Transition alternatives: too many choices

July 1, 2011
"I am ____ years old. I do not know what I should do about my own transition. It's too complicated."

John K. McGill, MBA, CPA, JD, and Roger K. Hill, MSA, ASA

For more on this topic, go to www.dentaleconomics.com and search using the following key words: retirement planning, practice transition, John K. McGill, MBA, CPA, JD.

“I am ____ years old. I do not know what I should do about my own transition. It’s too complicated.”

From the bad news to the good news, a transition is a process.

The bad news. A practice transition is one of the most difficult situations you will face. Ever. This is because it has elements that are both personal (qualitative) and financial (quantitative). Worse yet, each of these seems to affect the other. It’s an endless circle. You may wind up feeling like you are “honking at your own tail lights.”

First (just) the news. The news is that the question and its many-sided facets are as complicated (and yes, iterative) as you believe. It is complicated, but it is a question that will ultimately come down to this: “Am I going to control the situation, or is it going to control me?” Sooner or later, it is this simple. The correct answer is just as simple. Let’s take control. Thinking of what you have accomplished and the many people who depend on you, to do less is simply not worthy of what you have done. What you have achieved deserves to be honored by your attention and intention.

Funny thing about human nature. There is a funny thing about the way we make decisions of great magnitude. As counterintuitive as it may seem, when we make decisions of this size, we will always make them from the personal (qualitative) — not the analytical (quantitative) — perspective. Counterintuitive or not, this is as it should be because we must first be satisfied with the decision before we can live its consequences.

Having said that, this is the key: the best decisions are those that are ultimately made from the personal standpoint, but only after reviewing and understanding the analytical perspective. Once we have seen the likely financial outcomes of our various choices, the personal decision is almost always intuitive and, frankly, just feels right.

I want to see my choices. Have you ever found yourself reading the menu in a restaurant and making a choice without knowing what the food looks like? Sometimes we are disappointed when our choice is presented to us. It would have been much better if we had been able to see the choices before we made a selection.

In the same way, you may find yourself facing what appears to be a bewildering number of choices for your transition, without knowing which is the correct one. This is understandable because the question has aspects of valuation, cash flow, tax considerations and efficiencies, operational aspects, and a nearly endless list of related items. However, let’s consider the case of Dr. Brown, who made the original statement: “I am ____ years old, and I do not know what to do about my own transition.”

Dr. Brown is considering a number of choices, including the following three:

  1. I could sell the practice now, invest the cash, and work post-sale for the purchaser for a number of years.
  2. I could bring in an associate, sell a partnership interest, and sell the remaining interest a number of years later.
  3. I could continue to own the practice for a number of years, then sell the practice and work post-sale for a short time.

Suppose you could see the year-by-year financial outcome for each of these alternatives through the full extent of your time frame. Imagine further that the year-by-year financial benefit for each scenario accounts for all the tax and structural considerations so that you know not only the year-by-year outcome, but a cumulative total for each scenario illustrated.

This gives you a clear view of the financial outcomes and removes all of the complicating considerations when you think about your choices. Now suppose that each of these financial illustrations is carefully explained to you and thoroughly explored.

The good news. This type of comprehensive, comparative financial modeling is always helpful. Illustrative modeling is what will move you from indecision to clarity. Let’s go back to how we said we ultimately make decisions of magnitude. With this understanding and perspective as a backdrop, making the decision from a personal, intuitive standpoint is straightforward. Your decision will bring a sense of sweet relief and freedom.

Roger Hill provides transition planning for practice sales, partnerships (buy-in/buy-out), practice mergers, associateships/compensation analysis, and financial forecasting (proforma) through Roger K. Hill & Company, a member of the McGill & Hill Group, LLC. John McGill provides tax and business planning exclusively for the dental profession and also publishes “The McGill Advisory” newsletter through John K. McGill & Company, Inc., member of the McGill & Hill Group, LLC. For information, visit www.mcgillhillgroup.com.

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