Seller stays on as an associate after the sale

by Peter Mirabito, DDS

Having been involved in dental practice transitions for 20 years, I frequently find that the seller would like to stay on and practice on a limited basis after the sale of his or her practice.

This can have several advantages for the selling dentist. Even when the need for money is not a factor, practicing part time in the practice the dentist formerly owned provides him or her with some income to help cover living expenses. It also tends to limit the need to dip into his or her retirement funds, thereby making them last longer.

But even more than that, there are intangible benefits to continuing on as an associate in your former practice. If the seller still truly enjoys doing dentistry, practicing part time can help him or her transition from active practice to full retirement.

More importantly, this enables the selling dentist to maintain a sense of purpose and fulfillment. This is especially true for those sellers who do not have any burning desire to ride off into the sunset or devote a significant amount of time to a favorite pastime or hobby.

There are advantages to the buyer as well:

1. When the practice is large or in a scenario where the buyer does not have the clinical speed of the seller, a second dentist is needed part time to maintain the production pace of the practice.
2. The seller can personally introduce and endorse the buyer to the patients on an ongoing basis during the time he or she remains with the practice.
3. The seller can be a mentor and counselor for the buyer, encouraging and helping the buyer with practice management. Many buyers want or think they want the security of the seller staying on for an extended transition period, such as six to 12 months after the sale for a day or two per week.

There also can be pitfalls. The first consideration before this relationship is even contemplated is the cash flow of the practice. The practice must be large enough to provide an adequate net income to the buyer and enable the buyer to service the debt of the practice-acquisition loan.

In addition, the net income after debt service must be enough to meet the needs and obligations of the buyer and his or her family, which in all likelihood includes educational debt. In recent years, education debt has become a more significant consideration. The American Dental Association reports that the average debt for graduating dental students is now $184,000!

So before we can even consider being able to pay the seller any portion of the practice revenue, these considerations must be taken into account.

Assuming that the cash flow is adequate, other factors need to be taken into consideration. The transfer of the loyalty of patients and staff from the seller to the buyer can be made more difficult with the presence of the seller.

For example, when Mrs. Jones comes to the front desk to schedule an appointment for a crown, the receptionist tries to appoint her with Dr. Buyer, but Mrs. Smith says that she would rather have Dr. Seller do her crown. Even when the receptionist tells Mrs. Jones that Dr. Seller is not available for months and months, Mrs. Jones may still say that she is willing to wait for Dr. Seller.

These challenges are not insurmountable. If Dr. Seller is only available, for example, one day a week, and Dr. Seller strongly encourages Mrs. Jones to make her appointment with Dr. Buyer, this can be overcome. In addition, the staff must be very good at endorsing and supporting Dr. Buyer in these situations.

Peter Mirabito, DDS, is a partner with Jed Esposito, MBA, in Precise Consultants, a dental practice-transition consulting and brokerage firm in Denver, Colo. Dr. Mirabito also is a founding member of American Dental Sales. He can be contacted by phone at (800) 307-2537, or by e-mail at [email protected].