not conduct the fraud – if it is his or her name on the receipts then the issue is very problematic.

If is a case of the associate not knowing what is going on in an office and finding out that the owner whether a doctor or non-professional owner is providing inappropriate billings then the associate must take immediate steps to ensure that they demand that the appropriate billings be rectified and to most likely terminate his or her relationship with the clinic.

In any event, “when you sleep with dogs, you will surely wake up with fleas.”

Purchase and Sale -- the end

After having done all that there is to determine whether a purchase or sale should take place, it is important that the parties ensure that the completion of the transaction is closed in accordance to professional responsibilities (whatever chiropractic rules, regulations, standards, laws apply) and in accordance with the usual and customary business practices.

There are procedures for completion of a transaction, and having regard to the number of parties involved in a purchase and sale, the closing must take place with the assistance of a lawyer. For a vendor, the work for closing can involve:

contacting the landlord
dealing with the landlord's lawyer
preparation of an assignment of lease
preparation of a bulk sales declaration
preparation of a bill of sale
preparation of undertakings to do certain things after closing
preparation of the statement of various adjustments relating to prepaid costs
preparation of a non-competition and/or non-solicitation agreement
acknowledgment by the employees
dealing with any bank financing.
dealing with any equipment leases
dealing with telephone and websites
attending to the signing of the documentation
forwarding the documentation, receiving and disbursing funds
etc. etc. etc.

For the purchaser, the lawyer will deal with:

searches for liens, etc.
preparation of the affidavit relating to the bulk sales
reviewing the lease and documentation
dealing with bank financing
reviewing the closing documentation
receiving and disbursing funds
filing the closing documentation
etc etc etc.


When all is said and done, at the end of the day, the parties should both be satisfied that the practice has been properly transferred from the vendor to purchaser. It is in the interests of all of the parties to ensure that the transfer of the practice has been done in a proper fashion. This includes not only the vendor and the purchaser, but the patients, employees, and the profession because a proper transfer of a practice is important to the integrity of the profession.

So whether you are starting into a new venture and buying a practice or retiring from practice, good luck and congratulations.

More things I have done and glad to have done them.

excuse the spelling!


41. Las Vegas – but not too often

42. Cliffs of Dover

43. measuring once and having to cut twice

44. watching Les Miserables more than once; more than twice

45. Midnight Mass

46. a cigar and a hammock

47. dancing the hustle 25 years later

48. walking a dog

49. reading Freakanomics

50. singing along to the 60’s and 70’s

51. singing the Canadian and American national anthems when you don’t have to

52. the Rock of Gibraltor from the deck of a ship

53. Law and Order episodes

54. being silly

55. making someone laugh

56. singing Danny Boy

Purchase and Sale - Posting 13 - second to last

7. The Agreement should be subject to, and completed in accordance with, the "bulk sales" legislation of the jurisdiction in which the transaction is completed. This legislation requires that the Vendor complete a statutory declaration indicating that there are no secured or unsecured creditors of the "business". If the creditors are not satisfied at the closing of the transaction and the declaration is not provided on closing, the transaction may be set aside by the creditors of the practice and the Purchaser may find herself or himself in the position of having to deal with the prior debts of the Vendor.

8. The purchaser will likely expect the Vendor to represent and warrant that the clinic premises are zoned for usage as health care facilities and, in addition, that there are no notices of municipal deficiencies or outstanding work orders affecting the said clinic premises and its uses which might affect the ability of the Purchaser to carry on practice at the clinic premises.

9. Since the purchase price is inevitably established based upon billings of the practice as sustainable after the closing, the Purchaser requirement to complete the transaction is generally conditional upon the Vendor having continued to operate the practice in a normal and customary fashion from the execution of the Agreement until closing. In addition, the Parties generally agree that at the time of closing there will not be any issues outstanding which would affect the Purchaser's ability to maintain the practice in its usual and customary operation. The Purchaser may also require that the Vendor maintain office supplies in the normal and customary quantity for the operation of the Vendor=s practice until the closing date.

10. An Agreement usually provides that the Parties will be liable for and shall pay all federal and provincial sales taxes which may be their respective responsibility in connection with the transfer of the purchased assets by the Vendor to the Purchaser. Subject to any legislative amendment, the purchase of a chiropractic practice is not generally subject to G.S.T.

11. The preparation of the documents necessary to transfer title to the assets are usually prepared by the Vendor at his or her own expense. In addition, it will be expected by the Purchaser that the Vendor will on the day of closing provide a statutory declaration confirming the representations and warranties contained in this Agreement. The completion of the documentation is crucial to ensuring that the Parties fully understand their rights and obligations, and in particular, the terms relating to the non-competition and non-solicitation agreements.

12. If there are any outstanding obligations to be taken care of by the Purchaser and/or Vendor an undertaking to complete the obligations will be required to be executed by the relevant party prior to the completion of the transaction. Undertakings might include the registration of a release of any lien on any of the assets being transferred to the Purchaser together with the payment of any final accounts owed by the Vendor such as utility payments, or accounts.

13. As part of the transfer of the practice, the Purchaser will acquire all of the interest of the Vendor in the name of the Clinic and the Purchaser will generally be entitled to use the present name of the Clinic. In order to facilitate the transfer of the name, the Vendor will file a notice of discontinuance of the business name for the location of the Clinic with the appropriate government registry. In the case of a Vendor who is using his or her personal name as the practice name, the Purchaser should ensure that he or she conforms to the regulatory boards requirements relating to the use of a name other than that of a practitioner. As an example, while it may be acceptable for Dr. Jones to carry on practice as Main Street Chiropractic Clinic it may be improper for Dr. Jones to carry on practice as Smith Chiropractic Clinic. It is imperative, and may be a statutory requirement of the province or state in which the practice is located, to register the name of the practice after the acquisition of the practice.

14. The parties will usually acknowledge in the agreement that there are no representations, warranties, collateral agreements or conditions affecting the agreement other than those which are set out in the agreement. As such, it is important that the parties address any representations which they may find necessary such as representations relating to the operation of the practice. It is by virtue of this provision that the expression "caveat emptor" or "let the buyer beware" becomes a crucial part of the transaction.

15. If the premises in which the practice is located is the subject of a lease arrangement, the vendor will be required to provide the consent of the landlord to an assignment of the lease for the premises, together with an acknowledgement by the landlord that the lease is in good standing.

16. The purchaser may request that he or she be allowed, after the execution of the agreement, to attend at the premises to observe the vendor in all aspect of the practice. The vendor will want to ensure that any observation by the purchaser will not in any way whatsoever impede the vendor in practice or the goodwill of the practice. In some cases, the vendor may not want the purchaser attending at the premises until all conditions have been satisfied or waived by the parties. It would appear that this would be a prudent act since any attendance by a purchaser can be disruptive in some fashion to the practice. In the event that the conditions are not met and the transaction is aborted, and a subsequent purchaser must be found, the environment of the practice may be interfered with in a detrimental fashion. It would therefore be prudent to ensure that a sale of a practice not become a matter of public knowledge until the completion of the transaction is assured and imminent.

It will generally be a term of the agreement that the vendor will, at the time of closing, terminate all employees of the practice. The vendor will be required to pay all compensation to which the employees will be entitled to the date of closing including salaries, statutory deductions and vacation pay. The vendor will be required to substantiate to the purchaser that the monies have been paid to the employees. The purchaser will acknowledge that he or she will be a successor employer to the business being acquired herein. The implication of a "successor business" is that the employees are deemed to have commenced their employment from the day they started working at the clinic. This issue can be problematic if the employee had been at the clinic for example for a period of 5 years prior to the transfer of the practice. If the employee is terminated without cause by the purchaser one year after closing, the employee might claim entitlement to compensation for an amount resulting from six years of employment. It is unlikely that the purchaser will be able to overcome this predicament and as a result the purchaser should ensure that he or she is satisfied with any employee who will be remaining with the practice.

