“A Process and not an Event”

Owning your own business may seem intimidating for many of you, but for the majority of dentists, this is a reality. For many Americans it is part of living the American Dream, and for most dentists it becomes a primary goal of their career. Some will choose to jump right into practice ownership, while others prefer to continue their education or work as an associate dentist prior to assuming the risk and responsibility of owning their own practice.

Just as the situation may differ, so do the new dentists. Some doctors hit the ground running, while others will struggle, languishing under a lack of confidence and immature clinical and people skills. Some will share the same concerns: Am I good enough? Am I fast enough? Will I be able to tackle the business side of the practice? Your own level of confidence in your skills and abilities is probably the best indicator. If you feel that buying a practice is right for you, keep these three things in mind:

First, you must be committed. It is time to sink or swim. For most docs, this “back-against-the-wall” mentality acts as a motivator. For others, it paralyzes them with fear. If you feel fear taking over, you may want to reconsider. You will be stepping into a role of management and leadership. Confidence–not arrogance–is important in your success. Your staff and patients will sense your level of comfort and confidence.

Second, one of the big advantages of buying an existing practice is that it will likely come with an experienced staff. If you trust them and treat them right, they will not only take care of the business aspects of the practice for you, but they will also show you the ropes.

Third, keep in mind that your attitude will contribute more to your success than virtually anything else. Knowledge and skills can always be gained and improved through continuing education, but only if you have the proper attitude. Patients will not “care how much you know, until they know how much you care.” Likewise, staff will only do for you the very minimum they need to keep their jobs, unless they feel you respect and appreciate them.

The most attractive feature of purchasing an existing practice is the immediate patient flow and cash flow. In addition, the overall potential for earnings is much higher for practice owners than for associates. Like a start-up there is associated risk, of course, but with risk comes reward.

On the other hand, there are not always practices available for purchase in the exact area you want to live. Likewise, the practice may not be the “ideal” practice you had envisioned or hoped for. Buying a practice may mean choosing from what is available, which may not be precisely what you want. That being said, do not underestimate the ability to take the practice and make it what you want it to be.

Starting a practice from scratch may be your best or only option. In areas experiencing high population growth you may not see the value in paying for the “goodwill” associated with an established patient base when you could easily attract and retain patients on your own. The key to success is found in your approach. Too many practice start-ups fail due to poor planning and overspending.

First of all, be sure to do your homework. Research the demographics of the area(s) you are interested in. Begin by looking at the dentist-to-population ratio, considering population growth, and taking into account office space availability, exposure and rental rates. Hire a professional to do this for you, if you are not sure how. In addition, make sure your real estate is familiar with your needs as a dentist when negotiated space requirements. You should always have legal council to review purchase or lease agreements.

Second, be smart about the build of the practice. Choose lenders, architects, contractors and equipment specialist wisely. Don’t just go with the first person referred your way. Interview each specialist and compare services and fees. You don’t to spend tons of money on high end material or equipment to bring patients through the door. You can have a very nice office without overspending.

Third, you should think just as strategically about your marketing plan as you do about the color of your countertops and walls. Bottom line – stay on a budget. The ability to attract and retain new patients will make or break the practice. There is more to marketing than just direct mailers and directory ads. You should formulate an external marketing plan that includes more than just ‘print’ forms of advertising. Be creative; use the community, schools, churches and internet. Your internal marking stratiegie is just as important as your external. It does you no good to spend $30k a year on mailers to see patients go out the back door as fast as they come in the front.

Last but not least. Starting a practice from scratch is a great opportunity to get practice systems set up correctly the first time. If you don’t know how the front office runs, make sure to get some training yourself. You will be thankful you did.

Marie Chatterley is with CTC Associates. If you are interested in exploring your options of starting a practice or purchasing a practice, please call Marie Chatterley at 720-219-4766 or email her at marie@ctc-associates.com

Marie Chatterley

by Marie Chatterley
CTC Associates
Start-up and Management Specialist

Whether purchasing a practice, doing a start-up, or buying into an existing practice it is important to do your homework first. Understanding the demographics and current economic trends will help you know if a practice opportunity is right for you.  Don’t give yourself an ulcer by not knowing how successful you will be.  Do your homework and understand how to predict your future.

Demographics can be pulled by any number of companies.  You can also do most of the research on your own.  Basic information can be found on most city websites.  I recommend you also call the city planning department to get further information. The key categories to start with are:

Population – the number of residences in a specific location

Population to Dentist ratio – the number of general dentists per resident

• The population to dentist ratio needs to be larger than 1:1700 for start-ups.
• If you are purchasing a practice that you are hoping to grow, the ratio needs to be larger than 1:1200.
• If you are buying into an existing practice and need to build your own patient base then you will need a ratio no less than 1:1500.

