The right and wrong approach to having your associate acquire interest in your practice.
Many dentists believe the best exit strategy is to work with their loyal associate and develop a rapport with him or her while the patient relationships develop. By having the associate acquire either a 100 percent or partial interest in the practice, there is no need to market the practice since there is a ready buyer. This negates the necessity to wait and interview each potential buyer and hope that a relationship may develop so that the potential buyer is comfortable enough with the opportunity to want to make an offer.
If an associate has been working with the owner for a number of years, it is even better since the staff and the associate have an understanding of each other. The patients recognize the associate and there should be little to no change in the matters involving the office and its procedures and the protocols involving staff and patients. This is a great beginning to the process of the development of the exit strategy for the dentist and it presents a good period of adjustment for all. If everything goes according to plan, the advisers, the owner and the associate are ready to go based on the agreement that was struck to allow the associate to make the acquisition.
A simplistic approach to an incorrect associate acquisition is to have little or no communication about it and to have the associate in limbo about his or her potential position with the practice equity.
What can go wrong?
There may still be many obstacles with the closing. One can be the delay that the associate or the owner creates by not approaching the advisers quickly enough.
In many circumstances, the less experienced buyer does not have the administrative expertise needed to move ahead with the transition and also may have retained a CPA not familiar with dental practices. Finding an attorney with experience in dealing with dentists is also quite difficult. The owner of the practice can offer practical advice about whom to contact, their experience, expertise and availability. In addition, the retention of expert advisers may create a sticker shock to the buyer based on the fees incurred with the acquisition costs. The time needed for preparation and review of documents causes their own delays with the finalization of the closing.
Finding the right advisers for the associate
Attorneys are not ethically able to represent more than one client in a transaction. There are conflict of interest waivers that can be signed, but attorneys are trained and retained to be advocates for their clients. Having an attorney representing each party to the transaction is a dangerous idea.
The dental CPA, on the other hand, does not have this conflict. It may be advantageous for the dental CPA who has been retained by the selling dentist to speak with the associate about some general ideas. The dental CPA can explain the meanings of each point of the process. He or she can also recommend other dental CPAs if the associate cannot find one. The dental CPA can also offer advice about what type of attorney the associate should be interviewing to be retained for assistance while working through the various due diligence areas needed to be completed by the buyer of the whole or partial interest in the practice.
The question of whether to buy an interest or the entire practice is a point of consideration that an experienced dental CPA and attorney will have plenty of advice to offer to the buyer. Retaining advisers who do not have enough or any experience in working with dentists can cause an incredible amount of delay and additional costs. It is typical that the associate and the owner have developed a reasonable relationship over the years of working together. This is a very important point that should not be set aside by the experts who are working with the associate. If the buyer really wants to buy a practice, most likely, the one in which the associate has been working is the ideal fit. Just as the seller has an excellent exit strategy with his or her “built-in buyer,” the associate has the practice in which he or she knows the most about and where the due diligence process should be the easiest.
Don’t race through the process, but also be ready to go. There will probably not be another practice so available for the buyer and the seller with the right mix of knowledge available to each.