Transitions into ownership for the dentist’s associate.

February 6, 2017 News

by Bruce Bryen, CPA, CVA

 

How much does it cost?

 How many times does a dentist’s advisor discuss the need for support for his or her own protection against illness, death or disability? Is the conversation about a partnership or acquisition status? Besides a negative approach as the thoughts in the first sentence, it is also a smart way to the eventual exit strategy for the experienced dentist.  Who better to acquire the practice than a professional who already knows the patients and staff with a good history of relationship building with each component to the success of a transition? The clinical skills are already known to the owner/dentist. Besides the timing of the acquisition and no need for a practice broker, the cost to sell should be much cheaper for the seller and buyer.  There is no commission to pay, fewer advisory fees for legal services and typically only the dental CPA and practice evaluator to spend time with discussing the transaction.  An evaluation of the practice should be completed so the buyer and seller don’t look at each other to determine the value of the dental practice and wonder if their assessment is correct.  A dental evaluator is a must for an arms length valuation and use in assisting the buyer with financing.  A comparable situation is one of acquiring a house and getting an appraisal to assist in the determination of value as well as assistance with financing.

Continuing the legacy

 The associate will have learned his or her clinical skills as well as obtained administrative experience so a smooth transition will probably occur with the retention of the infrastructure and less patient turn over. The practice will normally continue with a similar approach as the selling dentist’s business. This will give the transition an ease not to be experienced with the marketing of the practice through a practice broker or any other manner. The time involved with the transition will be much shorter since the seller need only look into his or her own practice for the right person.  Sometimes a transition with a practice broker can take months or a year, based on the seller’s parameters and search for the buyer.   There are practice brokers who can and will assist the seller and associate in formatting the guidelines needed to complete the transaction as well as explaining what must be accomplished with paper work.  This assistance is offered for a fee. If that is the road taken, make sure the practice broker has this experience before retaining one for this important event. This can be helpful if the selling dentist does not have an experienced dental CPA in an advisory capacity.  If there is a qualified associate working for the selling dentist, plans can be made to have that associate acquire the practice in a timely, cost effective transition.

 Thoughts to consider when planning the transition to the associate

 It is fairly typical for an associate to work for a few years to develop the trust and goodwill of the owner as well as that of the patients and staff. While this time is taking place, on many occasions, the associate may feel as if he or she is working to raise the eventual sale price.  If the potential new owner or partner approaches the dentist about working against his or her own interest, the owner may want to consider discounting the purchase price to account for the sweat equity being developed by the associate.  The owner has been earning income off the associate’s labors while having the value of the practice increase with this relationship.  The consideration of a discount or type of preferential financing may be appropriate for the associate, if this discussion occurs.  When one considers brokerage fees, the time on the market and the potential for the staff to hear about the transition and fear for their jobs, a discount may be a cheap price to pay for an even flowing transfer.

The timing of all of this and how to begin

Of course having an associate well seasoned and trusted is the first step. The conversations with that person should be taking place almost as soon as the associate signs the employment agreement.

Next come discussions with the dental CPA. This is assuming that the dentist has retained such a person. From that point, ensuing conversations will occur and the transition to the associate is on its way.  It may be a few years or months but the guidelines are being established as time passes.