In addition, the purchaser will require that the vendor will provide on closing an acknowledgement by the employees that they have no outstanding issues in existence with the vendor or purchaser for which any action might be taken with respect to their past or continued employment at the Clinic. Finally, the vendor will agree to be responsible for all compensation that might otherwise be payable to the date of closing and will, on closing, provide to the purchaser an indemnification with respect to any compensation which may be required to be paid by the purchaser after closing for matters arising prior to closing. Again, this may not, however, be enough to deal with a claim for compensation relating to wrongful dismiss for a period of time prior to the purchase of the practice.

Purchase and Sale - Posting 12

AF: Having concluded the discussion on the "value of a practice", the issues concerning the sale and purchase of a professional practice left to be dealt with involve the following:

6. the terms of the Agreement
7. the execution of the Agreement
8. the completion of a due diligence investigation of a practice
9. the completion of the transaction
10. issues arising after the completion of the transaction

TERMS OF THE AGREEMENT:

We have already reviewed the parties to the Agreement; the price to be paid for the practice; and the assets to be included in the transaction. The following are some of the additional provisions that are customarily dealt with in the sale and purchase of a chiropractic practice.

1. Deposits: Obviously the Vendor will desire a large deposit and the Purchaser will want to pay a minimum deposit. It may be appropriate for multiple deposits to be paid as in the case of a certain amount paid with the execution of the Agreement with a further deposit paid after the expiration of any conditions contained in the Agreement which result in their being a firm and binding Agreement. In any case, it is customary that the deposit be paid to the Vendor's agent or lawyer to be held in trust until the completion of the transaction.

2. Conditions: It is customary for a sale/purchase of a chiropractic practice to be conditional upon the occurrence of one, some or all of the following conditions, namely:

a. The Purchaser verifying, to his or her satisfaction, the financial and patient records of the practice. The matter of "verification" actually constitutes the conducting of a "due diligence" search which will be dealt with in a subsequent article. The verification should be conducted so as not to interfere with the Vendor's practice or staff.

b. The Purchaser receiving and satisfying himself or herself as to the terms and conditions of the lease agreement for the clinic premises, and the written consent and approval from the Landlord of the premises for full assignment of the said lease agreement and may include the entering into of a renewal agreement extending the term of the Lease for a particular time period of, for example, at least 5 additional years from the date of the expiration of the present term. Alternatively, the Purchaser may desire to enter into a new lease for the premises.

c. The Purchaser obtaining satisfactory financing. It is important that the Purchaser receive a firm commitment from the lender prior to waiving any condition for financing. In addition, the parties may negotiate financing to be provided by the Vendor or through a leasing company and what security, if any, is going to be given by the Purchaser to the lender.

d. The Purchaser making satisfactory arrangements with the office staff and associates of the practice for their continued employment and involvement with the practice after closing.

e. The Purchaser obtaining licensor to carry on practice as a chiropractor within the applicable jurisdiction. This condition must relate to obtaining a license to carry on practice and not merely the graduation from an educational institution.

The conditions contained in the Agreement may be for the benefit of the Purchaser or the Vendor or both. Most of the above conditions may be for the sole benefit of the Purchaser and, as such, might be waived by the Purchaser. However, certain conditions might be for the benefit of both Parties, as in the case of licensure. Obviously both Parties have an interest in ensuring that the practice be transferred to a licensed practitioner.

3. The Purchaser will be interested in ensuring that the Vendor is a resident of Canada at the time of Closing. If the Vendor cannot execute a statutory declaration indicating that he or she is a resident of Canada, the Vendor will have to produce a certificate from Canada Customs and Revenue Agency authorizing the completion of the transaction or alternatively the Purchaser will have to withhold certain funds from closing and submit the funds to Canada Customs and Revenue Agency.

4. The Purchaser and Vendor will have to agree on the specifics relating to the Vendor's agreement not to carry on a practice within a specific location for a specific period of time, otherwise known as a non-competition agreement. The Vendor will generally agree not to carry on practice, as a chiropractor and/or acupuncturist, directly or indirectly, whether as a principal, partner, associate, investor or advisor, within a specific distance from the practice location for a specific period of time (ie. 2 to 5 years) from the date of completion of the agreement. In addition, the Vendor will generally be required to agree for a period of from between 2 to 5 years from the date of closing to not solicit, treat or otherwise advise patients of the practice. It would be wise for the Parties to agree on what patients might be seen by the Vendor after closing as in the case of immediate members of the Vendor's family and those other patients of the practice who might otherwise be inclined to be treated by the Vendor after closing. By setting out specific patients the Agreement will be evidence of the fact that the parties have put their mind to the issue of the reasonableness of the non-competition agreement. In addition, the Purchaser may wish to ensure that the Vendor agrees not to recommend any patient or former patient or the referring sources of Vendor's patients to any other chiropractor other than the Purchaser.

At the present time, there remains a genuine issue as to the enforceability of a non-competition provision. The Court of Appeal of Ontario has recently determined that a non-competition provision would not be enforceable if the issue could have been dealt with effectively by the use of a non-solicitation provision. At a minimum, it is important to consider having a determination of what the damages might be if there is a breach of the provision. If the Purchaser is required to prove the damages which he or she might have suffered as a result of the Vendor breaching his or her non-competition agreement, there may be difficulties if the Purchaser's billings have not actually been affected by the Vendor commencing a practice within the specified geographical area. The Purchaser may also wish to have inserted in the Agreement an acknowledgement by the Vendor that the granting of an injunction would be reasonable upon the Vendor breaching the non-competition agreement.

5. The Purchaser will want to ensure that all of the telephone numbers of the practice are included in the purchase price and that the Vendor will execute all of the documentation which might be necessary to transfer the telephone and facsimile numbers.

6. The Purchaser will want to ensure that the Vendor will be the owner of the assets to be acquired by the Purchaser free of all encumbrances, liens, and security interests. In addition the assets should be in good working order at the time of closing.

Purchase and Sale - Eleventh Post

EW: The assets other than goodwill can be a significant component in the overall value of a practice. With the pace of changing technology and the move to multi-disciplinary and rehabilitation clinics, both the overall cost related to these assets and the degree of obsolescence are becoming more important to its value.

Before assessing a value for a particular asset, a purchaser should first determine if they will utilize that asset in their practice. An asset they won't use has no value as far as the practice is concerned. This issue is extremely important from the vendor's perspective also. To maximize sale value, the vendor should be searching for purchasers who practice in a similar style and who utilize the same types of equipment.

What is the most appropriate measure for value of a particular asset? To determine fair market value, many approaches can be taken. For a practice that has wound down and has no value beyond the equipment, net realizable value might be used. In some cases, this may result in what one may term a "fire sale" price. For a going concern, on the other hand, replacement cost would be a more appropriate measure. In other words, what would it cost to replace the same equipment? Replacement cost can be difficult to assess. As an example, consider the practitioner who has included, in a sale, his well maintained twenty year old x-ray unit. On the one hand, one cannot find a similar machine depreciated for twenty years. On the other hand, its value may be the same as or greater than a newer unit because of its workmanship and features. Obsolescence also affects valuation for similar reasons. As an example, it may be difficult to find an appropriate replacement cost for an old computer. Remember, value in use is the key.

