Whether you’re considering purchasing or starting a dental practice, hiring an associate, bringing on a partner or selling your practice, knowing which steps to take will help ensure a smooth transition.
Even if you anticipate that a practice transition is still two to five years away, you can start preparing now ― and begin by asking yourself the right questions: What does the loan process entail, and how has it changed during the COVID-19 pandemic? How do you make your practice sellable? What are your long-term plans for the practice if hiring an associate? You will need to take action in these and other areas depending on whether you are buying, building, selling or hiring.
CDA members are not without assistance during a practice transition. A four-hour workshop May 12 at CDA Presents The Art and Science of Dentistry in Anaheim will cover all the steps involved in each type of transition.
Beyond the upcoming workshop, CDA offers a library of resources ranging from a checklist to follow when separating from the practice to a sample announcement about a new associate or partner.
Katie Fornelli, senior practice management analyst at CDA Practice Support, also recommends consulting with advisors before and during any transition.
“These professionals can assist in valuing the practice and its contents, inform you of tax and other legal responsibilities, draft agreements and help overall to ensure a smooth transition,” Fornelli said.
Fornelli will co-present the CDA Presents workshop with three advisors in the areas of financing, human resources and accountancy. Here, she and CJ Williams, vice president, regional business development officer, Bank of America Practice Solutions, answer 10 questions about practice transitions that presenters will expand on in the workshop.
A practice transition refers to any change you make to your existing practice structure. Your options are to buy-in or buy-out, form a partnership or group practice, start up or acquire an existing practice, purchase a second location, expand an existing location, hire an associate or partner or sell the practice.
Do your homework. Due diligence is an underestimated step in any practice transaction. Whether you’re buying or selling a practice, knowing what to look for and what to have prepared will be essential. Most individuals will lean on a professional advisor to analyze the financials; however, the seller and buyer must have a level of understanding as well. It is a powerful learning process that will make each party more knowledgeable.
A dentist who is looking to acquire an existing dental practice wants a practice that has been managed well and shows “pride of ownership.” Look at your practice from the buyer's perspective. Evaluate your practice systems and work to ensure both your patient and employment systems are fine-tuned. If you need to perfect your practice systems, CDA Practice Support has resources and guidance in all areas of managing the dental practice.
Two aspects will require equal attention. The first is your clinical ability. Getting as much experience in the clinical side of dentistry will support your production goals and ultimately your earning potential. The second is your financial profile, which is made up of three elements: credit, income and liquidity. Credit tells a story about a person’s past and current financial decisions; it’s one part of the criteria lenders consider. Income is tied to your clinical ability and how much you can produce on a consistent basis. This will determine if your ability matches the production levels of certain prospective practices for sale. Liquidity simply means how great of a saver you are. How much of your income do you save, and do you maintain an appropriate income to debt ratio?
Red flags are usually uncovered during the due diligence process when the buyer’s advisors are closely evaluating all elements of the practice. Common practice management red flags are improper dental benefit plan billing or inconsistencies with the billing procedures, excessive patient credits or extensive outstanding patient balances, low treatment acceptance for diagnosed restorative procedures, and a low hygiene-recall scheduling percentage. Some common employment red flags include not having an employee policy manual and job descriptions, poorly managed employee personnel records and high employee turnover. However, employee turnover has been less scrutinized during the pandemic.
Much to people’s surprise, the loan process has not changed much due to the pandemic. The industry has continued to perform well, and practices continue to thrive.
Working part time may hinder the approval process because it becomes more difficult to prove production potential and save to increase liquidity. With that said, lenders spend considerable time during the prequalification process helping applicants understand what’s needed to support their approval, and every applicant’s situation varies. We encourage dentists to contact a Bank of America Practice Solutions Specialist for tailored guidance on their specific scenario.
Evaluating insurance needs for your practice and employees can be complicated. Before you begin practicing or if you are considering purchasing or selling your practice, it is recommended you contact your insurance advisor at TDIC Insurance Solutions. Your advisor will guide you through the various types of insurance you may need, such as professional and business liability, cyber liability, commercial property, workers’ compensation, health, life, disability, long-term care, hospital indemnity and tail coverage, if needed.
Consult with an accountant and attorney at minimum before and during the transition. These professionals can assist in valuing the practice and its contents, prepare estate planning documents, inform you of tax and other legal responsibilities, draft agreements to ensure confidentiality of information during buy/sell negotiations, and help overall to ensure a smooth transition. You might also want to notify your local dental society and, if applicable, a mutual aid organization. Depending on the type of dental practice transition you choose, you could retain a dental practice broker, consultant, architect and/or contractor.
Register to attend the workshop “Buying or Selling? What To Know Before Your Practice Transition” on Thursday, May 12, from 8 a.m. to noon at CDA Presents in Anaheim. Speakers include CDA’s Katie Fornelli, CJ Williams with Bank of America Practice Solutions, Ali Oromchian, JD, LLM, founder and CEO of HR for Health, and Brett LeMmon, CPA, financial advisor at Thomas Doll. The cost is $50. Bank of America and HR for Health are CDA Endorsed Services partners.
Also, head to the CDA Practice Support library for over a dozen resources to assist with practice transitions, including sample letters and announcements, checklists and detailed explanations of associate legal relationships, insurance plan credentialing and more.