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Bruce Bryen is a certified public accountant with over 45 years of experience and is a part of Baratz & Associates CPAs. He specializes in deferred compensation, such as retirement planning design; income and estate tax planning; determination of the proper organizational business structure; asset protection and structuring loan packages for presentation to financial institutions. He is experienced in providing litigation support services to dentists with Valuation and Expert Witness testimony in matrimonial and partnership dispute cases. He is also a financial writer for several dental journals. You may contact him at 609-502-0691 or at Bryenb@baratzcpa.com.
Buying a declining practice might seem like a cheap option, but dentists need to know the pitfalls.
Some dentists are excited to purchase a dental practice with declining gross revenues that can be acquired cheaply. This type of practice typically needs a lot of nurturing, improvement money, marketing exposure and, most of all, the patience of the dentist who wants to acquire and watch this type of practice grow.
This type of purchase is not for those who are used to immediate action, increases in value and a constant patient flow on an upward moving trend. But for the dentist with a thriving practice who wants to diversify, this form of acquisition may be an inexpensive in the short term from an investment stand point.
It must be approached, however, with the short- and long-term effect in mind to have a full understanding of what the financial - and especially the human cost - may be. Compared to a well-run office, this type of declining office will require large amounts of a dentist’s time and energy.
The dentist with the excellent dental practice needs to seriously consider if the inexpensive options will be worth the trouble. Quite a few dentists test their egos by trying to build something new when they already have something very worthwhile that they have coddled and built to where it is today.
What dentists can benefit?
For the young professional, an office with a low acquisition price can be an inexpensive method of building an active practice. That practice can be later converted to a multi practice organization - if he or she has the ability to wait for its success. The younger dentist has the years available to do so.
The question is: Is it worth risking going with a high-worth, high-income single practice that requires huge amounts of time and energy, or is it better to opt in to the smaller-type, multi-practice model?
Listen to the advice of the money-holders
The dentist must also think about whether the acquisition price can be financed with a conventional lender. Besides the dentist and his or her dental CPA, a conventional lender adds another set of eyes and experience to the equation of whether or not a practice acquisition can even be financed. Keep in mind that the time and constant attention required really does involve money on a more indirect basis over a long period of time.
A lender also assists in determining whether the dental practice is worth the financial price. Advisors may not want to give up authorship and the engineering of the purchase if the dentist has the funds for the acquisition.
A lender adds an objective viewpoint as to whether a practice can be used as collateral based on the financials involved. If a lender doesn’t like the reports from the practice, it can be a warning to the potential acquirer of the practice. Maybe the price is too high for whatever assets the practice has? Other issues, like the reputation of the practice and the existing owner or lack of communication with patients, could be reasons for the decline in revenues. Whatever the reasons, the acquiring dentist should listen to those with the money about why they think it will be difficult for the buyer to pay back the loan.