How does one arrive at an appropriate replacement cost? For inventories and supplies, using their purchase costs would be appropriate because of the turnover of the items within a year. For equipment, computers and furniture, there are a few approaches:

1. Book Value: This is the depreciated value from the financial statements. This approach is often used for its simplicity. On its own, it may be useful where the assets are not of significant value. However, extreme caution should be used. At a minimum, the original invoices for the assets should be available and depreciation policies and rates should be reviewed. Often, accelerated rates may be used for tax purposes. A review of the repairs and maintenance account on the financial statements for the previous years may provide a picture of both the maintenance and the degree to which those assets may be wearing down. Where there are significant modalities and rehabilitation equipment involved, this approach is insufficient because the margin of error becomes greater.

2. Replacement Cost New: An approach which is often recommended is to obtain prices from dealers for the listed equipment. The prices obtained are, in fact, the cost to replace the equipment - new. Certainly, in practical terms, it is a useful measure because it addresses the issue of the same equipment. On its own, however, it tends to overstate the value in most cases.

3. Replacement Cost Used: Although this would approximate fair market value, it is often the most difficult to determine. The lack of a large market for used equipment and furniture is partly the reason. This is not to say that one can=t find used equipment - only that in valuing an existing asset it is difficult to find one that is the exact age or condition. To deal with this issue, it is often useful to obtain an independent appraisal. This is particularly important with assets of significant or potentially significant value. For example, if real estate were part of the transaction, one would not hesitate to request an appraisal of the property.

Leasehold improvements is an asset that has many a practitioner confused. Since the landlord owns the property, don't they ultimately own the improvements? Yes.....and.....no. The landlord may own the assets but the tenant owns the right to use those improvements during the term of the lease. This right to use the improvements has value because a purchaser would have to invest in their own improvements if they were to move into new premises. One method to arrive at a value would be to take the original cost and apportion it over the term of the lease. The remaining cost on the date of sale would be the value. From the purchaser's point of view, they should ensure that amounts were expended for actual leasehold improvements and not the recreation room in the vendor's home. An examination of actual invoices would be useful. Also, the lease should be reviewed to see who was responsible for paying for the leaseholds. Sometimes landlords will offer to pay for leaseholds as an incentive to attract tenants. From the vendor's point of view, aggressive tax planning, whereby leaseholds have been written off as repairs can backfire on a sale. This is one reason why planning for a sale is critical.

Finally, two other issues can impact on the value of these assets: Taxes and a corporation. Sometimes the value attributed to certain assets can give rise to unwanted tax implications, such as recaptured depreciation for the vendor or increased sales taxes for the purchaser. From the purchaser's point of view, the more value attributed to assets other than goodwill will result in greater tax savings over time due to the accelerated rate of depreciation.

The corporation can impact the asset values because of the tax implications of using a corporation. A vendor who sells the assets out of a corporation will have to consider the additional tax cost of removing the proceeds from the corporation. We will address other aspects of the impact of a corporation in a future article.

Ultimately, the approaches used to value the assets specifically will depend on the situation, what types of assets, their significance to the overall sale price and the information available.

More of the List

and the list continues ------

18 white water rafting

19 London, England

20 a weekend on a houseboat

21 standing on the Uffice Bridge

22 spending a day with Gordie Howe

23 preparing a power point presentation

24 Geneva, Switzerland and Lake Geneva Wisconsin

25 being the only passenger on a Piper Navaho

26 one bar mitzvah, two bar mitzvah, three bar mitzvah

27 henna tattoo

28 Oslo, Norway

29 cross country skiing

30 ’65 triumph spitfire

31 14 weddings in 11 months

32 helicopters landing on a ship

33 Hamburg, Germany

34 go karting

35 a magic trick that works

36 Costa Rica

37 rollerblading

38 ’68 mustang

39 Paris, France

40 gondola ride

32 years and time for a change!

Today was not unlike most other days. It is Wednesday. It is September 3rd, and in Toronto, the weather is sunny and warm. At CMCC the students are back in class and the world evolves in spite of itself.

But, for me things are not the same old same old. For the first time since September, 1976 I am not lecturing a class at CMCC. It is kind of sad. I still showed up at the College before 8:00 a.m. albeit on a motorcycle. Had some meetings, did what I had to do and then that was it. No class, no lecture, no nothing. So it was either time to go to the office or to do something different. The choice was easy.

I met up with Dr. John Cosgrove (’77) and on motorcycles we traveled to Collingwood to go for a motorcycle ride with Dr. John McLean (’51). Yes you are reading that correctly. He graduated in 1951, has a full head of hair, doesn’t wear glasses, is 85 years of age and rides one of the biggest motorcycles around – an 1800cc Honda VTX – and he rides it like he stole it!

For those of you who may be evidenced based practitioners (whatever that means) – all you have to do is look at Dr. McLean and realize that there must be something about being a chiropractor and naturopath that adds something to the quality of life.

Most of us hope to be mobile when we are 85 years old. Me – I want to be mobile on a two wheel motorcycle when I am the same age as Dr. McLean – that is 85 years young!

So back to today. I have decided that it is time that I start listing the things that should be done during a lifetime. A little like “100 things to do before you die”. But not quite. My list is for me -- the things that I have done that most people have not. I urge you to do the same. If the list is short – then you should start changing your ways.

My list goes something like this:

1. graduated from law school
2. taught for 32 years
3. writing articles for publication
4. eating donkey sausage in Cinzano
5. a sea cruise
6. a bungie jump
7. ballroom dancing
8. motorcycling – as in two iron butt rides of 1000 miles in 24 hours and 1500 miles in 36 hours
9. flying over the grand canyon
10. Lake Louise
11. driving the Blue Ridge Parkway
12. proctoring an examination
13. receiving a phone call on a plane
14. winning a bowling tournament with a score of 312 out of a possible 300
15. mojitos and cigars in Cuba
16. fishing but not wanting to catch any fish
17. New York, New York

I don’t know how unusual any of that list might be – but I sure would like to review the list of other people to know what I am missing. I already know that I am not going to climb a mountain (ask Dr. Gord Lawson – he has been there and done that); or run across a desert in Africa (ask Dr. Luc Laviguere – he has been there and done that).

So if you have a list share it and I will post it. It isn’t bragging – it is giving others an indication of what can be done. So as the day comes to a close – I look back and realize that I can add another number to my list -- I went motorcycling with an 85 year old chiropractor. Who would have thunk it !!!!!!

Purchase and Sale - Tenth Post

AF: Having dealt with the value of the practice, it is important to keep in mind that the purchase price will be based not only of the value of the practice but additional factors such as the timing of the practice in terms of whether the vendor requires an expeditious completion of the transaction; how the practice is to be financed; and what is included in the purchase price. As in the discussions which have taken place concerning associateships, many of the issues involved in a Sale/Purchase of a chiropractic practice are interwoven as part of a big picture. It would be foolhardy and quite impractical to deal with any particular issues such as billings or a purchase price without looking at other issues such as staff turnover, what assets are included or the patient base. As such, the topic of which have been dealt with previously may well be raised again in a different context or as indicated, in the "big picture."

What should be included in the transfer of a practice, and just as importantly what constraints do the parties have in dealing with assets of the practice?