These statistics are not cut and dry.  Even if the ratio is favorable, don’t stop there.  There are a number of economic factors that can impact your success, even with a favorable ratio.

Growth rate – this is a very difficult figure to use to approximate success.  A city can have a negative growth rate and still maintain successful dental offices.  I recommend talking with the city planning committee to find out how many new homes are being planned for that area over the next 1-3 years.  You may also look at the past growth rate, but growth can change quickly with economic factors making it difficult to gain a perfect projection of that location’s potential.   Generally an existing part of town will have a low or negative growth rate.  This is okay as long as the population is large enough to warrant having a new dental practice.

Household income – this is important in understanding the insurance plans you may or may not need to be in-network with.  Just understanding the income level of your target area will help access what type of practice will be successful:  cosmetic, family, ppo, Medicaid, etc.  If you just finished an expensive implant seminar and are looking to buy a practice, make sure it’s in an area where your patients can actually afford this procedure.

New patient flow – An existing practice needs to have new patients coming in every month to replenish the normal patient turnover.  An office not concerned with growth really needs to have 10-15 new patients per month to replenish this natural turnover.  A growing practice needs to have 20 or more new patients a month.  A new practice needs to have at least 50 new patients per month to break even by month 6.  An ideal practice start-up will have over 80 new patients per month.

Other economic factors – Two additional economic factors to research in your target area are foreclosures and unemployment.  This can be a red flag for even a growing community with few doctors.

Take the time to understand and research the area before investing large amounts of time and money on a new opportunity.

John is a 46 year-old dentist with a successful practice. Yet now, after 16 years, he is starting to feel a little worn down. He is beginning to wonder if the practice is running him rather than him running the practice. He has a difficult time taking any extended relief time from the office because of the negative cash flow he experiences while he is away. He feels he is on a treadmill with no end in sight. He calls up his old high school classmate, Tom to see how he is doing.

Tom tells him that when he graduated from high school, he bought a small hardware store and after five years he bought two more hardware stores. The stores did pretty well, so Tom brought in a partner, who started to buy out his interest in the business. Tom said he got the idea from a transitioning consultant. The consultant showed both parties how they could structure a win-win agreement, allowing Tom to work part-time while maintaining his same level of income.

Tom explained he no longer had the hassle of administrating and managing the business. He can now take extended vacations without having cash flow problems. As an independent consultant to the new owner, he enjoys taking the time to work with the more profitable customers. This new found freedom allows him the time to be more creative in finding new and innovative ways to meet the customer’s needs. He no longer feels the pressure to sell something in order to meet payroll. Tom now notices that the customers with whom he works feel more relaxed and consequently buy more products and services.

Tom asks John, “Don’t they have something like this in the dental profession?” “Couldn’t you apply these same principles in your own business?” Tom suggests, “why not “merge” your practice with another doctor and have the freedom to work the days you want to, seeing your favorite patients and doing the procedures you enjoy doing the most, while still maintaining the same level of income.

John had never considered this option, and the more he thought about it, the more he believed that it could become a reality.

If you too would like to explore viable and proven practice options, please give Larry M. Chatterley a call at 303-795-8800 or 435-654-1717

At some point in your career you will feel the need for change. You may have a need to overcome solo-economic dependency, improve staff relations, or find some relief from the stress of managing a private practice.

In this booklet, you will learn about 25 essential issues you should address before you begin the process of transitioning your practice. You will learn how to make the transition process a pleasant and profitable experience for all concerned.

Through proper planning you will find you can preserve and enhance the value of your practice. Perhaps more importantly, you will learn how to avoid making some critical mistakes that can turn the sale of your professional practice into an emotional and financial disaster. We trust you will find this booklet presentation educational and that
the information it contains will assist you in charting a course that will lead to achieving personal and professional goals.

1. How will I know when it is the “right time” for me to sell my practice?

The following ten items are the most common reasons doctors give for considering a transition:
1. The need to overcome the pressures of solo-economic dependency.
2. To improve the bottom line.
3. More time to pursue other interests (i.e., family, recreation, career change, etc.)
4. Change of scenery and/or a new challenge.
5. Limited or no future in current position.
6. Health concerns.
7. Reduce stress associated with clinical, management and administrative responsibilities.
8. Alleviate frustration from insurance companies and government pressure.
9. Relocation
10. Retirement

If you are motivated by one of these factors to make a change, then now is the right time to consider some type of transition. The exact timing will be right when you can answer yes to each of the following questions: Can I financially afford to make a change? Can the practice financially support a transition? Can the facility accommodate another doctor if I decide to stay on after the sale? Can I give up part or all of my control? And does it feel right?

