Transitioning a Dental Practice
Sep 05, 2013
Transitioning into a dental practice as a young doctor, or transitioning out as a seasoned practitioner is extremely stressful due to the inherent financial and professional significance. The anxiety related to these transactions can be reduced by proper planning, setting professional and economic goals and educating oneself about what is involved in the transition process.
The first step preparing for an exit strategy is to objectively focus on an accurate valuation of the practice. Obtaining an appraisal early on will allow a potential seller to compare the practice with similar practices involved in transitions and provide recommendations to enhance the desirability of the practice and how best to structure the financing for the proposed transition and ongoing operations.
The majority of a practice’s value comes from the ability to generate a long-term income stream to a buyer, commonly known as goodwill. Goodwill can include active current patients, referring dentists plus the value of the staff members who remain after the transition. Knowing the goodwill of a practice for both seller and buyer, is critical to determining the value and in obtaining financing for the transaction.
The parties need to determine if it should be an equity sale or an asset sale. The proper allocation of the purchase price could save the buyer or seller a significant amount of money in taxes. There are important legal considerations and implications between these two types of transactions.
Dentists desiring to transition in or out of a practice need to prepare a plan with a team of expert advisors who can identify and understand the contractual matters and operational issues associated with the transition and avoid potential operation, financial, legal and tax mistakes. Skillful planning is critical to ensure the buyer purchases a stable, long-term practice and the seller is provided adequate consideration.
Categories: Healthcare & Dentistry