It would appear to be trite to indicate that a vendor can only sell what a vendor owns. However that is not necessarily the rule that governs a commercial transaction. The better principle to work by is that a "vendor has the right to transfer any interest which he, she or it may have in an asset subject to any constraints which may be placed on that transfer." For example, with respect to a computer that a doctor may have purchased, he or she may sell the computer to a purchaser, if there is no lien placed upon the equipment; if the equipment is actually owned and not leased; and if the doctor is the owner as compared to a management company. In any event, even if the computer can be sold, it is surely also trite to indicate that the computer software cannot be sold B it can only be assigned pursuant to the software agreement which generally exists and governs the acquisition of the software by a person purchasing the software from a retail vendor.

If equipment is the subject matter of a lien by a lender such as a financial institution, it is imperative that the vendors ensure that the lien can be lifted prior to the completion of the transaction or by using the proceeds obtained at the closing of the transaction. Vendors obligate themselves to discharge such liens pursuant to the Agreement of Purchase and Sale. This principle likewise applies to equipment that is leased. If the purchaser is to assume the lease then the Vendor should ensure that the lease agreement can be transferred to the purchaser and at what cost prior to signing any sale agreement. The leasing company may require that the vendor purchase the equipment or "pay off" the lease prior to any transfer of the equipment.

If the equipment is owned by a management company then it is imperative that the Vendors ensure that the management company is a party to the sale agreement. A vendor would not want to be surprised, at closing, by a management company that he or she may not control which is unwilling to transfer the assets.

The Purchaser should review the practice location of the Vendor very carefully to ascertain what is to be included at the time of the closing of the transaction. The list of assets being transferred would include a comprehensive list of each assets and might include the following: receptionist desk, chair, reception shares, end table, pictures, filing cabinets, telephone system, radio, television, refrigerator, fax machine, photocopier, computer, assignment of computer software, exterior sign box and sign, treatment tables, view box, x-ray, developer, office desk, chairs, skeleton, fire extinguisher, smoke detector, plants. This list is by no means comprehensive. A purchaser would be well served by visiting the location at least twice to ensure that a comprehensive list of assets to be included in the purchase agreement was actually created.

With respect to assets such as an x-ray machine, photocopier, computer, etc., a purchaser should have a provision inserted in the Offer whereby the Vendor agrees that the assets will be in good working order on closing. While the assets should be in the same condition which existed at the time that the Offer was presented (with or without a clause requiring them to be in good working order) it is not uncommon for a purchaser to fail to examine and try all equipment prior to the Offer being signed. This is a clear example of when the principle "let the buyer beware" applies.

In addition to the assets previously mentioned, a purchaser should have specific regard to the following assets:

1. Patient Files: The files should be transferred to the purchaser in their entirety. This should include all old files (which may be used to reactivate a relationship between the doctor and a patient) in the possession of the vendor together with all x-rays relating to the files. The vendor should require that the purchaser maintain the records for at least 7 years after the completion of the transaction and in addition, the vendor should ensure that he or she has reasonable access to the files or a copy of them if required by law (this might include matters such as a malpractice claim; billing dispute; a licensing board issue; or an income tax audit).

2. Financial Records: In so far as the Purchaser might require financial records for the ongoing care of patients or the maintaining of the practice, the purchaser should obtain such financial records. Again, the vendor should ensure that he or she has access to the records as may be reasonably required and that such records are not destroyed except in accordance with the sale agreement.

3. Supplies: Any supplies which are customarily maintained at the practice should be included in the purchase price. The vendor should agree to maintain the level of supplies in its usual quantity.

4. Inventory: If the vendor maintains products such as orthotics, vitamins or back supports, the purchaser will want to ensure that they are being acquired at the cost that the vendor paid, and secondly, that the inventory is in merchantable condition, that is, that each of the products is saleable, ie. the packaging is in a proper condition and/or the product has not reached or is about to reach its expiry date. In addition, the purchaser will want to ensure that the level of the inventory of the vendor is maintained in its usual capacity.

5. The computer software will require, as indicated, an assignment of the software licence agreements. If such software is created by a particular software producer, the licence agreements should be reviewed carefully to determine whether there are any restrictions affecting the transfer of the software in addition to the cost associated with the transfer.

The Vendor should ensure that any assets which are to be transferred to the Purchaser are subject to a Bill of Sale being provided to the purchaser. If assets are leased then the terms and conditions of the leasing arrangements should be reviewed carefully and dealt with in accordance with the lease and the purchase agreements. It is most important that the Vendor review any appropriate documentation relating to the ownership and leasing of equipment prior to executing an agreement relating to the sale of a practice. Being surprised after signing an agreement can be an expensive enterprise.

From the position of the Purchaser the assets which are specified in the Agreement of Purchase and Sale must be in existence at the time of closing, in good working order and free and clear of all encumbrances. A Purchaser who has paid a significant amount of money for a practice will be loath to have to expend any further funds to equip the office, whether that involves the replacement or addition of assets. The fact that a Vendor has an extensive amount of assets is of little concern to a Purchaser who is generally concerned only with the amount of the purchase price and the ability to maintain the practice in its previous state after the completion of the transaction.

Purchase and Sale - Ninth Post

OTHER ISSUES

There are other approaches for the valuation of a practice, but they are generally used to confirm a value determined by another approach.

Other factors can enter into the valuation of a practice and make it more complicated. A major factor is the involvement of a corporation. With its inherent separation from the individual, income tax implications can enter into the calculation. Similarly, the allocation of the purchase price between tangible assets and goodwill can cause subtle or large changes in overall value.

Another factor is the effect of an associate or partnership arrangement. This may affect the ability to sell and, in the case of partnership, the income tax implications can affect the price.

The multi-disciplinary clinic brings its own issues. Will the potential purchaser be acquiring all aspects of the clinic? If so, there are different valuation issues for the other specialties.

Finally, consideration should be given to the potential for a "special purchaser" who perceives an even greater benefit and who may be willing to pay more than the average purchaser.

It should be evident to both potential purchasers and vendors that the value is a reflection of the practice as a whole. The illusion that a practice is worth a fixed percentage of historical revenue, regardless of the present circumstances, should give way to a clearer understanding of what factors really count in determining the value of a practice.


AMF:

The effort which is required to determine the value of a practice should take into consideration the fact that unlike real estate and commercial operations such as restaurants, and retail establishments the transfer of a professional practice involves to a very large extent the transfer of a practitioner's history as a doctor. The bottom line for any purchaser must be his or her ability to have earnings continue to be generated from the practice.

For a prospective vendor and/or purchaser the rumors, generalities, rules, policies, attitudes and guidelines involving the price to be paid for a practice abound in multitudes. "Everyone" has an opinion and "everyone" will provide guidance to a purchaser or vendor in terms of what he or she can expect to pay or receive from a sale of a practice. While it would be optimum to quote a textbook, study or economic principle that could be used as the guiding light for participants in a transfer of a professional practice relating solely to that of a chiropractor, alas, such does not exist to the knowledge of the writer.

If experience is any indicator of what transpires in the transfer of a chiropractic practice, (and having spent twenty-five years participating in the professional guidance of chiropractors) then generalities based upon experience may be the best indicator of what will result from the negotiations involving the establishment of the price relating to the transfer of a chiropractic practice. It is the experience of the writer that when all is said and done, and the experts have reviewed the practice to establish the sale price based upon billings, taking into account past revenues, receivables, equipment, leasehold improvements, etc., etc., etc., the parties ultimately will arrive at a value having regard to the billings. In the area of real estate acquisition it has been stated that the three most important factors in establishing the value of a property are location, location and location. In the area of practice valuations relating to chiropractic practices, the three most important factors are billings, billings and billings.