Perhaps the best indicator is how you feel inside. Decide whether you are an “increaser” or a “decreaser.” If you can’t wait to get back to the office on Monday morning, if you still enjoy managing and motivating your staff, or if you are constantly looking for ways to grow and improve your practice and see more patients, then you are considered an increaser. On the other hand, if you have seriously entertained thoughts of cutting back the time you spend in the practice, if you experience a lot of stress and fatigue, or if you are bored with the practice and just marking time, you are probably a decreaser.

As an increaser the primary reason for considering a sale of any portion of your practice would be to bring on another equally committed doctor to help manage the growth. If you are a decreaser, you should investigate the possibility of a transition in the near future. Your primary motive will likely be to enhance your quality of life by making the most out of your remaining time in dentistry.

Ultimately, you have to decide when you are willing to take the necessary steps to make your life in dentistry everything it can be.

As we discuss in greater detail later in this booklet, if you decide to sell, you don’t necessarily have to quit. You just need to know how to structure the right kind of relationship with a new doctor. Most dentists equate selling their practice with retirement, or a loss of control and status, and/or a reduction in income, and therefore often wait too long to begin the process. Across the country, we see more and more dentists selling their practices up to five years before retiring from dentistry. If properly structured, these sale/work-back arrangements have been a very successful way to transition a practice. This type of transition allows a practitioner to sell the practice to a third party. That third party could be another established practitioner, a new dentist with no patient base, or possibly an independent business entity. Depending on your needs and goals, these practice transitions can allow you to “cash in” on your practice equity and still work for many years to come. Remember selling your practice does not always mean giving up practicing. But what you do give up is the administrative and managerial hassles of running the practice.

One of the primary benefits of a practice transition is to allow you to overcome what is referred to as solo-economic dependency. This phenomena refers to the negative cash flow that takes place while you–as a solo practitioner–are away from the practice. Extra time away from the practice can help you discover or expand other viable avocations and/or vocations in your life or spend more quality time with family and friends.

In summary, our experience suggests that any doctor with a time line for retirement of five years or less who does not have a plan underway for the transition of his/her practice could be jeopardizing one of his/her most valuable assets. Far too many doctors wait too long and receive too little for their practices. This is a highly individual and complex issue worthy of very careful planning and consideration. A thorough and realistic evaluation of your specific situation and your transition options can be invaluable for arriving at the best decision.

2. How will demographic trends over the next ten years affect my practice value and marketability?

Dental practices sell because established practitioners have what young dentists need–access to patients and the cash flow that patients represent. These doctor-patient relationships and the associated cash flow are commonly referred to as “goodwill” which comprises from 60 to 80 percent of the value of any dental practice.

Over the past decade, the number of U.S. dental schools has decreased by ten percent and the number of annual admissions to each school has declined by almost thirty percent. The most immediate impact of this decline has been to lessen marketplace competition, thereby allowing more young doctors to start from scratch and survive. Just a few short years ago, this would have been considered financial suicide. Despite seeing a market increase in the success of scratch start-ups, a practice purchase usually remains the best option for a dentist starting out.

A combination of the aforementioned decline in dental school graduates with a recent increase in the number of dentist retirees is having a depressive effect on practice values. Simply put, nationwide there are more practices for sale and fewer buyers for them. A slight decline in practice values actually began in 1990 and has continued ever since. Consequently, if you have plans to sell in the next several years, it will be well worth the time and effort to begin the planning process of transitioning your practice now, or as soon as you feel you are financially and psychologically ready to do so.

3. What are my options?

The most common and most popular transition options are the “sell/work-back” options. These options allow you, as the seller, to work-back for the buyer after the sale of your practice is complete. There are essentially three types of sell/work-back arrangements. Depending on the type of practice you have, the structure can be set up to be very complementary to both parties. The first option is a deferred sell/work-back. This option is recommended in situations where practice production is not sufficient enough to accommodate an immediate sell of the practice. Therefore, a deferred sale has the new buyer work as an associate for one to two years while building the practice production. Then, when he or she acquires the practice, there is sufficient production for him or her to
service the debt on the practice acquisition, make a good living and still allow you to work-back as an independent contractor for a period of one to three years (or in some cases longer). This transition structure requires both parties to commit in writing to the price, terms and conditions that will govern the eventual buy-out. The buyer is also required to put down earnest money in a good faith gesture to complete the sale at the end of the deferred period.

For the “increaser” we described earlier, a variation of this first option is a deferred buy-in. Rather than selling the entire practice after a deferred period, you instead sell one-half interest in your practice and form a partnership with the buyer. A deferred buy-in is only for those doctors interested in working for another seven to ten years or more while continuing to grow and improve the practice. You must also have a desire to operate in a full and equal partnership arrangement which means sharing both control and profits.

