Buying or selling a practice without professional help is about as smart as building a house without a good contractor.
Most people dream about designing their dream house. They can envision the white picket fence, the enlarged doorway leading to a grand staircase, the master suite that makes them feel like they are in a five-star hotel, and the kitchen that seems to have everything in the right places.
However, when most people decide to build their dream house, they enlist the help of professionals to help them realize their dream, instead of trying to build it themselves. Most people know that they do not possess all of the tools and know-how required to build the perfect house.
It is the same situation when dentists decide to buy or sell a dental practice. Those who have the “do-it-yourself” mentality rarely live the dream because of problems they face in realizing that dream. But, those dentists who enlist professionals to help them attain their dream, have the best chance of having their fantasies fulfilled.
When our law firm receives a call from a dentist who is either trying to buy or sell a practice, our first question is, “Who is on your team?” Quite often, the reply is, “Team? What team?”
While it may seem strange, this is how you should approach buying or selling a dental practice - with a team mentality. Purchasing or selling a dental practice has too many unique areas that are instrumental to the life of your practice or to your retirement - areas which an untrained eye will not be able to see or even understand. Brokers, CPAs, attorneys, and other professionals are people you want on your team ... and not all teams are equal!
While any broker, CPA, or attorney can help you with your purchase or sale, a unique subset of these professionals have crafted their practices around helping dentists in this arena. These professionals would be your “All-Stars,” the ones who know the industry inside and out, who don’t have to “learn on the job” and can quickly help you realize your dream. Below are some of the reasons why having these professionals on your team can help you achieve the greatest success.
There is no better person to have on your team than a dental practice broker. These professionals have spent years (if not decades) in the dental industry. They know everyone and have a long list of buyers and sellers to help you purchase or sell your dental practice to just the right person. Think of a good practice broker as your team captain.
If you are a seller, they can appraise the value of your practice quickly, market your practice to a wide array of potential buyers, give you expert advice on how to get the most money out of your practice, and help facilitate the transaction.
Although expensive, most dental practice brokers are worth their weight in gold and can help you close on your transaction. Our law firm has seen far too many do-it-yourselfers fail, time after time, when trying to sell their practices without utilizing the services of a dental broker.
For buyers, calling a dental practice broker will put you in touch with a long list of sellers, along with an inventory to fit every budget. As a buyer, you can be assured that the dental broker will be working for you as well, because most practice brokers have a dual agency to serve both buyers and sellers.
One note of caution in finding a broker to sell your dental practice - make sure it is a broker who specializes in selling dental practices and not a general business broker.
Unfortunately, general business brokers do not have the expertise required to sell a dental practice and will provide you with a standard business purchase agreement that will not take into account the unique nature of a dental practice. This includes items such as uncompleted dental work, restrictive covenants, appropriate representations and warranties, redo work, etc. Using a general business broker will always be far less satisfactory than using a dental broker.
Although you may already have a CPA, you may want to enlist the assistance of a CPA who specializes in helping dentists purchase or sell a practice. If you are a seller, these dental CPAs can save you thousands of dollars in taxes by using the proper ratios for purchase price allocations, thus making them worth almost any fee you pay them.
If you are a buyer, a dental CPA can also save you thousands of dollars in taxes by using the proper ratios for purchase price allocations because of the heavy use of equipment within dental practices and changes within the tax code of which many general CPAs are unfamiliar.
Having your dental CPA review the books and records of the dental practice, the tax returns for the last two years, and profit and loss statements will further protect you from an unscrupulous seller. Furthermore, when purchasing a dental practice, you may want to enlist the services of a dental CPA to help with all of your business needs since owning and running a dental practice is much different than running a general business.
Dental CPAs have spent years helping dentists with day-to-day business needs. They know how to best run your payroll department or help you receive a deduction for that new piece of equipment that you have been eyeing for the past six months. Out of all your advisors, your dental CPA will be the one who is around the longest, helping you on a yearly basis with taxes and other business issues.
Although there are thousands of attorneys to choose from in California, few (less than 10) have tailored their full-time practices around helping dentists in their business needs. These statistics are probably similar in other areas of the country.
Think of your attorney as your catcher or goalie: he or she takes everything in, but stops the bad things from happening. As a seller, enlisting an attorney to review your purchase agreement is a way to protect you - both in retirement or in a new practice.
There are many areas within a purchase agreement that can hurt your chances of continuing to practice dentistry, or which can leave you “on the hook” for years due to issues such as the past treatment of patients. You also should have your attorney review your lease and draft an assignment of the lease to give to your landlord.
Generally, you will remain liable for the life of your lease, which could be another 10 to 15 years! However, a dental attorney will try to remove this liability by speaking with the landlord and inserting a provision into the assignment of the lease relieving you of liability after a specified period of time.
As a buyer, a dental attorney primarily helps you on two fronts: the purchase agreement and the lease. In a purchase agreement, the dental attorney will try to protect your new investment as much as possible, making sure the seller isn’t hiding any problems in the dental practice and ensuring that the seller won’t compete with you after the sale of the practice.
The dental attorney will try to protect your goodwill and your leasehold interests (your lease) as much as possible since these are the most valuable assets you have in your dental practice. Unfortunately, many landlords don’t understand what they have in their leases. Many of these provisions can have a significant effect on the value of your dental practice when you go to resell it!
Although this article only mentions three types of professionals who can help you realize your dream, there are other professionals within the dental community who can help you just as much. Lenders who specialize in providing loans to dentists will generally provide a better rate than regular banks or other lending institutions. Practice consultants can show you areas within your practice that you are not using to their fullest potential and that can help you to make more money.
There also are other professionals who have spent years with dentists, helping them to perfect the ownership or sale of a dental practice. The most important concept to understand when thinking of buying or selling a dental practice is that you are not alone.
Unfortunately, our law firm receives too many calls from frantic dentists who have seen their dreams “go up in smoke” simply because these dentists were trying to accomplish their dream on their own. Using advisors to assist you at this stage of your professional life will be worth the extra cost, especially if you team up with professionals who are specialists in the dental community.
Remember, the do-it-yourself mentality usually ends with a headache and an unrealized dream.
Jason P. Wood, B.A., J.D., is an associate attorney in the law firm of Wood & Delgado. Patrick J. Wood, B.A., J.D., is the founder and senior partner of Wood & Delgado, a law firm that specializes in representing dentists for their business-transaction needs. Wood & Delgado provides practice-management consulting in numerous states. The Woods can be reached at (800) 499-1474, or by e-mail at firstname.lastname@example.org or email@example.com.