7 Audubon Trail, Boonton Township, New Jersey 07005 Phone (800) 908-3040 * Email Chirodave@aol.com CHIROPRACTIC & CONTRACTS By David G. Foster D.C. Why should a chiropractor know about contracts? Chiropractors have gone through years of academic schooling and have never had the need to craft a contract. The reality is through your Chiropractic career you will be confronted with the need to have a contract. The most common chiropractic contracts are the Chiropractor and the Chiropractic associate, the Sale of Chiropractic Practice and the Shareholders agreement between two partnering Chiropractors. This article is not to instruct chiropractors on the contents of these contracts, but to give you value as to why, when, and how to create and use these documents. Good business judgment is presented in this article which was learned from a variety of practical experiences. By following the contents of this article you can eliminate many emotional and financially costly mistakes. CHIROPRACTOR AND THE CHIROPRACTIC ASSOCIATE Many chiropractors hire associates with the highest level of good intention. The associate begins the relationship with the equal intention. In theory, the practice will grow and the associate will cultivate a patient following and goodwill within that practice. This relationship may prosper for an extended period of time, without incident. The associate¼s perspective of this relationship usually changes first. Human nature alters the associate¼s perspective. This change of perspective frequently occurs when the associate gains enough knowledge and experience to feel confident and independent of their employer. A true sign of this is when the associate tallies their services for the week and compares this number with their income. The associate will feel exploited upon recognition of the imbalance within the evaluation. At this point of time the risk is with the employing chiropractor. Without a pre-employment contract the employing chiropractor is in a very trying situation. The employing chiropractor has executed exactly what he stated from the beginning of this relationship. He has given the associate opportunity, instruction, and invaluable experience. And now, the associate has the ability to legally open a practice next door and take a percentage of the existing practice with them, without compensating the employing chiropractor a dime. The employing chiropractor is in a very poor negotiating position at this time. If a pre-employment agreement with an established non-compete clause was executed none of this would have occurred. This experience can teach a chiropractor the need for a pre-employment contract. Additional areas of concern within this contract should relate to compensation, termination, conduct, insurance, liability, and responsibility. This illustration can be the worst scenario of what can happen with the associate relationship. As the employer originating the agreement, it is considered good business protocol to protect oneself before the relationship develops. In my offices, the new associate signs the agreement on the first day of employment. CONTRACT OF SALE FOR A CHIROPRACTIC PRACTICE Selling a practice is different than selling anything else you own. It holds physical and emotional value. During this process discussing your practice as „assets, patient files, and accounts receivables¾ all depersonalize the practice you have created, sweat over, and nurtured. Realize, before the process begins, the other professionals have a business perspective of your practice, not emotional. The difficult job for the seller is to keep the emotional and the business aspects separate during this process. When chiropractors sell their practice the sellers are traditionally responsible for originating a contract of sale. Most chiropractors contact their attorney and accountant and ask them to start the process. My question is what does your attorney or your accountant know about your chiropractic practice? What is their experience in selling a professional practice such as yours? Who will teach them the mechanics of your chiropractic practice? How much time and money will you spend in teaching them this needed information? It has been my experience that lawyers know the law; accountants know accounting but neither one knows chiropractic. They are not knowledgeable of the personality or the emotions of the chiropractor. Transferring ownership in a chiropractic practice is significantly different than other businesses. To ask your local accountant to appraise the dollar value of your practice is like asking them to tune up your car. There is no one equation to value your chiropractic practice. Each practice is unique with its own personality. An experienced person who has exposure to many „for sale¾ practices can give you the most accurate, objective, and useful perspective of value and marketability. Do not recruit your lawyer or accountant to do the job of a professional practice broker. Your loss will be greater than the cost of the broker. When hiring an attorney to develop a contract you should be careful and critical. Invest your energy wisely and interview a few lawyers until you feel you can work with one effectively. You will spend approximately $150 per hour or more for advice. Explain your needs and absolutely request an approximation of time and cost. Do not expect the professional to do it all for you. Their job is to execute your wishes legally, not tailor a deal to their liking. All contracts must contain the basic financial transaction; covenant not to compete, accounts receivable transfer, prepaid expenses, lease, creditors, employees, and transition agreement. The contract should be simply stated and easy to read. Each topic should be presented independently of one another for additional ease. Most importantly you, the chiropractor, should understand each issue completely. Your time with your council should be spent educating you, the chiropractor, on the legality of the sale and not the chiropractor educating the lawyer on the mechanics of your practice. My experience shows me when two chiropractors negotiate they should negotiate face-to-face without the presence of any professionals. The professionals should work in the background educating the seller and buyer about each topic when needed. The reality is the chiropractors must work together and discuss all issues toward resolution. When this negotiation process is used a compromise and a conclusion is accomplished with less effort, stress, and professional cost. In contrast, when you walk into a negotiation with a lawyer on one side and an accountant on your other, you are looking for a long drawn out costly meeting that could be counter productive. Never allow the attorneys to negotiate the contract without you being present. Once your council starts to speak directly with the buyer¼s council all good intention is gone between the seller and the future buyer. The likelihood of the deal closing will decrease significantly. They may argue for hours on a minor issue which you will end up paying for. By you being present you can keep the big things big and the small things small, while coxing the process towards completion. The contract is basic; emotions and legal naivety could create friction. The ideal scenario is when an experienced mediator reads through a „boilerplate¾ chiropractic contract of sale with the seller and buyer. The mediator explains each issue within the contract allowing both parties to vocalize their concerns and negotiate their point. Both parties understand and recognize the others concerns and a compromise will be eminent. Using an outline „boilerplate¾ contract ensures all major issues are explained and understood, with only the unique additions being incorporated. At this stage the document can be delivered to your professional for review. An accountant can give you a strategy to limit the tax liability on the proceeds of the sale. Your attorney will make sure all of your intentions are legal and facilitate the transaction to closing. Following this process allows the buyer and seller to work together to accomplish the goal of transition, minimizing effort, stress, and expense. SHAREHOLDERS AGREEMENT FOR PARTNERING CHIROPRACTORS The Shareholders agreement is the most important and unique contract of all documents. This document illustrates in detail the relationship and responsibilities between the partners, a sort of prenuptial marriage agreement. If the relationship is successful the parties will never read it again, if not it will act as a rule book to guide the relationship to its original agreement or dissolve the relationship entirely. The content within the Shareholders agreement starts with a statement of facts that describes the entity, its location, percentage owned and by whom. The body of the document explains compensation and a general overview of the responsibilities of each shareholder. Some of the unique aspects of the shareholders agreement are shareholders selling options, shareholder life and disability insurance and even procedure in the event of death. The last third of the document defines restrictive covenant, termination, indemnification and a myriad of standard legalese. This agreement should act as a guide book to navigate the partnership through sunny and stormy days. Additions and subtractions to this agreement are common as partners make plans for the present and the future. It always has a way of changing. David G. Foster D.C. At present, I co-own and operate six Chiropractic practices, www.FamilyChiropracticCenters.info and employ eight Chiropractic associates. In my fourteen years as a Chiropractor I have completed all aspects of originating, building and selling of Chiropractic practices. I owned United States Practice Brokerage, a Chiropractic practice brokerage firm which completed many successful buy/sell transactions. My undergraduate education includes a BS degree from Boston University with a major in finance prior to attending Life Chiropractic College, I have been published on a related topic titled Are you thinking of selling your practice? http://www.chiroweb.com/archives/18/26/10.html. I consult Chiropractors in the areas of the practice buy/sell process, practice evaluation, associate contracts, and shareholder agreements. In addition I advise on a wide variety of legal, financial and strategic issues. I can be contacted by phone, (800) 908-3040 or email Chirodave@aol.com.