As a side note, many doctors are concerned that their office is not large enough to accommodate two doctors working at the same time. We suggest straddling the doctor’s schedules. For example, one doctor works from 7:00 a.m. to 1:00 p.m. while the other doctor works from 12:00 p.m. to 6:00 p.m.. Studies show most doctors produce more income during a six-hour clinical day than an eight hour day. Using the office in a more efficient manner allows both parties to leverage their practice activities, lower the overhead percentage, and net more income since many fixed expenses stay the same while production increases.

The second sell/work-back option is called a merger pre-sale. Under this scenario, the buyer already has a patient base but is looking to increase his or her net income without necessarily increasing the work load. One of the parties moves his/her practice to the other party’s facility. The objective is for one doctor to sale the practice and work for the other doctor as an independent contractor for the duration of his/her career. The buying doctor benefits by receiving additional income from the seller’s production in exchange for purchasing and managing the seller’s practice. If structured properly, both parties end up with more take-home pay, and it helps both candidates overcome solo-economic dependency. This type of transition is very lucrative financially; however, the difficulty lies in finding the right candidates within a five mile radius of one another. Therefore, pre-sale merger transitions are rare, require extensive planning, and may take up to five years to consummate.

The third sell/work-back structure involves selling your practice on the onset and working back for the buyer, thus removing the initial deferred or junior associate period. Under this scenario, the seller’s practice income usually drops in half, and there is the possibility the seller may be required to exit the practice sooner than anticipated if the buyer’s schedule gets thin. However, the seller may want to carry back a note on the practice thus having the monthly income from the buyer’s promissory note to partially offset the decrease in practice income. This type of transition works best for a seller who wants more time off and has the resources to take a cut in pay.

Another option is to sell to a dental management services organization (“DMSO”). These organizations may pay top dollar for your practice and will allow you to continue working in the practice as an employee. They assume ownership, administration, management and marketing responsibilities for the practice, allowing you to focus on the clinical aspects as well as giving you more time away and freedom from the practice. They often bring in management and marketing systems that can help bring in more patients and streamline the efficiency of the office. In many cases the company will allow you to participate in its operation and profits through stock ownership. However, this type of arrangement only works for certain types of doctors.

If you decide to look into a pre-sale type transition, you need to plan ahead. It could be a costly mistake if you wait too long before you plan a transition. To give you some idea of the financial costs associated with waiting too long, we ran an analysis of two dentists of the same age with identical practices. Dr. A sold his practice at age 55 and continued to work as the associate for the next seven years, then retired. Dr. B waited until age 65 to sell and then retire. Our analysis assumed that both doctors A & B sold their practices for the same $200,000. From the proceeds of the sale alone, Dr. A lives on over $50,000 per year for 15 years and still has $272,000 in the bank. Dr. B receives a modest down payment and just under $24,000 per year for 10 years. Then his money runs out. With proper planning, Dr. A was able to pull his practice equity out and have it start working for him ten years before he retired from the practice. Both did the same number of fillings and crowns. Both took home the same incomes during their career. But the key was that doctor A planned ahead and structured the type of transition that was complementary to his needs and goals.

As mentioned earlier, variations of the sale/work-back arrangements are the most popular transition types. Some of the advantages to the sale/work-back arrangement are: freedom from administrative and management responsibilities; reduction in clinical  responsibilities; increased time off from the practice; possible increase in take-home pay; more efficient management systems; increased patient flow; and professional interaction. Nevertheless, as with anything, there are also disadvantages to the sale/work-back arrangements in general. They include: relinquished control of the practice; loss of autonomy; staff polarization; changes in operating procedures and personnel as directed by the new owner; potential conflicts with the other doctor; and possible declines in personal income.

Selling 100 percent of a practice is far less complicated than selling part of one and is, subsequently, the preferred transition method for most dentists planning to retire sometime within the next five years. However, each method offers certain advantages and disadvantages, as listed in the preceding paragraph. Careful consideration of both the opportunities and risks associated with each approach should be made before entering into any binding legal agreement. These new relationships can be very rewarding if put together properly. They can be devastating if they are not.

4. Why not bring in an associate for a while to see if we get along and if he or she is the right candidate for my practice?

If we have learned anything over the many years of transitioning practices, it is that the odds of a typical associateship breaking up and becoming a disappointment for all concerned is over fifty percent. We call these arrangements “ambiguity-ships”, because of the ill-defined parameters that govern the relationship and the lack of any up-front equity investment. In fact, the only reason to bring an associate into your practice without first establishing a well defined agreement and requiring an equity investment is if, and only if, both you and the associate have short-term goals and needs (meaning six to twelve months or less). If you hire an associate without requiring an equity investment within the first six months and without having a well-defined agreement in place, plan on him or her eventually leaving.

