Avoiding the Pitfalls of Dental Practice Transitions – Part Two

The easiest practice transition is an outright sale. The legal documentation is way simpler than a partnership. It is basically a purchase and sale and a covenant not to compete. The success is predicated on the ability of the seller to transfer the goodwill to the buyer. Here are ten common pitfalls to avoid.

1.Arguing about the price – it is not really that difficult to calculate a fair price. As long as the price is reasonable, I never advise my clients to try to beat up the seller on price. I want the seller to be happy so that he/she can enthusiastically transfer the goodwill.

2.Not understanding the allocation of goodwill for tax purposes- this has to be agreed on before the pricing. Typically 75-80% of the sale price is attributed to goodwill. This is favorable to the seller who pays a capital gains tax which is currently 15%. The balance of the sale price is taxed as ordinary income.

3. Failure to retain key staff members. It is OK to change doctors – it is not OK to change staff.

4. Failure to review obligations and commitments. The practice has to be transferred debt free.

5. Misjudging the size of the practice – it is critical to know how many patients are in this practice. My definition of an active patient is someone with an appointment. Unfortunately, many times I get called in as a consultant after the fact – when the buyer is very unhappy – because the patient base they thought they were purchasing is nowhere to be seen.

6. Failure to educate on telephone technique – failure to review scripting for the front desk regarding the new doctor.

7. Aggressive dental treatment – I recommend that the buyer does not suggest treatment unless something is broken or decayed. Once that patient has come back a few times, they really become your patient and then it is fine to recommend more elective treatment.

8. Not slowing down – every patient that you see in this practice is a new patient for you. Take the time to slow down your schedule so that you have the opportunity to interact with these patients and start to build a relationship. Remember that you never get a second chance to make a great first impression.

9. Inadequate letter – a great letter – written by the buyer – which comes from the seller – is the principal way that goodwill is transferred.

10. Retaining the selling doctor for patient introductions. My feeling is that we do not want the seller there at all after the sale is consummated. There is no need for the seller to stay on for 4 to 6 months to introduce patients. It is virtually impossible to get patients to go see the new doctor if the old doctor is still there.

Next time – I will go into more detail on some of these common pitfalls.