Once a dentist is ready to embark on the journey of practice ownership, there are a lot of next steps. One of those steps is knowing the right way to go about making an offer on an existing practice, should that be the route the dentist takes.
A new chapter in CDA's Guide for the New Dentist titled "Practice Start-up and Purchase Process" covers the topic, as well as other critical information on the many facets of dental practice start-ups, acquisitions, and considerations that apply to both.
Here are some steps CDA Practice Support recommends dentists consider when making an offer on a practice:
• Identify a practice and get basic information such as location, selling price, office hours, staff information, annual collections, patient breakdown, insurance plans, etc.
• Evaluate the office location and surrounding area. Do not enter the office or attempt to contact the seller.
• Have a broker set up a meeting to see the inside, meet the seller and obtain information about the practice. Do not discuss anything regarding the transaction itself (negotiating price, etc.). The broker might also ask questions to aid in the decision-making process. Many sellers do not wish to show a practice when their staff is present, but if the opportunity presents itself, dentists should take advantage of it.
• Confirm the practice value. Dentists should meet with a CPA or dental consultant who will review the practice financials and present a projection based upon those financials. Be mindful that a projection requires intimate knowledge of what the practice expenses should be, not necessarily what the seller's expenses are. The seller's tax returns are not always the best source of such information, which is why a skilled professional should conduct this evaluation. The broker should also do a preliminary evaluation of the dentist's financial status to determine the probability they can successfully acquire the necessary funds to complete the transaction. Dentists will need to provide tax returns, bank account, asset and liability statements, credit report, etc.
• Make an offer. The "asking price" of a practice is based upon what the seller hopes to receive and what the broker believes is possible. The value of a practice is a combination of what a seller is willing to accept and what a buyer is willing to pay. Any practice will have a "range" of value and the actual purchase price should not be among the most important considerations in the process. The offer itself should be realistic and include a letter of intent, accounts receivable, covenant not to compete and a lease agreement for the practice acquisition.
In addition to these tips, Chapter 8 of the Guide for the New Dentist also covers what steps dentists should make after the sale is final, including creating a fictitious business name, purchasing the proper insurance, hiring a team and handling employment issues.
Ali Oromchian, Esq., an attorney at a California law firm and one of the nation's leading legal authorities on contracts and employment law, helped CDA develop the content of the chapter.
"There are not many credible sources for a dentist to rely on when purchasing a practice. This seminal chapter is very instructive and contains ample detail to not only educate but also to help make decisive decisions about how to best purchase a dental practice," Oromchian said.
Oromchian also will be lecturing about selling a practice at CDA Presents The Art and Science of Dentistry on Saturday, May 17 in Anaheim. The lecture titled Strategic Exit: Succession Planning for Dentists will help attendees understand the sales process and legal considerations involved in the transition.
The 20-chapter Guide for the New Dentist serves as a checklist that leads a dentist from graduation through retirement, providing tips on licensing, permits and certifications; marketing; preparing for associateships and practice ownership and understanding dental benefit plans. The Guide for the New Dentist was primarily written by CDA Practice Support analysts, with contributions from several CDA members, CDA Endorsed Programs and TDIC. Though it is not to be considered an "all-inclusive" resource for a dentist beginning his or her career and purchasing a practice, nor a substitute for legal, financial or other expert counsel, it is full of important information, broken down by career stage.
In addition to the Guide for the New Dentist, CDA Practice Support also provides a plethora of resources for members on issues involving practice management, employment practices, regulatory compliance, dental benefit plans and education.
For more information on the guide, visit cda.org/newdentist, or to connect with a CDA Practice Support content expert, call 866.232.6362.