Contrary to conventional wisdom, you do not have to “live together” for a year or two to see if he or she is the ideal candidate. In fact, the longer the relationship goes without the requirement of an equity investment and without the terms of a well-defined agreement in force, the greater the likelihood it will end in disappointment. Keep in mind a commitment to ownership is a much different kind of commitment and brings with it an entirely new mind-set and focus for all concerned. Unfortunately, we see far too many sellers who have well-paid associates in their practices for years without any problem, all the time expecting to someday sell the practice to the associate and ride off into the sunset. Many, if not all, of these situations have ended in disappointment and professional divorce. Some have ended tragically, costing the seller thousands of dollars and years of his/her retirement. Do not put your practice at risk! If an associate cannot or will not make a commitment to ownership, how can you be sure they will when you need them to?

If you have an associate in your practice now, and if you think you would like to commit this associate to an ownership role, please seek professional help before doing anything. We have found the initial approach to the associate is critical in creating the proper environment for a long-term commitment. If you get things off on the wrong foot, it is unlikely anyone can resurrect what may otherwise have been your best opportunity for an excellent transaction.

If you are not planning to cease your clinical activity for at least another ten years, you may consider selling part of the practice now and the rest later, when you are closer to retirement. This method has proven best for middle-aged dentists who are still experiencing growth and who could use another set of committed hands in the practice. Bringing in an equity partner is preferable to having several short-term, revolving associateships.

5. How can I know what is best for me?

The first step is to do exactly what you are doing now. Educate yourself about the process and the possibilities. Ask the right questions. Questions such as: “Am I meeting my real needs? And, what information do I need to inform myself of all viable options?”

The second step is to ask yourself about how you really feel inside, “Does my decision show I am honest with myself? What would I decide if I wasn’t afraid or apprehensive about change?”

Finally, talk with someone you can trust to understand your needs and help you chart a course to meet those needs. Seek answers and advice from someone who really knows the transition process.

6. What do I really know about selling a practice? Are my expectations realistic?

Every dentist who has decided to sell his practice has certain preconceived ideas about what the process entails. Sometimes those ideas match reality. Often they do not. It would be virtually impossible to list all of the misconceptions that dentists bring to the process, some of which cost them tens of thousands of dollars.

Here are just a few of the things you can realistically expect as the process unfolds.

• Expect the process to take time. Six to twelve months for general practices in major metro areas. Up to 24-36 months in smaller rural communities.
• Your most interested buyers will have little money, if any at all, and will need financing.
• If you want all cash, you may expect to discount your price somewhat depending on your location.
• Unless you take the proper steps up front, expect to have every disclosure, every number, every minute detail of the transaction, and every representation you make scrutinized, questioned, and negotiated.
• If you are not sure how to utilize your lawyer and accountant in this specialized process, expect to pay for their education regardless of whether the transaction is completed or not.
• And just when you think you have everything in order, expect your purchaser and his advisors to change their minds at the last minute.

A successful transition is not the absence of problems, but having the ability to solve them in a manner that is timely and satisfactory to both parties. Having a qualified professional at your side can surely enhance your ability to deal with the unexpected.

7. What is my practice really worth, and who is most qualified to appraise it?

At present, practices are selling for amounts in the range of 45 percent to 65 percent of the practice’s most recent annual collections total. (This range excludes duress sales for death, disability or health reasons. Studies show these sales average 30 percent to 50 percent of the prior year’s gross collections figure.) Specialty practices, however, typically sell for much less, assuming a buyer can be convinced to pay anything at all since the market for specialty practice has become so soft in most areas. Circumstances surrounding each sale vary widely, from estate sales to partnership buy-ins. In general, healthy, thriving practices with a majority fee-for-service patients and strong new patient flow sell for more.  Sometimes older, established practices sell for less, even though they often represent the best opportunities for growth due to an “untapped” patient base. The difficulty in realizing the full market value of an older practice lies in convincing a prospective purchaser’s of the latent value of the practice.

