The three-legged stool, Part 2

by John M. Cahill, MBA

Last month, we talked about the importance of protecting your most important asset, your dental practice. We compared your practice to a three-legged stool, and discussed two legs of that stool - life and disability insurance and forming a death and disability survival group. This month, we’ll look at the third leg of the stool, preparing your practice for sale now.

To ensure that your stool is properly balanced, prepare your practice by first selecting a practice broker to represent you, and second, collecting the following necessary information to effectively market your practice:

Summary of information
Pension records for employees
Year-end financial statements for the past five years
Current year-to-date profit and loss statements
Schedule C’s from personal tax returns or corporate income tax returns for last five years and any related or appropriate statements
Depreciation schedule from last tax return
Average daily hygiene production for the last five years
Current list of major equipment, instruments, and office furniture with serial numbers
Fee schedule
If computerized, a list of reports received
Copy of office lease and floor plan
Any lease agreements on equipment, furniture, and fixtures
List of any existing liens
Union or PPO contracts
Aging of A/Rs
Copy of any office policies
Copy of malpractice insurance policy
Curriculum vitae
Pictures of the practice

Some of you may be thinking, “Why would I want to preselect a broker? My spouse, mutual aide group, attorney, or CPA will handle the transition.” If you do not interview and select a broker, you are taking a chance that the broker may not meet your needs regarding philosophies and practice. In addition, your spouse will be dealing with your illness or death. To add the task of finding a broker at that time would create more stress. Your attorney, CPA, or mutual aid group may not have the expertise, time, or resources to take on this responsibility.

The “Pre-Death and Disability Planning Program” ensures that the practice sale will occur within a minimum time period by having most of the paperwork prepared ahead of time. It is like our patient recall system - preventive in nature. The sale of the practice will be handled automatically.

The critical period for the sale of a practice, especially in the case of death, is 30 to 45 days. The practice should ideally be sold within this time frame because, after this, it can rapidly lose value. Typically, however, during the first month, the spouse understandably does little or nothing regarding the practice due to grief. Others, including the family attorney, may become involved, but they are normally not well-versed in dental practice sales and may not give the practice a realistic value.

With a pre-death and disability planning program, immediate efforts can be made to initiate the sales process because most of the necessary documentation will already be in the broker’s possession. The broker will have prearranged authority from the dentist to sell the practice.

Dentists wishing to develop a pre-death and disability program should take the following steps:

Set up an initial informational consultation with a practice transition expert (broker)
Have the practice appraised
Familiarize his or her spouse with the program and documentation
Familiarize his or her office staff with the program and what to do in case of death or disability
Establish a schedule for annual “recalls” to update the value of your practice
Enter into an agreement with a dental practice broker for the sale of the practice in the event of death or disability

With the third leg of the stool in place, you can sit comfortably knowing that you, your practice, your patients, and your family are in good hands and prepared for the unexpected. Having a strong stool will protect and help ensure your family’s financial security.

John M. Cahill, MBA, of Western Practice Sales/John M. Cahill Associates, has more than 30 years of experience in the dental industry, including all aspects of appraisal, sales, purchases, and buy-ins in connection with dental transitions. Cahill is an emeritus member of American Dental Sales Inc., and can be reached at (800) 641-4179 or by e-mail at [email protected]. Visit his Web site at westernpracticesales.com. See the classified ads for names and addresses of ADS members in your area.