In addition, It is the experience of the writer that the parties must direct themselves to considering how revenue is generated from the practice. Obviously any general rule is subject to exception and should be adopted with careful consideration. No purchaser should be acquiring a practice for a "generally accepted" percentage of billings averaged over a number of years when the billings are decreasing.

However, just as important are the consideration which add to the discussion concerning the value of the practice in terms of the equipment, leasehold improvements and other assets. It is unlikely that a purchaser will be willing to acquire substantial equipment for a substantial price when such equipment does little to increase the billings of the practice. It is the position of the writer that historically, while a value is given to equipment and other assets, the value of the practice will be somewhere between 2/3 and 3/4 of a year's billings averaged over three years. From that starting point the value will go up or down depending on all of the factors which have been previously discussed including such matters as location, security of the lease, referral base, type of practice, turnover period, security of billings, name of practice, state of equipment, staff, financing by the vendor, etc.

For the purposes of establishing a value attributable to a chiropractic practice the golden rule can be enunciated in two words: "Status Quo" -- that being, "the more that can stay the same, the more the practice is worth!"

Purchase and Sale - Eight Post

EW: The conceptual framework for valuation of a practice has been examined in the previous article. We now look at practical approaches to determining value. They include: Net asset value, comparable market, and approaches based on earnings.

NET ASSET VALUE

This approach is used where the practice has wound down and there is no value beyond selling the equipment and other tangible assets. It is also used where the goodwill of the practice is of a personal nature, and therefore, not transferable or saleable. This personal goodwill represents the personal skills, techniques, experience and contacts of the individual chiropractor. Lastly, it is used in the valuation of a successful practice, going-concern, where the tangible assets are determined and valued separately from the goodwill.

Net asset value can be determined in a few ways. The simplistic approach would be to value the tangible assets (eg. Equipment, furniture, etc.) at their depreciated book value on the financial statements. This may be applicable where their value in use closely approximates book value. Often, adjustments have to be made to book value, either increasing or decreasing the value. An example of an adjustment would be for land and building, where they are included in the sale of the practice. They would have to be adjusted to reflect outside appraisal. Another type of adjustment may be to reflect costs of liquidation where a practice may be closing or be subject to a bankruptcy situation. In that situation, a purchaser could be acquiring someone=s used equipment at bargain prices.

COMPARABLE MARKET

This approach determines the value by comparing it to other practices that have been sold close to the date of valuation. Most of us are familiar with this approach, especially as it pertains to real estate. Unlike real estate, however, transactions involving chiropractors tend to be private and there are not many comparable practices for sale at any given time. Many times, practitioners will make reference to a practice which they have heard has been sold at a given price and suggest that they be entitled to at least the same since their practices are similar. Since there are a multitude of factors which affect the value (see previous articles), NO TWO PRACTICES ARE ALIKE!

Clearly, to be useful as the primary valuation approach, one needs a large sample of practices sold with all relevant factors addressed. Because of its inherent drawbacks, this approach is most often used as a reality check with which to assess a value using another method.

EARNINGS BASED APPROACHES

In all cases, earnings based approaches assume the continuation of the practice after its sale known as a going concern assumption. The purpose is to determine a price which will provide to the purchaser a return on their investment at a rate of return that is acceptable to them, given the risk inherent in the practice. To many this may appear odd, talking about a practice as if it were, say, an investment in stocks or mutual funds. However, one must use the same theoretical approach to purchasing this type of business or any other. That return on investment, as described in the previous article, is the expected cash flow that the practice is expected to produce in the future. Expected cash flow is most often represented by maintainable earnings. In other words, what level of revenue less expenses can be expected to occur in the future based on the existing practice.

Capitalization of Maintainable Earnings

In its most simplistic form, this method looks at historical profits over a period of years and adjusts those profits for unusual items. Those items could include removing salaries to family members, eliminating revenues from revenue sources which will not continue in the future and adjusting for conditions which will change with the sale of the practice. The profits would typically be averaged to come up with a figure for maintainable earnings. However, to use previous years profits, or use an average only apply if the historical profits are an indication of the future. A practice which is on the downswing or is suddenly incurring excessive expenses would not be assessed based on distant history. Similarly, a practice which is experiencing significant growth should not be penalized by sticking to outdated numbers. In those cases, the more recent profits are often an indication of maintainable earnings and would be used.

Once a maintainable earnings amount is established, it is then necessary to capitalize those earnings to determine a value. This process involves assessing the risk inherent with achieving the level of earnings and deriving a capitalization rate. In previous articles, we have listed many of the factors affecting risk. The capitalization rate is more often referred to as a multiple. Therefore, the lower the risk, the higher the multiple. Multiples can vary from 2 times to five times earnings depending on the risk and whether a salary for the practitioner has been assumed in the expenses. There are a number of variations of this method. Even so, it is still the most comprehensive approach because it encompasses the revenues and the expenses, as well as the assets.

Maintainable Fee Revenue

This popular method, in its most simplistic form, looks at historical revenues over a period of years and capitalizes an average at a rate which reflects risk in order to determine goodwill. Similar to the earnings method, revenue should be adjusted for non-recurring income and, often ignore historical revenue in favour of more recent relevant data, particularly where there have been recent changes in the practice. The capitalization rate which considers all the risk factors is calculated by percentage. The lower the risk, the higher the percentage. Utilizing this method, a value for a chiropractic practice could vary from 20% to 70% of annual maintainable revenue plus tangible asset value.

This method suggests that revenue is the key determinant of cash flow. It further assumes that there exists a constant relationship between revenue and that cash flow. Because of its simplicity, the maintainable revenue approach has become a "rule of thumb" for the valuation of many professional practices, including chiropractors. Its simplicity is also its weakness, because it ignores the fact that some practices may pay higher than average rent, or be more efficient with their overhead. Some may have associates to whom they pay a portion of the fees billed. Because of these deficiencies, this method should be used with caution and can be used as a reality check with a valuation based on earnings.

Purchase and Sale - Seventh Post

Goodwill

Thus far, we have been discussing a number of concepts and factors affecting the value of goodwill. In most cases, it comprises most of the eventual price so it is extremely important that both vendor and purchaser understand what type of goodwill has value. There are two types of goodwill: Commercial and personal. Because of the nature of professional practice, they often overlap and make valuation difficult.

Commercial goodwill is the goodwill which has value and can be sold or transferred to other parties. It represents the perceived benefit to prospective purchasers of getting into practice with an established office, existing patient base, staff and premises. It's value is in direct proportion to the ability to maintain the earning capacity of the practice.

Personal goodwill has little or no value and is not transferable or saleable. It represents the personal skills, techniques, experience and contacts of the individual chiropractor. The degree to which these factors cannot be emulated by a prospective purchaser will affect the ability to sell the practice. A typical example would be where a chiropractor practices a unique procedure that no one else does, including prospective purchasers. If this procedure is the only source of revenue, the practice will have no value for goodwill.

In looking at the conceptual framework for determining the value of a practice, a prospective vendor should be more aware of what factors determine that value and therefore implement changes to their practice to improve its ultimate liquidity and sale price. Prospective purchasers should have a better understanding of what elements to look for in a practice in order to find the right practice for the right price.


AMF: For both the Purchaser and the Vendor it is important to keep in mind the bottom line B how much is being paid and how much can be retained after the payment of debts, including taxes.

The Purchaser must remain concerned about the ability of the "asset" being able to generate the income which has been represented to have existed at closing by the Vendor. Was there "value" to the "asset". All things being equal, the Aasset@ should be able to provide income which has been anticipated by the Purchaser to be derived by the practice after closing.