It is important to understand that the true value of any practice rests in the mind of the buyer–not in the mind of the seller. A practice is really only worth what a buyer is willing to pay for it. Perhaps the best way to illustrate this is to consider the market for medical practices. Presume that you are a physician looking to sell your medical practice. It consists of the same revenues, overhead, and location as the dentist next door. What is your practice worth? Ask your M.D. counterparts if any of their colleagues have sold their practices, and if they have, ask them how much they sold them for. You will find medical practices with identical revenues sell for less than their dental practice twins. Why? The value is in the mind of the buyer. Young physicians beginning their careers simply do not experience the same levels of competition for patients as young dentists experience. Without the need to “plug-in” to someone else’s patient flow, most young physicians can start their own practices or join a large group practice. In the dental field, however, there exists a more intense competition for patients. Therefore, established practices represent a significant value for young dentists who need immediate access to patients. Remember, when there are no buyers, there is no market value.

Now that you understand how the buyer’s needs affect practice value, you can see why the process of establishing and substantiating a market value for your practice is so crucial. The wrong approach can lead to unfortunate results such as losing credibility with buyer candidates, delaying the sale of the practice, and possibly bankrupting the eventual purchaser.

Intangible assets, i.e., goodwill, loyalty, trust, relationships, perceptions, and restrictive covenants, represent between 60 and 80 percent of the value of your practice.  Consequently, there is no simple formula to objectively evaluate the intangible aspects of your practice. Oddly enough, these are the most essential things a buyer needs to buy. A buyer can find newer, better and less expensive equipment and furnishings just about anywhere. He or she may also be able to find a better facility or location and a staff with better abilities. What he or she will have difficulty finding is the intangible relationships known as goodwill as well as the trust you have spent many years developing with your patients and staff. Out of those relationships come the financial rewards the buyer seeks. This is why the buyer needs you. This is the primary reason why the buyer will pay you a considerable amount of money for your existing practice.

How much an individual will pay for a practice is entirely dependent on what they believe, how they feel, and in whom they trust. If the buyer feels good about you and the staff, trusts that the appraiser has been objective and fair, and believes that he or she can actually make things work, then he or she is likely to pay the full appraised value.

The person most qualified to appraise your practice is one who has actually demonstrated the ability to market and sell practices in your market at or near their appraised values. Beware those who make more money from practice appraisals than they do from actually closing transactions. The appraisal is not worth the paper it is written on if the appraiser is not able to present you with prospective purchasers ready to pay the appraised value. All too often unrealistic, ego-inflated appraisals have caused legitimate purchasers to pass on excellent practice opportunities. Many times these same sellers eventually sell the practice for an amount much less than their original “asking price.”

The moral of this story is to know who you are dealing with. Ask lots of questions and check references (from both buyers and sellers) who have actually closed their practice sales through a particular firm. Some firms are very open about these references; some even publish the names of the doctors and the transactions they have been involved with.

8. How will I know I have the right purchaser?

Ultimately, the decision of choosing the right buyer is solely yours. However, it may be useful for you to be aware of some of the things we look for in a high caliber purchaser. We look for individuals who demonstrate integrity and moral character both in their dealings with us and with our clients. We look at their track record for making and keeping commitments. We review and compare their goals and philosophy with those of the seller to determine their compatibility.

We consider their credit rating and financial resources. And finally, we look at clinical experience and their willingness to continue their learning process beyond school, in other words, their level of humility or “teachability”. If these things are in order, you probably have a pretty good candidate.

But you may not know for sure until long after the sale is complete. Fortunately, there will be signs along the way. You will be asking the purchaser to make a tremendous commitment in purchasing the practice, but preceding this large and important commitment will be plenty of smaller ones. A reasonable indication as to how well the doctor will deal with “follow-through” during the sale is found in how he or she handles the smaller commitments leading up to it. The right purchaser will exhibit honesty and integrity by consistently following through with these smaller promises.

In addition, the “right” buyer will also be fair-minded and cooperative throughout the process. He or she will share a philosophy similar to yours as it relates to patient care, clinical procedures, staff relations, and so forth. He or she will have good work ethics, strong morals, and values that mirror your own.

The transition of a professional practice is a very revealing process. As you move toward the completion of the sale, you will learn new things about the prospective buyer and, quite possibly, about yourself. In our experience, somewhere along the way–usually prior to closing–questionable candidates will reveal themselves through their actions and their attitudes.

9. How can I get the most money for my practice, and at the same time be fair to the purchaser?

It is no mystery a well-managed practice with an excellent staff and high patient loyalty is worth much to a purchaser. If you do not already know how your practice measures up, then find out. There are several key indicators which will provide a penetrating insight into your overall staff efficiency and practice performance. If you discover problem areas, get them fixed before you put the practice on the market. Better to address and correct the problem up front rather than to try to explain it away later.

