Choice Transitions Blog
Most of us know a colleague or friend who was taken away from us too soon and unexpectedly, or was seriously disabled from an accident, stroke, or unforeseen occurrence. Most of us also make the same mistake of thinking that will never happen to us.
Many of our clients do not fit into the cookie cutter mold of what is traditionally thought of in our industry as a “seller”. What I mean by this is many of our most successful sales have been for clients who are well under the “traditional” or “normal” age of retirement. In fact, some of these clients happen to be not only excellent dental practitioners but extremely savvy businesspeople also.
One of the least thought about but most often negotiated issues in selling a dental practice is the allocation of the purchase price and the associated tax consequences. A “satisfactory” offer prior to receiving and reviewing the proposed tax allocation could quickly become “unsatisfactory” thereby forcing the parties to renegotiate resulting in animosity, ill will, and in some cases, the transaction to fall apart. It is important to understand the tax implications of a sale prior to making and/or accepting an offer.
There is no correct way to transition a dental practice from seller to buyer. Every buyer and seller comes to the negotiating table with different ideas and expectations. However, the goals of each can be quite different. The usual goal of every buyer is to retain the greatest percentage of the existing patient base as possible. Since the intangible value (i.e. goodwill) of the total practice valuation is usually far greater than the tangible assets (i.e. equipment) this goal is well founded.
One of the most frequently asked questions I receive from dentists selling their practice is, “when should I tell my staff?” Many feel like they’re betraying their staff by keeping the sale a secret. But telling them prematurely can damage morale and practice value. When staff members hear the news, they may worry about job security, changes to their compensation and/or benefits, and several other unknowns and could begin interviewing with other dentists. Because of their relationships with patients, your staff is one of the buyer’s biggest assets to ensure a smooth transition, so it’s important to retain them throughout the transition.
In most if not all dental practices we transition, whether representing a seller or a buyer, the space in which the practice is currently located must be either sold/purchased, leased, or a combination of both. An outright sale/purchase of the real estate is fairly self-explanatory. However, when a lease is provided with future potential ownership, or an existing lease is being assumed or sublet, we often witness confusion or misunderstanding as to terminology and the meaning of such as to the many options that arise.
We cannot look at a dental journal or attend a meeting without someone stating you have to go “high tech”. What exactly does this mean? Do we have to run out and borrow a quarter million dollars to get there? Will there be a return on this investment by increasing the value of the practice by that amount? What if you are getting ready for retirement or transitioning your practice- is it worth it? The answer is yes with reservations. You don’t have to dive in and get every whiz-bang product out there, but should have some basics.
Throughout our 16 years of meeting with practice owners, one question that comes up often is “ARE YOU A DUAL REP FIRM”? Our rapid response is always an emphatic “NO”. Not only do we find the concept to be unethical, we feel it should be prohibited as currently constructed.