Empirically and by anecdotal discussion with purchasers, there is no reason why the billings generate previously by a practice cannot be maintained by the purchaser with a "drop off" rate of no more than 15%. The drop in patient income after closing should be able to be maintained at an amount not less than 10%. In order to accomplish this fact, the Purchaser must be in a position to maintain the "goodwill" after closing as it had been maintained prior to the transfer of the practice. The status quo is the most vital part of a practice in that the less that is changed the better. There is a sense of security for a patient who attends an office and is able to be assured that things will remain the same in terms of staff, location, treatment technique, billings and other office protocols.

There is danger to making any immediate changes to the practice which will cause a patient to question whether the "office" has changed to an extent whereby the patient is content to seek care elsewhere. This includes the addition or replacement of equipment or furniture.

There will always be some "drop off" by patients who are members of the Vendor's immediate family or for some reason may have a relationship with the Vendor which will result in the patient remaining with the Vendor after closing notwithstanding the non-competition and non-solicitation provision. The Purchaser should recognize that these patients exist and should ascertain from the Vendor the extent of the list and how it will affect the future income of the practice.

A practitioner should keep in mind that as long as there is a purchaser willing to pay for that portion of a chiropractic practice which exceeds the actual value of furniture, equipment and leasehold improvements (whether that value is established by replacement cost, undepreciated value or actual cost) goodwill will continue to be an asset which can be created, maintained, bought and sold.

Purchase and Sale - Sixth Post

The next issue which will be considered by the parties is the type of practice being carried on by the Vendor. Does the Vendor carry on a particular type of practice which may limit his or her marketability? For example, if the chiropractor practices acupuncture or is a naturopath or has some particular expertise, ie. a sports fellowship or predominantly deals with paediatrics or geriatrics, the marketplace with respect to a potential Purchaser may shrink. The more specialized the practice the less potential Purchasers that may be available to acquire the practice. The greater the marketability of the practice the greater its value. Inevitably, the Vendor and Purchaser must be compatible in terms of their practices.

While it will be difficult if not impossible for a practitioner to change his or her practice technique in the time available for a transition of a practice, it may be beneficial for a Vendor to bring to a practice another practitioner who is in a position to assist the practice for the purposes of making it more saleable. Such would be the case in the event that the chiropractor is also a naturopath and is only able to sell the practice to a chiropractor who does not have dual licensure. The Vendor could enter into an associateship agreement with a naturopath to assist a Purchaser is acquiring the practice and maintaining the clinic's ability to provide care outside of the knowledge of the Purchaser.

For the purposes of establishing a value to the practice, it will be necessary to ascertain the basis from which patients are derived. Are the patients referred to the clinic from a source which may not exist after closing (ie. a relative of the Vendor)? Do the new patients come from an internal referral source (ie. existing patients)? If such is the case, the goodwill is of more value than a source of patients which will disappear after closing.

What are the billing practices of the Vendor? The Purchaser will be stepping into the shoes of the Vendor so he or she must be prepared to assume the same billing procedures of the Vendor. This applies to issues concerning what the Vendor bills in terms of quantum together with any policies that might exist in terms of discounts to students, children and seniors, and any credit policies which the Vendor may have.

Any Purchaser who alters the policies concerning billings to patients, or for that matter any office issues including office hours, methods of practice or even the office design does so at his or her peril. Again, any change in the status quo is an invitation to disaster.


EW: In the previous article, some of the factors in determining the price were addressed. Since value ultimately results in a number, taking those factors into consideration, how is value established?

First, it is imperative that both vendor and purchaser have an understanding of what value really means. After quickly suggesting that it means the worth of something, an examination of some valuation concepts will provide greater clarity to the determination of value.

Purchase and Sale - Fifth Post

The next issue which will be considered by the parties is the type of practice being carried on by the Vendor. Does the Vendor carry on a particular type of practice which may limit his or her marketability? For example, if the chiropractor practices acupuncture or is a naturopath or has some particular expertise, ie. a sports fellowship or predominantly deals with paediatrics or geriatrics, the marketplace with respect to a potential Purchaser may shrink. The more specialized the practice the less potential Purchasers that may be available to acquire the practice. The greater the marketability of the practice the greater its value. Inevitably, the Vendor and Purchaser must be compatible in terms of their practices.

While it will be difficult if not impossible for a practitioner to change his or her practice technique in the time available for a transition of a practice, it may be beneficial for a Vendor to bring to a practice another practitioner who is in a position to assist the practice for the purposes of making it more saleable. Such would be the case in the event that the chiropractor is also a naturopath and is only able to sell the practice to a chiropractor who does not have dual licensure. The Vendor could enter into an associateship agreement with a naturopath to assist a Purchaser is acquiring the practice and maintaining the clinic's ability to provide care outside of the knowledge of the Purchaser.

For the purposes of establishing a value to the practice, it will be necessary to ascertain the basis from which patients are derived. Are the patients referred to the clinic from a source which may not exist after closing (ie. a relative of the Vendor)? Do the new patients come from an internal referral source (ie. existing patients)? If such is the case, the goodwill is of more value than a source of patients which will disappear after closing.

What are the billing practices of the Vendor? The Purchaser will be stepping into the shoes of the Vendor so he or she must be prepared to assume the same billing procedures of the Vendor. This applies to issues concerning what the Vendor bills in terms of quantum together with any policies that might exist in terms of discounts to students, children and seniors, and any credit policies which the Vendor may have.

Any Purchaser who alters the policies concerning billings to patients, or for that matter any office issues including office hours, methods of practice or even the office design does so at his or her peril. Again, any change in the status quo is an invitation to disaster.


EW: In the previous article, some of the factors in determining the price were addressed. Since value ultimately results in a number, taking those factors into consideration, how is value established?

First, it is imperative that both vendor and purchaser have an understanding of what value really means. After quickly suggesting that it means the worth of something, an examination of some valuation concepts will provide greater clarity to the determination of value.

1. Value is determined as at a specific point in time. That point in time could be the date of sale or the date of an offer of purchase and sale. It could also be determined as of the date of death or separation, as in the case of a marital or partnership dispute. The distant past is irrelevant unless one is determining a value as of some previous date. I have encountered some vendors who have an inflated view of their practice=s value. They argue that one use a fixed formula based upon some average of previous years= activity (however that is measured). Meanwhile, they have allowed their practices to decline more recently. The old expression, "What have you done lately," really takes on importance in that situation. The future is uncertain even though one might have certain expectations. Therefore, a valuation would consider the current state of the practice, the profession, as well as the related health care industry and economic environment.

2. The vendor is selling the future. In any purchase and sale transaction, the purchaser and their advisors are assessing what to expect in the future. Past results are essentially used as a guide to help determine future results. This is why practice statistics and financial information are requested for a number of years. As stated above, the future is uncertain and it is the purchaser who assumes that risk. With that in mind, the higher the perceived risk of attrition or financial loss in the future, the lower the price.

3. Expected cash flow determines the price. Ultimately, it is the cash flow that the practice is expected to produce which determines the majority of the value. The remainder of the value is made up of tangible assets, such as equipment, furniture and leaseholds. In some cases, real estate sold as part of the transaction will influence the price. The other key component is the risk associated with obtaining that cash flow. The risk is evaluated by assessing a number of factors which were identified in the previous article. Because of their importance, I will restate them. They include, but are not limited to:

1. the location of the practice;
2. the right to practice at that location;
3. the type of practice;
4. the staff; including referral base;
5. the name of the practice;
6. the billings of the practice;
7. the intentions of the vendor after closing.

