Ontario Dentist - May 1998
Tom Schramm, Associate
Dental practices may be worth less in the future. Why? Demographics.
The ideal situation when purchasing a practice is to have the previous owner remain as an associate, or at least as a consultant, to introduce the new owner to patients, staff and referral sources.
Most dental practices are sold this way. However, in a typical practice transition, an associate arrangement is possible only if there is enough work available to keep both the new and previous owners busy. This is common when an associate in the office is also the purchaser of the practice and there have been sufficient billings to warrant the continuation of both practitioners in the practice. Now the roles can be reversed and the previous owner can slow down and hand off the management responsibilities of the office and staff to the new owner.
While this appears to be the ideal approach to selling a practice, it also takes considerable planning and commitment on the part of both parties. Extensive discussion must take place when an associate is first being considered and a firm commitment from both parties is required from inception of the agreement. The goodwill of the practice can be damaged by associates test driving the practice prior to committing to the purchase, resulting in a turnover of associates in a short period of time.
The incoming doctor would need to have similar philosophies of practising dentistry for this type of transition to have any chance of success. The best commitment that can be obtained from a prospective associate/purchaser is a cash deposit representing 10 to 20 per cent of the purchase price of the practice. This value should also be established at the inception of the discussions.
It has been our experience that the majority of practices sold over the years have been average in size. These practices commonly would be two to three operatories with a part-time hygienist and two or three support staff. The new owner in a practice like this would likely have a net income, after financing costs, in the range of $90,000 to $125,000 if the practice continued with the same gross billings and expenses as in the previous year.
Now the question becomes: how much of the dentist's net income is he or she prepared to pay to the previous owner to have him or her remain for a transitional period? If the previous owner remains as an associate for one day per week for six months, he or she would likely earn between $15,000 and $20,000.
The new owner may have bought some peace of mind but, in reality, how many patients would be introduced to the new owner through this period of time. He or she is being retained more as an ambassador of goodwill for the practice and is available if required to assist with the more difficult situations that arise.
Every practice has a percentage of patients who travel considerable distances to see their dentist. They have built up a trust and confidence that they don't want to give up. These are the patients most likely not to remain with the practice because now they can find a dentist in a more convenient location. However, the majority of the patients usually live or work in the area and with an introductory letter from the previous owner recommending the new doctor, they will normally keep their next appointment.
From a patient's point of view, if he/she has built a relationship with the staff in the office, this could weigh heavily in the decision to return for treatment as well. A patient attending the office (where the staff has some tenure) for a recall appointment would likely spend time conversing with the receptionist upon arrival, then chat with the assistant while being prepared in the operatory. They are then seen by the hygienist for the next conversation and treated for 30 to 45 minutes. The patient has now been in the office for approximately one hour and has not yet seen the doctor. If there are no major problems, the doctor may not spend more than five to 10 minutes with the patient.
When a practice like this is sold, the staff's relationship with the patient could prove to be as important in the transition of patients as the doctor's. Each of the staff should talk about the new dentist and answer questions which would ease the anxiety the patient may have in meeting the new dentist. Now, when the new dentist is introduced, the patient is comfortable and acceptance is accomplished much easier.
Other than for the new dentist's peace of mind, a transition in an average size office could be more expensive than productive for the new owner.
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