Maximizing the proceeds from a sale while considering what is fair to the buyer is an intricate process. As part of this process, you should ask yourself this question: “If this were me, would I purchase this practice under these terms?” For the practice value to be meaningful, it must address the fundamental issues of income feasibility and investment integrity for the buyer. That is, can the purchaser service the debt on the practice acquisition and still take home 25 to 30 percent of the gross collected production. Obviously, the challenge is to convey to the buyer a sense of appreciation for the value of the intangible and tangible assets in order to substantiate the asking price. This is not an easy task. So whatever you do, get professional guidance from someone who really knows how to get the job done and who has the track record to prove it. Chances are
you have only one practice to sell. Do it right the first time. You may not get a second chance.

We suggest the following three-part system in developing a win/win transaction:

1. Seek to understand before being understood. Truly understanding the other party’s needs and expectations leads to developing a climate of mutual trust and respect for both parties to act upon.
2. Plan activities which allow a positive relationship to develop.
3. Allow the relationship to fully develop before discussing business in earnest, thus enabling both parties to discuss sensitive issues without being defensive.

If both parties become sensitive to the needs of the other, and if they can clearly see that their individual goals and objectives are intertwined, then the synergy that results will allow the doctors to achieve a far greater degree of success.

10. Should I attempt to get all cash, or should I finance a portion of the sale?

Several years ago, finding a buyer capable of completing an all cash transaction was a substantial obstacle; however, in recent years all cash funding for practice acquisitions has become a more common occurrence.

Receiving all cash for a practice may sound enticing, but in reality it has two fundamental drawbacks. In many instances, requiring all cash for your practice may mean taking a discount on the purchase price. Most buyers perceive the risk of an all cash deal as higher because you have now absolved yourself of any vested interest in the success of the practice. By carrying back a note for a portion of the purchase price, you are demonstrating your faith in the practice to produce and perform. Consequently, this lowers the perceived risk in the mind of the buyer. The second drawback is taxes. The receipt of a large lump sum amount in any single tax year can often bump a taxpayer up into a higher tax bracket and precipitate unnecessary tax obligations. You should consult with your tax professional before making a firm decision on whether to ask for all cash or not.

11. How will the purchaser finance the acquisition?

Most of the likely purchasers of your practice have a negative net worth. That is, they owe more than they own. They typically have little or no money with substantial school debt and limited access to the kind of money it takes to either acquire or make a down payment on a practice. Their only hope is to find either A) a lending institution or B) a selling dentist (you) who believes enough in their potential to loan them the money needed to get started or C) a combination of both, i.e, a down payment financed through a lending institution and the emainder of the purchase price financed by the seller. Although financing is difficult for a new dental school graduate, with the right banking connections and proper presentation, obtaining full financing from an outside source is possible.

12. What if I am asked to subordinate my seller note to the bank?

Sellers who choose to finance a portion of the purchase price for their practices will almost always be required to subordinate their security position to the bank or institution lending the down payment to the buyer. The purchaser will not likely have the down payment sitting in his checking account and will need to borrow it. A bank willing to make the purchaser a loan for the down payment will require a first lien on the practice assets (as well as any and all other assets of the purchaser). The seller will be asked to subordinate his note to that of the bank. This puts the seller in a second lien position, a prospect that many sellers are not completely comfortable with.

Fortunately, our experience with this type of seller financing has been so positive for so long that we can confidently say the odds of the purchaser failing to pay are extremely small. In fact an examination of our practice transactions during the past fifteen years reveals a purchaser loan default rate of less than one percent. The risk you take by being in a second lien position to a bank is relatively small when you consider that a bank has very little interest in or ability for operating a foreclosed dental practice. Their only sure recourse in the event of default is to seize tangible practice assets and sell them at a fraction of their value in the secondary market. As a selling dentist, your options for recourse are more diverse and include the possibility of taking over the practice entirely until another purchaser is located. A well-written security agreement can reinforce your position and allow you to reap the benefit of maximizing you net after-tax proceeds by taking back a subordinated note for some portion of the sales price.

13. What if my patients stop coming to the practice after I am gone?

One of the great myths surrounding practice transitions is that 20-50 percent of the patients will leave the practice after the sale. In reality, a well-managed transition will result in an attrition rate less than 10 percent. We have heard of cases where patient loss was over 30 percent, but those transitions were either A) handled by the doctors themselves or by attorneys, brokers, and other professionals who lacked experience in dental sales, were ill-informed, or poorly prepared, or B) purchased by a doctor with poor patient relations, lackluster management skills, or a clinical philosophy wholly unlike the selling doctor. Fortunately these types of situations are the exception, rather than the rule.

The very best way to keep patients from leaving the practice is to sincerely and strongly endorse the purchaser. This is accomplished through several different mediums including a letter sent directly to the patients and specific dialogues with patients used by the staff and doctor. Most–if not all–patients will give the purchaser a chance to win them over during their initial visit. If handled properly, patient retention will remain very high.

