NAPB CT, ME.MA, NY, RI. VT, NH Dental Practice Broker - The Almonte Fallago Group

Planning an Orderly Transition for the Multi-Partner Dental Practice

By Peter Almonte, JD, The Almonte Fallago Group

Take from our experienced group of dental practice brokers… when a dentist retires from a group practice, it presents challenges for the retiring dentist as well as the remaining dentists. The retiring dentist wants to obtain a fair price for his interest in the dental practice for sale. The remaining dentists fear the additional financial responsibility from the retiring dentist’s buyout, a loss in income, and a different practice.

During this dynamic period, the interests of the dental practice should come first, which means all partners need to be flexible in planning for an orderly dental transition. For example, the remaining partners may be confronted with adverse conditions impacting the practice’s future earnings such as a recession, the intrusion of managed care into the practice, or the disability of a remaining partner.

Given these possibilities, the partnership should provide for flexibility in the payment terms to ensure that the retiring partner receives his buyout payments. Here are several specific suggestions by our dental practice brokers for an orderly dental practice transition:

First, when selling a dental practice the partners in the dental practice should prepare a set of cash flow projections before establishing the buyout payments. The cash flow projections will not only be helpful in forecasting future earnings, but will also aid in determining the payout to the retiring partner. These projections will also help set the term of the payout and the net income to the remaining partners.

The partnership should create safeguards to insure that the remaining partners do not suffer economic hardship in the event of a downturn in practice income. One safeguard involves setting a cap on the amount of the payment to the retiring dentist in any one year. For example, an amount can be set not to exceed a percentage of either gross income or adjusted net income.

The partnership can also guarantee the remaining dentists that their salaries will not fall below the amount earned in the year before the retiring partner’s departure. As a result if the payout to the retiring partner cannot be made in full in any one year, the amount not paid can be deferred, and paid during the next succeeding year.

The payout to the retiring dental partner should be for a fixed term, generally five or seven years. If the total payments can’t be made during the fixed term, the partners should give consideration to extending the term by a year or two. If the extension term expires, when a balance is still owed the retiring partner, then the partners might consider extinguishing the balance owed. If there is still a balance after the extended cutoff date, the payout amount was probably too large from the outset.

Another matter that should not be overlooked by the partners is the possible admission of an associate, or new dentist, to the partnership. If the retiring partner’s buyout arrangement is a financial burden, and the payment terms are not flexible, the remaining partners may have a difficult time attracting or convincing an associate, or new dentist, to buy in. As a result, the remaining partners’ later retirement from the practice could be jeopardized.

By extending the payment term when the partnership faces economic hardship, the partnership is putting the dental practice first. Flexibility in the payment arrangements to the retiring partners will minimize the risk of the remaining partners suffering a lost in income, and maximize the potential for the retiring partners to receive their total buyout payments.

Certainly, the retiring partners bear greater risk with a gross or net income cap. The risk, however, is a reasonable one. It enables the remaining partners to devote their efforts, production, and commitment to the dental practice while satisfying their financial obligation to the retiring partner.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
Dental Practice Valuation Dental Practices For Sale

> MORE

CTC Associates Dental Practice Brokers CO ID NV UT WY

How to Know When It’s the “Right Time” To Sell Your Dental Practice

By Larry M. Chatterly and Randon J. Jensen, CTC Associates

At some point in your career you will feel the need for change. You may have a need to overcome solo-economic dependency, improve staff relations, or find some relief from the stress of managing a private practice.

The following are among the most common reasons doctors give for considering a transition and when it may be the right time for selling a dental practice:

  • The pressures of solo-economic dependency
  • Desire to pursue other interests
  • Limited or uncertain future in current position
  • Health concerns
  • Stress from clinical, management and administrative responsibilities
  • Frustration with insurance companies or government pressure
  • Desire to relocate or retire

If you are motivated by one of these factors to make a change, then now is the right time to consider some type of dental practice transition.

Perhaps the best indicator is how you feel inside. Decide whether you are an “increaser” or a “decreaser.” If you can’t wait to get back to the office on Monday morning, if you still enjoy managing and motivating your staff, or if you are constantly looking for ways to grow and improve your practice and see more patients, then you are considered an increaser. On the other hand, if you have seriously entertained thoughts of cutting back the time you spend in the practice, if you experience a lot of stress and fatigue, or if you are bored with the practice and just marking time, you are probably a decreaser.

