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ODs should take four important steps when it comes to planning an exit strategy.
Any doctor at any sublease could receive a termination notice, so it’s best to plan for the worst. Having an exit strategy in place can help to relieve the pressure if this dreaded event occurs.
Any doctor at any sublease could be subject to a termination notice. Paying attention to possible warning signs and trigger events will alert doctors to the possibility of termination. No TSLD ever believes that termination will actually occur. Some will experience hopelessness, depression and despair. The antidote is an exit strategy and plan. Wise TLSDs will design their exit plans and strategies long before any warning sign or trigger event.
TLSDs must be prepared to update their plans and strategy if the lessor begins to signal that the relationship is souring. Warning signs include a worsening relationship with the TSLD, optical department manager, and the host store management. There may also be greater oversight by the optical department and supervision of area doctors for coverage of the office, patient satisfaction scores, and compliance with host store policies. The most important warning sign, though, is a steady decline of exam or optical revenues.
Certain events can trigger a negative change in relations with a leaseholder. In response, the TSLD may lessen the coverage of the office by failing to cover or to retain a fill-in doctor, especially on Saturdays. The TSLD may be warned for refusing to accept all vision insurance plans, ignoring patient complaints about customer care, and perceived unreasonableness of exam fees. Couple these signs with personality conflicts with onsite optical staff and their supervisors and a recipe for sublease termination is complete.
An exit strategy has the primary objective of escaping a termination with as little financial pain as possible. Economic benefits can come from budgeting for a new office or a new job. Working against a TSLD is a combination of sublease terms and lack of property rights and assets from the sublease practice. Without a property or ownership right, a TSLD cannot sell or transfer a sublease even if the optical corporation selects the same doctor. The corporate optical department has the sole authority to appoint or choose the next sublease holder. Furthermore, the TSLD’s current sublease will likely not have the same terms as the newer sublease. The sublease may contain customized or negotiated terms on hours of coverage, rent, equipment, and office that are not transferable. In most cases, upon termination the doctor gets nothing. The doctor, though, may bounce back quickly if a well-constructed exit plan is present. The level of recovery is wholly dependent on the exit plan. An effective exit strategy should be as clear as possible, and ideally in place for at least six months before termination.
Following are steps in creating and launching an exit plan.
Step 1: Carefully read the sublease agreement
In most cases, components of the sublease agreement will influence the exit plan. Even in termination, the TSLD must cover the office, see patients, and act responsibly during the sublease notice period. The notice period can block an early exit to accept a new job or to open a new practice. Sublease clauses sometimes prevent the TSLD from moving the phone number to a new office or the removal of medical charts from the office.
Non-compete clauses are also an obstacle, and the enforceability of these clauses is interpreted differently state by state. Some states recognize the non-compete clause and hold the TSLD fully accountable for geographical limitations for the duration of the clause. Alternatively, some states may consider excessive geographic restrictions or length as unenforceable. TSLDs should check their state’s interpretation of these non-compete clauses.
Step 2: Prepare the exit plan
There are typically two alternatives or strategies for the TSLD: open another office-on a new sublease or an independent office-or seek an associate position elsewhere. Evaluate each for advantages, disadvantages, and the chances for success.
The first alternative takes careful planning and marshaling of resources. There are several potential impediments to opening a new practice. Choice locations may be hard to find if the notice period prevents a quick move. Also, startup costs may be too high for most.
If the TSLD is seeking a sublease at another corporate optical entity, the TSLD may have to overcome assumptions by the new optical entity about the reasons for termination of the previous lease. There may be a historical bias related to a sublease termination at another optical entity.
The first alternative is affected by the relatively competitive environment of the local marketing area. Optical and host stores have the resources to select the best location for their stores even with numerous competitors. The name recognition of an optical department may outweigh the reputation of the TSLD, thus lowering the number of patients who will follow the TSLD. Those patients who do follow the TSLD are the backbone for any new practice. Even 10 percent of former patients following the TSLD to the new location will boost morale and set a foundation for growth.
The second alternative requires finding an opening when the TLSD is free of his contract. Finding an available opportunity frequently requires a search wider than the immediate area of the old sublease, which may result in the need to relocate or endure a long commute. In an urban or suburban area, the number of practices may be more plentiful than in a rural region. In many cases, a stable full-time opportunity may take months to find.
Under all circumstances, the TSLD will need the emotional support of spouses or significant other relationships. The time commitment in private practice is likely to be much higher than any sublease.
Step 3: Be explicit about results
Without an accurate description, the steps needed to reach the result are not clear. Think about the result as similar to choosing an undergraduate college. There are “reach” and “safe” colleges. Like choosing a college, the exit plan should also encompass “reach” and “safe” outcomes. The “reach” outcome differs from the “safe” outcome because of differences in the probability of success.
If a “reach” outcome is achieved, the TSLD can celebrate when it happens. On the other hand, the “safe” outcome brings only a sigh of relief because everyone expects the accomplishment of the safe outcome. The preparation for a “reach” outcome is elaborate for most people and less so for a “safe” one. Either outcome can minimize the pain of termination.
Construction of the exit plan is key to success. The plan should be logical and descriptive. Use any tool that is available to depict relationships among elements, time, and resources needed for completion. Will one step require approval from a previous step? Could a step be started even if another step is not finished (non-linear steps)? List the time to complete each step. Use the last date of the notice period as the launch date and work backward to the beginning of the exit plan.
Step 4: Sum up the financial picture
Include all money market funds and stocks that can be converted to cash quickly. If there is another household wage earner, discuss how that individual can assume the role of principal wage earner. If the TSLD is the sole earner, then saving up to six months of living expenses is prudent. The costs should include housing, food, transportation, and medical costs. Relevant expenses vary widely depending on the doctor, geographical area, family size, and financial commitments.
The successful exit from a terminated sublease must encompass not only a review of the sublease agreement but also weighting the alternatives of opening a practice and employment. The execution of the plan depends on a complete description of the desired outcome and the resources available to pursue and complete the exit plan and strategy. Lastly, the agreement of family and significant others is crucial for the success of any outcome.
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