Questions about Dental Practice Transitions
If you are like most people contemplating a dental transition, you probably have several questions about the process. For this reason, we have compiled a list of the most frequently-asked questions we hear from individuals like you.
A: This situation is far more common than you think. Everyone reaches a point in their business lifecycle where they are unsure of the next move. We have time-tested methodologies to help you assess your current situation and develop a range of viable options to meet your near and long term business goals. Read our page about consulting for dentists to learn more about how we can help you find the right next step!
A: It’s only necessary if you want to ensure you are paying a fair price or receiving a fair price for a practice. A formal dental practice valuation based on cash flow, market conditions, transferability, and various other criteria is needed for a buyer to create a valid purchase offer. In the absence of a formal valuation, price becomes the most heated and emotional topic of negotiation and often kills the deal. Items considered in the suggested practice value include: location, staff transferability, cash flow, included equipment, office procedures and transferability of patient records. Buyers will need this information for purchasing the practice, and mortgage companies and banks routinely require a practice valuation to process the loan. US Dental Transitions has been providing formal dental practice valuations since 1997, and we would be happy to help you with a valuation.
A: The answer to this question is based on your understanding of what you want in a practice and when you can start working in it. You need to answer these questions to answer your initial question:
A: To a large extent, the cash flow of the practice dictates how long the purchaser can afford to employ the previous owner. Our advisors help buyers evaluate whether the practice can afford to employ the previous owner and for how long. According to most studies, approximately 95% of the patient base is transferred to the new owner following a well-planned and executed transition.
A: Every practice has goodwill unless it closes or is failing. The amount to pay for dental practice goodwill depends on the cash flow of the practice, its general attractiveness, transferability, new patient flow, years in practice, office lease and local economic outlook. In short, it’s a complicated process that every seller and buyer should seek help in determining.
A: Just as you would not want your personal financial documents made available to the public, practice owners only want serious buyers to have access to such private information.
A: Your Practice Broker will provide you with summary information about the practice opportunity you are interested in purchasing. It includes gross sales, lease information, and cash flow. A broker will help you draft an offer based on that information. You are protected by making the offer contingent on your satisfaction with that data upon your full investigation. A business offer to purchase simply states, “If everything I assume about this practice proves true, this is what I am willing to do.” You, the purchaser, then have the right to proceed, withdraw your offer, or make a new offer based on your investigation. The seller, once he/she has accepted your offer, must stand by those terms unless you, and you alone, choose to alter the terms.
A: A dental practice appraisal or valuation is an in-depth analysis of a practice’s cash inflows and outflows. A third party, non-biased valuation of your dental practice reduces the time spent on negotiating a sales price. It also helps the purchaser decide if the price is fair based on current market conditions and aids the financing process.
A: Appraising the dental practice prior to working in the office is the only way to accurately set a baseline value of the practice before your contribution. Without this initial appraisal, there would be no way to determine your contribution to the practice value. This baseline practice value gives you a starting point that is based on the cash flow and practice value prior to your employment and should be the starting point in future negotiations.
A: Closing can take from one to three months, depending on the type of financing. Mortgage companies that specialize in dental practice sales often make 100% loans and can complete the closing within a one-month time frame. Banks and small mortgage companies not familiar with dental practice acquisitions can take three to four months to close the sale. Our Transition Advisors help facilitate this process and maintain relationships with the most common lenders.
A: There are several models for calculating the fair market value of a dental practice . A seller or buyer should consult a professional who understands the current dental practice market conditions for assistance with this critical step in the transition process.
A: Usually, you can take a tax deduction for depreciation on the fair market value of all furniture, fixtures, and equipment at a much faster rate than real estate. In addition, the non-compete covenant, goodwill and the value of training are tax deductible. Finally, most practices have deductible expenses that add to the owner’s cash flow.
A: US Dental Transitions is different from other brokers in that we do not charge purchasers a dental practice broker fee for practices that we have listed to sell. The seller pays all brokers to sell his/her practice, and the broker represents the seller in the purchase process. However, some special situations require a buyer to pay a fee. If a buyer wants the broker to search for a practice opportunity, represent them in negotiations and closing, or assist them in the purchase of a specific practice they have located, there may be a small buyer fee.
A: At US Dental Transitions, we have skilled Business Acceleration Advisors who specialize in helping new business owners create the systems and procedures necessary to run a profitable business.
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