By Wade Coleman, JD, and John K. McGill, JD, CPA
Interestingly, this misconception may be shared by the selling dentists, who are also convinced that a number of patients will leave. These beliefs are understandable given that these doctors have spent their entire careers building personal relationships with their patients. Fortunately for both patient retention and dental practice values, this is not the case. If this were true, the market for dental practices would be much smaller.
Given that the majority of a dental practice's value is typically goodwill, this is an important concern that should be addressed. In general, the idea that a substantial portion of the existing patient base will leave the practice following a change in ownership is not supported by actual results. Furthermore, the steps required to ensure a healthy retention percentage are as simple as a personal introduction of the purchasing doctor, a letter from the selling doctor to patients endorsing the new doctor, and a reasonable post-sale tenure (often three to six months).
Consider this concern from the standpoint of a purchasing doctor. Any doctor who wishes to be the sole owner of a dental practice has two options. The first is to start a practice from the ground level. This requires that the doctor acquire a note from a bank, or contribute personal funds averaging $400,000 to $450,000 to fully equip a facility and have working capital to pay operating expenses. On the first day of business following this sizable investment, the doctor has zero patients and will spend the next few years building a patient base to make ends meet with what will likely be a very modest income.
The second option is to purchase an existing practice. This will also be an investment of hundreds of thousands of dollars, but the distinct difference is that the investment buys multiple assets such as an existing patient base, a known location, known telephone numbers, an experienced staff, patient records, an equipped office, and more.
Consider the hypothetical situation of a doctor who purchases an existing practice but only retains 80% of the existing patient base. (This number is for illustration purposes only.) In this example there will be a decrease in income, but 80% of an established stream of income is still much greater than 100% of a nonexistent income stream if starting from scratch. The percentage of an existing patient base retained following the sale of a dental practice varies, but a simple fact is that no investments are completely risk free.
Next, consider this from the patient standpoint. Normally, patients have two concerns. The first is actually going to the dentist. The second is having their long-time dentist leave, so they must find a new dentist. Assuming they overcome the first fear, they're left with two options. The first is to continue going to the same practice where they know the location and will see the same familiar faces. The second is to transfer to a completely new practice where they are unfamiliar with the dentist as well as the staff and facility. The first option involves much less change, and normally patients choose the option with the least amount of change.
From the viewpoint of both the purchasing doctor and the patients, retention is an area where the actual results are far more favorable than the perception. Like many times in our lives, a fear named and defined is much smaller than a shadowy misconception.
Wade Coleman provides transition planning through Roger K. Hill & Company, Inc. John McGill provides tax and business planning exclusively for the dental profession and publishes The McGill Advisory newsletter through John K. McGill & Company, Inc., both members of the McGill & Hill Group, LLC. For more information, visit mcgillhillgroup.com.
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