You’ve identified the right dental practice and are ready to make an offer — but don’t put your feet up yet. There are still a lot of details to iron out to ensure a smooth transition.
The road to dental practice ownership is both exciting and rewarding — and it signifies an important step forward in your dental career. From assembling the right team to choosing the right practice for the right price, there’s a lot to be proud of along the way. But the work doesn’t end once you make an offer on the perfect place. In fact, that’s when the serious work begins — and the devil really is in the details.
Important discussions to have with the seller
As you begin the process of transitioning into a new dental practice, consider creating a written transition checklist and corresponding timetable to help you identify your professional, personal, and economic goals. Not only will a detailed checklist keep you on track, but it will also help you keep the patient’s perspective at the forefront. Ideally, patients won’t notice any changes aside from the new dentist’s smiling face after the sale has taken place.
The best structure
Determine the sale structure (asset or stock) prior to negotiating the sale price. Knowing this information is important from both tax planning and risk management perspectives. Generally speaking, sellers often prefer stock or partnership sales, while buyers tend to prefer to purchase assets.
If you and the seller intend to remain partners after the sale, clearly define how any subsequent purchase would be formulated, and how significant changes in circumstance such as death or financial distress would be addressed. Be sure to outline scheduling expectations, determine the budget, create a plan for engaging new patients, and discuss staffing decisions.
Draft clear agreements
Discuss each side’s needs and expectations and draw up written agreements to ensure clarity. These can include associateship agreements, buy-in agreements, and conditions of sale and practice sale agreements. Any agreements should be reviewed and approved by the buyer, seller, and their attorneys and financial advisors.
Specifically, some terms to address and define could include:
- Prepaid expenses and liabilities, which may not be evident until closing
- Staff-accrued vacation
- Supplies
- Furniture and equipment
- Accounts receivable, which will need to be discounted to the average rate of collection of the practice if sold
- Goodwill and other intangibles
- Non-compete agreements
- Liabilities and expenses, and who is responsible for them
- Compensation and benefits
- Amount and nature of work to be performed if the seller stays on as an independent contractor or employee
- Proof of satisfaction of unpaid liens
Take note that both the seller and buyer will need to file Form 8594 with their tax returns, and that these forms must match.
Review insurance and credentialing
Review items such as commercial liability, life insurance, disability, workers’ compensation, and malpractice insurance. Read through insurance-carrier agreements and fee-schedule approvals, including Medicare and private pay. Will seller contracts transfer over? Perhaps you want to renegotiate. In any case, just be sure you have a good understanding of your costs and your reimbursements.
Realize that credentialing and updating licensing and ID numbers can take some time, so don’t wait too long to complete your review.
Determine how long the seller will stay on
What kind of relationship will continue between you and seller? Will they stay on and help during the transition? If so, this type of gradual transition gives you the time to work out any kinks, providing opportunities for mentorship, staff changes, and a proper hand off of current processes. It also helps make the seller feel more comfortable transitioning their practice to the new practitioner. A typical timeframe is usually 3 – 12 months, with the seller investing more time in the beginning and then only as needed later on.
Get your operations in line
You’ll need to address operations before closing the sale. Here are some of the most important operational tasks you’ll want to tackle as soon as possible.
- If the practice location is leased, set up a long-term lease or create a purchase option or right of refusal. You don’t want to spend a bunch of money on the practice only to be evicted or have rent skyrocket.
- Meet with supply representatives to set up ongoing orders
- Set up credit card processing
- Look at contracts (Which do you want to keep? Can any be renegotiated?)
- Secure new accounts
- Make payroll arrangements
- Order new business cards
- Meet with your accountant to apply for a Federal Employer Identification Number
Informing patients and referral sources
The seller should inform patients of the pending transition through a one-page introduction letter (which you may be asked to draft). This letter should use a friendly and professional tone, include details about the new dentist’s background, family, and personal interests, and include a photo. Patients ultimately want to know how the change will affect them, and this letter is an opportunity for you and the seller to reassure patients and waylay any potential concerns about the transition.
Keep in mind the cost to prepare, mail, and distribute the letter is often absorbed by the seller and should be specifically spelled out in any agreements.
Don’t rest right after the sale
Once the papers are signed, it may feel like the work is done. But for the buyer, the work is just beginning. As a new owner, your goal is to retain as many patients as possible. Consider the patient experience on all fronts and find ways to make it a positive experience for them.
Keep a consistent staff. For new owners, use data and objective information when making any initial changes — especially when it comes to hours and compensation. Dealing with potential staff shortages could be extremely detrimental when attempting to ramp up a newly-acquired practice. Take a few months to evaluate and absorb before making any major changes.
As the new owner, you’ll want to send your own welcome letter to patients, detailing any improvements, such as expanded office hours or equipment upgrades. You may even want to host a patient social in the office. Then set clear, realistic goals for growth, focus on team building, remember to reward your staff, and enjoy the fruits of your success!
How can we help
As you take steps toward dental practice ownership, it can be difficult to know where to start. CLA can help. Our dental professionals understand what goes into selecting and purchasing the best practice and can provide the necessary tools to guide you every step of the way.