He Paid Too Much for His Father-in-Law’s Practice. Now What?
TOM REYES MET his wife Monica Ferland in optometry school. They married as third-years, attended different rotations through fourth year, and a week before graduation they found out that Monica’s father Gerald, also an optometrist, had received a diagnosis of terminal cancer. The couple were devastated by the news and concerned for the financial future of Monica’s mother. Monica’s career path was teaching at their alma mater but Tom was eager to see patients; in the blink of an eye it was decided that Tom would purchase Gerald’s practice.
ABOUT REAL DEAL
Real Deal scenarios are inspired by true stories but are changed to sharpen the dilemmas involved and should not be confused with real people or places. Responses are peer-sourced opinions and are not a substitute for professional legal advice. Please contact your attorney if you have any questions about an employee or customer situation in your own business.
ABOUT THE AUTHOR
NATALIE TAYLOR is owner of Artisan Eyewear in Meredith, NH. She offers regional private practice consulting and ABO/COPE approved presentations. Email her at [email protected]
Ferland Eyecare was over 30 years old and Gerald had never taken on a partner or associate. Tom felt it was his duty as a newly minted husband and doctor to pay the full value of the practice, so Gerald hired a firm to come up with the final number. There was no possibility of a down payment, but both parties were comfortable with Tom writing a monthly check to Mrs. Ferland over the next 10 years.
The Sunday after the paperwork had been signed, Tom invited two close optometry school friends over to see his new practice and share a bottle of champagne.
“Boy, Monica’s dad didn’t do much in the way of updates the last 20 years, huh?” said Steve.
“Yeah, this wallpaper and carpet are pretty worn,” agreed Tom. “I need to update the street signage too.”
“Yeesh!” exclaimed Evan. “These frames are really dated.” Evan had worked as an optician through school; Tom was relying on his input since that part of the business was largely foreign to him.
“We counted about a thousand frames during the inventory, but only about 100 were purchased in the last two years,” said Tom. “They had a buying freeze thru COVID.”
“You know that means you’re selling frames without warranties,” Evan said. Tom gave a quick nod, but that fact actually hadn’t occurred to him.
“Can we see the exam rooms?” asked Steve.
“Room,” corrected Tom.
“Oh, nope. Nope,” Steve said, “You need two rooms, man. Maybe three.”
The trio spent the next hour mapping out options for reformatting the office walls and layout. The friends were just leaving as Monica arrived, and the couple sat together in her father’s old office.
Tom tried sharing the feedback from his friends, but her attention was divided; ever since the diagnosis Monica was constantly fielding calls and texts from family, her parents and her father’s medical team.
“…going to take a lot of work. Monica?” Tom tapped her phone screen, breaking her gaze.
“I’m listening!” she said. “What are you saying, though?”
“I think the practice was overvalued,” he sighed. “We’re going to need to put serious money into updates. I know time was a huge factor in getting the sale situated, but I think I overpaid… by a lot. Can we revisit the agreement?”
Monica looked at him, aghast. “Tom. My father is dying.” Her eyes started to well up. “It was so painful for him to sell and now you want to pull the agreement apart?!”
“No, no,” Tom said gently, embracing his wife. “I’m sorry.”
The Big Questions
- What responsibility, if any, does the firm that initially valued the practice have in relation to Tom’s belief that the practice was overvalued?
- If you were Tom, would you continue attempts to renegotiate the agreement? Why or why not?
- Given that the practice is now Tom’s and changes need to be made immediately, what should he prioritize: frames, exam rooms, façade or something else? Why?
In this hypothetical situation, Tom is an idiot. This is 100% his fault. Who chose the person who “valued” the practice? Tom’s fault for doing no research. Once a contract has been signed, there’s not much he can do unless he wants to initiate a legal battle against the seller/family. Also, Tom and his colleagues sound very closed minded about the situation. There’s no problem with getting the business going with some outdated aesthetics. Start making some money, Tom, and worry about remodels later.
This is a case where the money is staying in the family, going from one pocket into another. If the practice can support a reasonable income for a doctor while making payments to his mother-in-law, all is good. If the income cannot support the payout plus the finance charges for updated equipment, frames and leasehold improvements… the onus is on his wife to step in and resolve the situation. This bad deal is coming out of her pocket as well. The mother-in-law needs to realize that if he defaults, she may wind up with an unsellable practice and a single daughter. A strong incentive to renegotiate.
Tom should realize what is done is done and now turn to an outside management company to build for him a business plan that will make the necessary changes (if any). He bought a business. He may have overpaid, but it is a business and he now has an opportunity to turn it into a good investment. Tom should also understand that not only did he buy a practice, but he invested in his new family. At least he knows his overpayment is going to the family.
The initial evaluator is a loser and you cannot do anything about the money spent on his poor work. Get over that and move on. I would put the business on the market with the deal that you have first refusal. Then you will find out what it’s worth. Let the mother-in-law know the value and let her sell it for that amount, or your monthly payments to her would be based on this new amount. Start by reorganizing the space, utilizing a young, clever designer who is local. Throw an opening event; give away fun small gifts. Invite all the local stores.
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