4. A higher value attributed to "tangible assets" will generally result in a higher price. What this implies is that two identical practices will be sold for different prices where one has more tangible assets than the other. Even though a chiropractic practice is not capital intensive, compared to other businesses, there is still a perception of reduced risk to the purchaser. This applies to a lender as well. Financial institutions are generally willing to lend more against tangible assets than goodwill. In fact, many transactions have been aborted because some banks refuse to lend against significant amounts of goodwill, while they are more lenient in situations where the tangible assets are in a higher proportion. Greater value attributable to tangible assets also means greater tax savings through accelerated depreciation.

5. The liquidity of a practice is a key determinant of value. This refers to the ease with which the practice can be sold. As in real estate, the greater the number of potential purchasers, the higher the price. Conversely, the greater the number of practices for sale, the lower the price. Unlike real estate, there are not many practices for sale at any given time. Nevertheless, from a vendor=s point of view, all things being equal, one would be inclined to offer a practice for sale when there are no other practices for sale in the area. "Special purchasers" who perceive an even greater benefit will be willing to pay more than the average purchaser. One example could involve a practice where the chiropractor also practices acupuncture and it comprises a significant portion of the revenue. A purchaser who is also able to practice acupuncture will more than likely see more value than one who does not practice acupuncture. A second example could involve an associate or partnership. The associate or partner may perceive greater value and thereby offer a higher price than a total stranger. However, the more personal the practice the harder it is to sell and the lower the price.

Purchase and Sale - Fourth Post

We have dealt with the issue of "why" and "who" we should now deal with "when". Consideration should be given as to "when" a practice is most suitable for selling in terms of not only its worth but the related issues such as an expiration of a lease, the retirement of debts, the marketing of the practice (in terms of new graduates willing to purchase a practice), a new billing year to government or private insurance carriers, and any other issues which may affect the goodwill of the practice and ultimately the purchase/sale price.

As was indicated in the first article, it is best to be proactive in so far as a practitioner might make an informed choice as to when a practice will be sold. It is not merely a matter of waking up one morning and determining by the afternoon that a Purchaser should be found and the practice disposed of. Any consideration of such an option is dealing with a practice on a crisis basis. More important, a Vendor should work towards selling a practice. Having regard to the factors which make up the goodwill of a practice for which a Vendor will be compensated, a Vendor might well spend some time reviewing a practice and ensuring that the practice is in a shape which will attract the best price. This issue is no different from dealing with the sale of a residence which requires a painting or cleaning before it is placed on the market.

For example, if it is accepted that a practice which uses a location name is more attractive to a Purchaser than that of a practice which uses the name of the practitioner (ie. Ontario Chiropractic Clinic vs. Smith Chiropractic Clinic) it would be wise for a doctor who is presently using his or her name to change such a name to a location or something other than his or her personal name. The use of a generic name allows for an easier transition on a sale from a Vendor to a Purchaser. There are legislative limitations which are placed upon a Purchaser using the name of the Vendor.

Given some time, a Vendor can take care of such a situation. For practices which are sold in an untimely basis, such situations may not be able to be remedied and the sale price may be detrimentally affected by the personal nature of the name of the practice. Further on in these articles, we will deal with other considerations which should be taken care of a Vendor for the purposes of obtaining the best valuation possible further on in the articles.

When dealing with actual disposition or acquisition of a practice it is important to keep in mind the initial issues which we had discussed in terms of the Agreement which will be entered into between the parties, namely, who, what, when and how. In the case of who, we had reviewed the issues concerning the possible parties to the agreement. It is imperative that all of the relevant parties join in the agreement. Even if the practice had purportedly been operated by a corporation, it is imperative that a Purchaser ensure that a licensed chiropractor be a party to the agreement. A corporation in provinces which do not allow chiropractors to incorporate their professional practices cannot own a professional practice. Such corporations cannot own and transfer patient files which by their very nature are the subject of confidentiality. Such corporation cannot own the goodwill associated with a chiropractic practice which is regulated by statute, but it might well have "goodwill" of its own.

While a corporation may be a proper party to the agreement, having owned the chattels and leasehold improvements, it cannot be the sole party to the agreement. It is just as important to have a spouse be a party to an agreement if the practice is a family asset.

To the Purchaser and Vendor the most important part of an agreement may very well be the price which is to be paid for the practice. There are a number of opinions which appear to be in vogue and are used for the purposes of validating a purchase price for a chiropractic practice. Before we arrive at the conclusions relating to the formulae for ascertaining the purchase or sale price of a practice, it will be useful to deal with the issues involved in evaluating a practice.

There are a number of factors which come into consideration for the purposes of arriving at a value of a practice, namely:

1. the location of the practice
2. the right to practice at the location
3. the type of practice
4. the staff
5. the patient profile, including referral base
6. the name of the practice
7. the billings of the practice
8. the intentions of the Vendor after closing

As far back as 1987, the case of Rasmussen and Rasmussen (Ontario District Court, O.J. No. 1303) dealt with the considerations involved in valuing a chiropractic practice. Mr. Justice Forget dealt with a number of factors which are relevant for the purposes of determining a value to a chiropractic practice and concluded that a chiropractic practice has a "goodwill value".

In the opinion of the writer there is no more important determination in the value of a practice than that of ensuring that the "status quo" will continue after closing. The less changes that will take place the more valuable the practice becomes.

With respect to the location of the practice, it is important from the position of the Purchaser to ensure that the location of the practice will continue to remain as it is at the time of the transfer of the practice.

If there are substantial changes which will be made to the geographical area of the practice the more likelihood that the goodwill of the practice will diminish.

The second issue to be considered with respect to the matter of valuating a chiropractor=s practice is that of the Vendor's right to carry on practice at a particular location and subsequently the Purchaser's right to continue to do so after closing. This issue will either involve a lease or the ownership of the building in which the practice is carried on.

In the case of a lease, consideration must be given to the terms of the Lease Agreement dealing with such issues as:

1. the remaining term of the lease
2. the right of the Vendor to assign the lease to the Purchaser
3. the right of the tenant to maintain associates
4. the uses to which the premises may be used
5. the right to new the lease
6. any option to purchase the leased premises
7. any exclusivity rights of the tenant

Obviously the more rights that the tenant has the more valuable the lease. A lease with a high rent and long term may be considered to be a liability. A long lease with a low rent may be considered to be an asset. The totality of the terms must be dealt with in order to ascertain whether a lease will be attractive to a tenant.

However, there may be a more important consideration which should be considered by the Vendor and will impact on the Purchaser. If the Vendor assigns the lease which has a further term to run, ie. 3 years of a 5 year term, it is customary that the present tenant (Vendor) will not be released by the landlord from his or her obligations under the lease. If the new tenant (ie. Purchaser) defaults in his or her obligations under the lease, even two or three years after the completion of the transaction, the Vendor may be called upon by the landlord to satisfy the obligations of the Purchaser/tenant.

It may be more prudent for a Vendor to have the Purchaser enter into a new lease agreement with a Landlord so that the Vendor will not have any continuing obligations to the Landlord. However, as in most of the issues involving a sale of a practice, there are a number of interwoven issues which must be considered in terms of other issues.

