Here are the steps that will help assure significant benefits to both the seller and buyer of a practice.
Peter A. Almonte, J.D.
Dentists who want to sell or buy a practice frequently share one primary concern with their lawyers and business advisers-whether the buyer will be able to retain the seller`s patient base.
This question has profound and obvious implications for both parties. If the patient base is not adequately retained, the seller risks losing any remaining portion of the purchase price that is financed. Sim- ultaneously, the patient base also must generate the revenue needed to satisfy many other commitments as well, including the debt service of the lending institution, the operation of the dental practice and the buyer`s own income.
This article suggests steps that the seller and buyer can follow to maximize the retention of the seller`s patient base and to achieve a successful transition of the practice from the seller to the buyer.
Unquestionably, the most important step that can be undertaken is to prepare a straightforward letter of introduction from the seller to each patient. Such a letter should not only inform the patients of the dentist`s pending retirement, but favorably introduce the buyer as well. The letter should include, whenever possible, a brief biography of the buyer, the individual`s educational credentials and areas of specialization, as well as a description of the spouse and family.
The cost of preparing, mailing and distributing this important letter generally is born by the seller. Moreover, this step is so critical that it should be described in the purchase and sales agreement. Here is a sample letter:
After practicing dentistry for 35 years, I have decided to announce my retirement. It has been my singular honor to be your dentist. In some cases, I have treated three generations of your family. Each of you has become a valued friend.
After a long and careful search, I have found the right dentist to take over my practice. She is Dr. Mary Jones, a caring, talented and compassionate professional, who shares my commitment to exemplary dentistry. From Dr. Jones, I am confident that you will continue to receive the highest quality of dentistry.
Dr. Jones is a graduate of the University of Pennsylvania School of Dental Medicine. She served a one-year residency in General Dentistry at Worcester City Hospital. Dr. Jones; her husband, Bob; and their two children, Paul and Sara, are moving into our community.
I know you will be pleased with Dr. Jones and will extend to her the same courtesy and loyalty that you have afforded me over these many years.
Dr. Jones and I have worked closely together to ensure a smooth transition in response to your specific needs. We gladly will answer any of your questions about the transition in the weeks ahead.
Finally, your many kindnesses have always been appreciated; I will miss you.
John Q. Seller
The timing in sending this letter also is relevant to a successful transition. The letter of introduction may be sent on the date of closing, prior to the date of closing or after the date of closing.
If the buyer`s deposit is nonrefundable and the buyer has obtained a written loan commitment from a lending institution, consider sending the letter of introduction some two weeks prior to the date of closing. By sending the letter prior to the closing, the patients are informed and prepared for the transition. Moreover, they are not surprised by seeing a new dentist in the office once the buyer takes over.
In addition, after the closing, the buyer might send his or her own letter to every patient (including inactive patients), welcoming them to the practice. In this letter, the buyer should mention the desire for continuing the seller`s tradition of service and detail any planned improvements for the practice, such as expanded office hours.
In the meantime, the seller also should formally introduce the staff to the buyer. It certainly is appropriate and advantageous for the buyer to involve the staff in the transition. The staff can be particularly helpful with the transition. Familiar and friendly faces will help ease the change for many patients.
The staff will be concerned with the impact of the sale on their own livelihoods. Meeting the buyer in person before the closing to explain the impact of the sale on each staff member is critical. This key meeting with staff members should be arranged at least two weeks prior to the closing date.
Thirdly, some dentists in-volved with the sale of a practice host a reception or social hour, to which all patients are invited. These events, which generally are scheduled on a Sunday, provide patients with an opportunity to wish the seller well and to meet the buyer and his or her family.
Dentists who have hosted such cordial receptions have reported that 20-25 percent of their patients visited their offices during these events.
Placing a photograph of the new dentist prominently in the reception room also provides another form of introduction for patients. (The photograph can be a portrait of just the dentist or the dentist with the family.) The photograph with a brief biography of the buyer can be placed on an easel in the office, affording, yet another opportunity for patients to learn about the buyer. This is particularly beneficial for those patients whose initial appointments are for recall visits and may not be seeing the purchasing dentist.
Throughout this delicate process, it is important to remember one undeniable fact of life. Most people dislike change. These suggestions underscore the need to involve patients and staff in the transition, so that all become more comfortable with the impending changes.
Fifth, a joint announcement in the local newspaper also is helpful in involving the community in the transition. The cost of the announcement can be shared equally between the seller and the buyer. In some cases, a local reporter from a community newspaper might be persuaded to write a feature article about the dentists involved with the practice transition.
Sixth, in those states where it is permissible, the seller may permit the buyer to use his or her name on outdoor signs, in the telephone directory or on stationery, for a limited period of time (i.e., 12 months), after the closing. Generally, the buyer should not otherwise use the seller`s name without the seller`s expressed, written consent. Ordinarily, the buyer will agree to indemnify and hold the seller harmless for such a specific use.
Similarly, the seller also should transfer the office telephone number to the buyer to ensure that patients easily can access the dental office. In this instance, the buyer and seller have to sign appropriate transfer forms with the telephone company.
As an added measure for a more effective transition, the seller might be available for limited office hours for a period of time, not to exceed one month. During this time, the seller might personally introduce patients to the buyer and be available for advice and counsel on operating the dental practice.
In such a case, the seller`s time should not exceed three hours a day for two days per week. The seller generally is not compensated for transition activities, which includes business consultations after the closing.
In the event that the buyer wants the seller to remain for a time after the closing to treat patients of the practice, the seller then should be compensated. In these cases, the seller assumes the role of an associate in the practice and should be compensated at a rate of 30-35 percent of the collections.
Besides these helpful steps, there are other preliminary measures that sellers should undertake in advance of any sale to maximize the profitability of the new dental practice.
In particular, the seller should exercise due diligence to assure that any potential buyer is both professionally and financially suitable to take over the practice. Particularly, in cases where the seller will finance part of the purchase price, such due diligence is essential in minimizing the risk of any buyer default.
In assessing the buyer`s qualifications, the seller should obtain a curriculum vitae, clinical and personal references, an academic transcript, the buyer`s tax returns with verification that the same were filed with the Internal Revenue Service, a personal financial statement and current credit report. The seller also should determine whether the potential buyer is insurable for life and disability insurance. Moreover, the seller should obtain a certified copy of the buyer`s dental license and controlled-substance licenses.
My own clients have reported that by implementing the above steps, both the seller and the buyer can achieve a successful practice transition and maximize the number of patients retained by the buyer. In fact, these and similar steps have enabled buyers to retain between 85-95 percent of the seller`s patient base, according to these client surveys.
A successful practice transition brings benefits to both parties. The seller is assured payment for that portion of the purchase price financed by the seller. Moreover, the buyer is able to pay the practice overhead and debt service relative to the purchase price, as well as earn a significant income.
The author, based in Providence, RI, is a lawyer and lecturer who specializes in dental-practice transitions. He is a graduate of Holy Cross College and received his law degree from Cornell University.