Experienced practice transition consultant Dr. W. Jack Saxonhouse discusses things to consider before purchasing a large dental practice.
A clearly defined and equitable contractual arrangement that leads to a workable and rewarding relationship is essential for continued success
A young dentist is presented with an opportunity to purchase a large practice (over a half-million dollars in annual gross collections) in the area in which he wants to live. The practice represents a once-in-a-lifetime situation that places him years ahead of all his classmates, in both practice size and income. The seller wants to change his career and will continue to practice a few days a week while developing a new and different vocation. When the young dentist comes in for a consultation, he has the following concerns:
Answer: First of all, the seller will teach their successor how to handle the work required by the practice. Since the seller is financing some of the purchase price, the seller has a vested interest in its success. He or she wants the buyer to do well and thus be able to pay for the practice. Second, the seller will continue to practice for a while, taking on a portion of the production for the first two or three years, giving the buyer plenty of time to learn. The seller will be the best instructor and coach.
Answer: The buyer could take out a life insurance policy on the seller for the full purchase price and continue maintaining it until they feel confident handling the practice. If the unfortunate occurs, the proceeds of the insurance policy would pay for the practice.
Answer: Chances are the seller will not endanger their position as a lender (for the balance of the purchase price) by leaving the practice before he or she feels that the buyer is ready to handle the production. Just the same, consider the following:
If the seller becomes disabled or decides to leave the practice early, the buyer can handle the production from the first day. It might require more work, longer days and more hours in order to do all that the practice may demand, but it’s much better than not having enough patients. As systems become more proficient, the number of hours and days spent each week can be reduced while still producing the same amount. The work will get done, and the money collected, regardless of whether or not the seller remains.
Answer: A large practice will already have an excellently trained staff. Practices do not grow to this size by pure luck. They grow by hard work and organization. The seller is not spending most of his time in the office administrating the practice. The majority of his time is spent on clinical production with only a small portion dedicated to administrative duties. Practices like this usually run very well due to diligence from the staff.
The receptionist or business office manager is responsible for the scheduling, collections, and other administrative duties. The rest of the staff will guide the new owner through the learning process because they all want and need their jobs. A well-trained staff knows what is supposed to be done.
Answer: The best referral for their next dentist is from their former dentist. Patients don’t like change and if there are no staff changes, there is no reason for the patients to leave the practice.
Answer: Both parties need to get along. The seller will make certain the purchaser will succeed because the seller wants to be paid. The buyer needs to make sure the seller will be happy, so the patients remain with the practice. An atmosphere of mutual understanding and trust must be established and is beneficial for both parties. A clearly defined and equitable contractual arrangement that leads to a workable and rewarding relationship is essential for continued success.
Most difficulties can be worked out by cooperating individuals, and by a comprehensive contractual agreement that creates a win-win situation for both parties. This agreement should address the more complex or unforeseeable issues.
About the Author: Dr. W. Jack Saxonhouse is a retired periodontist and has been a practice transition consultant for over 29 years.
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