If a Purchaser and Vendor agree that part of the purchase is to be paid over time, ie. one, two or three years, the Vendor may want to obtain some security for the outstanding debt. If there is also bank financing involved, it may be likely that the accounts receivable and assets have been pledged to the bank as a first security. The most appropriate security left to the Vendor to ensure payment of the outstanding indebtedness of the Purchaser are the files of the practice and a right by the Vendor to take over the lease. If the Vendor is owed part of the purchase price by the Purchaser or the Vendor is responsible for the lease obligations, the Vendor may wish to retake possession of the premises to attempt to mitigate his or her damages.

If the Vendor is the owner of the building in which the practice is carried on, there are at least two issues which will have to be dealt with by the parties. First, is the building to be including in the transaction? This becomes more of an issue if the practice is that of a home practice. If the dwelling is not included in the transaction, will the Vendor be able to sell the building to another party, or even more importantly is the value of the practice or the building's value affected by the fact that the two assets are not being sold as a joint basis.

If it is unlikely that the building and practice can be sold together either because of the costs involved or because of another issue, such as zoning, it may be appropriate to have the practice relocated prior to its sale by the Vendor. A Purchaser and Vendor may both have difficulties with respect to an immediate relocation of the practice after closing and as such it may be an issue which the Vendor will have to deal with if he or she hopes to obtain the highest price possible from a sale of the practice.

If the Vendor and Purchaser are entering into a lease arrangement for a building owned by the Vendor, the Purchaser may wish to obtain an option to acquire the building in the future. If such is the case, it is important that the terms of the option be agreed upon without leaving any issues open for debate (ie. how is the price to be determined, when is the closing, what fixtures are to be included).

If the transaction is to include the building and particularly if the building involves a principal residence, there are tax considerations which should be considered by the parties prior to the completion of negotiations.

Purchase and Sale - THIRD POST

Part II

Once you have come to grips with the concept of selling or buying a practice, and, if you are selling, you have ascertained that the timing of the practice is most appropriate for the purposes of obtaining the best value for the practice, the next issue to be dealt with who are the parties to the transaction and who else might be involved in the matter. While the obvious parties are the purchaser and the vendor, it should be remembered that there a number of other individuals who will be privy to the agreement and will have some impact on the transaction.

The Vendor may simply be a chiropractor who has established the practice and is now desirous of disposing of same, or may include a management company which owns some of the assets or a spouse which may have an interest in the practice. Even more customarily, there are individuals or entities which may have an interest in the practice and who will have to become involved in the transactions. These parties may include the bank of the vendor which will have to consent to the discharge of any encumbrances registered against the assets of the practice; a landlord who may have to consent to the negotiation of a new lease or the transfer of an existing lease; the parties who might be leasing equipment; the companies who may licence software; employees who may be remaining at the practice after the sale and of course the patients. In the case of the purchaser the parties may be quite similar in that in addition to the actual purchaser, the landlord, bank and employees may play an integral part in the transaction.

From the Vendor's standpoint there are different considerations with respect to dealing with the individuals, as indicated above, who may play a part in the transaction. With respect to the Vendor, it is important that the actual persons who have an interest in the transaction be made a party to the transaction, ie. any corporation or a spouse.

With respect to the bank, a vendor should ensure prior to the commencement of negotiations what encumbrances, if any, will be required to be discharged at the time of closing and the costs associated with such a discharge. If a practitioner is carrying on two practices simultaneously, a discharge may be required of all debts owed by the practitioner to the bank notwithstanding that the debt is owed to the bank for a matter unrelated to the practice. This may be a requirement of the bank and unless consent is given by the bank to the closing without payment of all indebtedness of the Vendor, the Vendor may be required to make such payments in accordance with the statutory obligations which will be discussed later in the articles.

In the case of the landlord, the situation is not quite so simple. While the consent of the landlord may be required to complete the transaction or the landlord may be asked to negotiate a completely new lease, the timing by the Vendor with respect to the aforementioned request is highly critical. It is quite likely that any proposed Agreement of Purchase and Sale submitted by a Purchaser will be conditional on such matters as bank financing or graduation. If there is a likelihood that conditions other those involving the lease (ie financing or graduation) will not be fulfilled it may be more than a nuisance if a Vendor contacts the landlord for consent to transfer a lease. The request might be costly in terms of the investigation which the landlord may undertake as a result of the request by the Vendor and for which the Vendor will be responsible. It may be more appropriate to deal with the conditions concerning the lease when the other conditions have been fulfilled. However, it is imperative that the lease be reviewed by the lawyer acting for the Vendor prior to any Agreement being executed by the Vendor.

An even trickier situation involves that of the employees. If, as part of the transaction the employees will be required to continue at the practice, the Vendor should have some reasonable expectation that the employees will remain. Obviously, if the Vendor is relocating to a community many, many miles away, ie a different province, and the staff is comprised of family members, then it may be unlikely that the staff will be remaining. However, the timing of telling the staff of the possibility of the sale by the Vendor is highly delicate and should be dealt with as such. I have experienced situations in which the Vendor informed the employees of the pending sale at the outset and I have also experienced situations in which the Vendor refrained from advising the employees until it was absolutely necessary. Obviously it is a matter which should be dealt with very carefully depending on all of the factors affecting the parties.

Unless the agreement relating to leasing of equipment or such things as computer software require immediate consideration by a vendor, such matters should be able to be dealt with in the ordinary course of events, ie. after the signing of the agreement. However, in all cases, the agreements and commitments of the Vendor must be reviewed prior to the execution of the Agreement.

In addition to the other parties who will have an impact in the transaction, it is just as important to consider the involvement of the lawyer and the accountant. In the case of each of these individuals, they should be contacted prior to the negotiations being undertaken by the vendor and the purchaser. Both the lawyer and the accountant should be allowed to advise the Parties of the issues which will be involved in the transaction, ie. the responsibilities of each of the parties both before and after closing and any additional considerations with respect to such matters as income tax, and professional matters. There are a number of considerations in the completion of the transaction which can have an impact on the finances of the parties. Once the negotiations have been completed it is difficult for a lawyer and accountant to bring new issues to the table. While the agreement may not yet have been completed there is a matter of integrity in the negotiation process which can do damage to the relationship of the parties in the event that either Party is required to reverse his or her earlier position.

The Parties may involve a Real Estate Agent or Business Broker in the transaction. This individual may be acting on behalf of a Vendor who has listed his or her practice for sale. The individual may be acting on behalf of a Purchaser who is seeking a practice. In any event, the agent may assist in locating the practice, evaluating it, assisting with a transfer of a lease, assisting in the preparation of the Offer to Purchase, obtain financing and generally assist in the completion of the transaction. Unlike lawyers who are prohibited from contacting the client of the other lawyer, whether it be a purchaser or vendor, the agent is not restricted from such contact. As such, an agent is in a position of intervening when difficulties may arise between the purchaser and vendor with respect to ensuring that there is an orderly transfer of the goodwill of the practice. The writer has participated in the sale/purchase of practices where it is unlikely that the transaction would have been completed. Both the vendor and the purchaser had become dejected because of the problems which were arising with respect to bank financing and a transfer of the lease. The agent was able to assure the parties that the difficulties were not insurmountable and, in fact, the problems were overcome by the intervention of the agent.

Finally, the Vendor must take into account any issues involving patients. At what point in the selling a practice should the patients be made aware that the Vendor will be terminating his or her relationship with the patients. The decision is obviously one of choice by the doctor but it is imperative that it not interfer with the continuation of the goodwill of the practice. It is likely that there will be a transition period to allow the purchaser to become involved with the practice. It is during this time that the patients will be introduced to the purchaser. More on this subject will be dealt with during a discussion of the Agreement of Purchase and Sale.