As an increaser the primary reason for considering a sale of any portion of your practice would be to bring on another equally committed doctor to help manage the growth. If you are a decreaser, you should investigate the possibility of a transition in the near future. Your primary motive will likely be to enhance your quality of life by making the most out of your remaining time in dentistry.

Keep in mind, if you decide to sell your dental practice, you don’t necessarily have to quit. You just need to know how to structure the right kind of relationship with a new doctor. Most dentists equate selling their practice with retirement, or a loss of control and status, and/or a reduction in income, and therefore often wait too long to begin the process. Across the country, we see more and more dentists selling their practices up to five years before retiring from dentistry.

If properly structured, these sale/work-back arrangements can be a very successful way to transition a dental practice. This type of transition allows a practitioner to sell the dental practice to another established practitioner, a new dentist with no patient base, or possibly an independent business entity. Depending on your needs and goals, these dental practice transitions can allow you to “cash in” on your practice equity and still work for many years to come.

A dental practice transition allows you to overcome what is called solo-economic dependency. This refers to the negative cash flow that takes place when you–as a solo practitioner–are away from the practice. Extra time away from the practice can help you discover or expand other interests and spend more quality time with family and friends.

In summary, our experience suggests that any doctor with a time line for retirement of five years or less who does not have a dental practice transition plan underway could be jeopardizing one of his/her most valuable assets. Far too many doctors wait too long and receive too little for their practices. This is a highly individual and complex issue worthy of very careful planning and consideration. A thorough and realistic evaluation of your specific situation and your dental practice transition options can be invaluable for arriving at the best decision. Partnering with dental practice brokers who are immersed in these efforts everyday will provide you the support to make the best deal.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
Dental Practice Valuation Dental Practices For Sale

> MORE

NAPB NY, OH & PA Dental Practice Brokers - Hudson Transition Partners

Dental Practice Transitions: The Planning Process

By Sean P. Hudson, Hudson Transition Partners

Just like everything else in life, the key to a successful dental practice transition is to have a plan and to plan early. Many times by the time a doctor comes to me there is already a significant reduction in their practice’s value. With good intentions, they have cut back their time in the office to spend more time with their families, travel, or pursue other interests.

The Three Step Guide From Your Dental Practice Brokers

The first step is to select a time-frame for the practice transition. If the doctor is planning to retire at 65, then he or she should plan on transitioning the practice about two to five years prior. The reason for this is it generally takes time to find a buyer. Plus, more often than not that buyer is going to want the retiring doctor to stay on as an associate for a period of time to assist in the transition. The important thing to consider here is to select a time frame that will allow the doctor to sell his or her practice at its “peak,” before they start slowing down and the practice begins to lose value.

The second step is to have a professional dental practice valuation completed. This can be done by a professional dental practice broker and/or an experienced dental consultant. Again, this stage should take place at least five years prior to retirement. Many times, valuation specialists will offer a free update to their dental practice valuation. This affords the doctor the luxury to have the valuation done early to see what improvements can be made to either increase or stabilize the value of the practice.

When it is time to sell a dental practice, the dentist can reap the rewards of a higher valuation. The important thing here is to find a qualified person to value the dental practice. While assessing that person, the doctor should also find out how many practices they have valuated in the past, request to see a sample of their work, ask what organizations they belong to and call on their references. A lot of times a doctor will be surprised to know that their friends and colleagues have already started the process and are more than willing to share their experience.

The third and final step is for the owner to decide how he or she wishes to sell their practice. In many – but certainly not all – cases, the buyer would like the selling dentist to stay on as an associate for a predetermined period of time to smooth the transition process.

Just remember, the key to all these dental transition phases is to establish a plan and to plan early. If it’s time, talk to your family, financial advisor, accountant and professional dental practice broker. Your life’s work is worth it.


NAPB | National Association of Practice BrokersDENTAL PRACTICE BROKERS

Dental Practice Transitions Selling a Dental Practice
Dental Practice Valuation Dental Practices For Sale

> MORE