14. Is there anything I can do to help ensure the purchaser’s success?

Yes. Once the practice is sold, do your best to let go. Regardless of whether you have sold half the practice or all of it, whether you are staying on or moving on, try to let go emotionally and managerially. This may be the hardest part of the process for many sellers, but the transition will be much better for both parties when you give the new doctor room to make his own contribution and run his practice his way. This may mean going along with some new process or procedure he would like to implement. Keep an open mind and always support the purchaser publicly, i.e., in front of staff and patients. More than likely, patients will call you at home to express their concerns over the changes taking place. When they do, be sure to remain firm in your support for the purchaser. The more commitment the patients sense from you toward the purchaser, the more committed they will be to him as well.

Underpinning any successful transition arrangement is a mutual and abiding trust between the parties. It is this mutual commitment to the relationship and the success of the other party that is truly the foundation of a long-lasting and profitable relationship. Through effective communication and a sincere concern for the well-being of the other individual, differences can be solved quickly, thus maintaining a good relationship and ensuring a desirable outcome for everyone involved.

If necessary, encourage the purchaser to seek professional advice from someone who specializes in managing dental practice transitions post-sale. This person will educate and advise an inexperienced purchaser on dealing with the myriad of issues which he or she will face as an owner or partner in the practice. Things like staff leadership and management, patient retention and case presentation, regulatory compliance, financial monitoring, communication, and so on. Most importantly, a transition management specialist can anticipate problems in advance and help the purchaser avoid costly mistakes and detours.

15. Can I simply walk away from my practice, or do I need to remain on for a transition period?

With the exception of most dental specialists, it is not necessary for a dentist to remain with his practice for a long transitional period. In fact, many times the transition process is made smoother and simpler when the seller simply walks away. If handled properly, patient retention will likely be high whether the seller stays on or leaves immediately (see question 13). Personally introducing the purchaser to patients may seem like the right thing to do, but it is not necessary and can often be counterproductive. Again, your decision to remain with the practice after the sale should be viewed more as a convenient option available to you and not a prerequisite for the purchaser’s success.

16. How long will it take to find a purchaser and close a transaction?

Generally, the smaller the town the longer it takes to sell–sometimes up to 36 months in rural or less desirable areas. If you are a specialist living just about anywhere (metro or rural) you can expect at least 18-24 months, assuming a buyer can be found. For general dentists in the major metro areas, expect six to twelve months to complete a transaction.

Once a qualified and interested purchaser has been found and all terms have been agreed upon, it usually takes six to eight weeks for both parties to negotiate and agree upon all of terms of the sale and to close the transaction. This time line includes meeting all of the bank’s demands for financing including insurance (life, disability and contents and liability) and office lease assumptions. If no bank financing is involved, the process may only take three to four weeks. You might be interested to know that the most time-intensive portion of the transition process is usually the legal review of the buy-sell agreement and other necessary documents. Consequently, you will likely save a significant amount of time and money by working with a professional who is skilled in transitioning practices and can guide your attorney through the essential issues involved.

17. What should I say to my staff, and when should I say it?

Always tell the staff the truth. We have found the sooner you tell your staff about the possibility of a transition, the better. This does not mean, however, that you must tell them about every aspect of the transition. For example, if an appraisal is being made on the practice, the doctor should inform his staff that he is considering bringing someone else into the practice and has hired a professional firm to conduct an analysis and make recommendations. As the process unfolds, the doctor can disclose further aspects of the game plan. When it is time to inform the staff, be sure to emphasize their individual job security and the need for their continuing support.

18. What about taxes? Is it possible to minimize or defer the tax liability associated with the sale?

Yes, it is possible to both minimize and defer taxes due after the sale of a professional practice. There are a myriad of different strategies used, each corresponding to the particular needs of the client and specifics associated with the sale. These strategies range from certain allocations of the purchase price to 1031 Tax Deferred Exchanges to qualified defined benefit plans and non-qualified deferred compensation plans.

This is a complex and important part of developing the appropriate transition structure. Proper planning in this area can easily save many thousands of dollars from being sent on a one-way trip to Washington. Be sure to get advice from someone who specializes in this area early on in the process. It can really pay big dividends in terms of net proceeds and eventual retirement income.

19. I own my own building. What do I do with it?

Including real estate in the sale of your practice can significantly complicate matters. We have seen situations where the seller has insisted the purchaser acquire both the practice and the real estate. In these situations, the mandatory inclusion of real estate has turned away otherwise interested buyers, even when a discount was offered as an inducement. Aside from the additional documentation, financing, and fees associated with selling real estate, the time required to find a purchaser and complete a joint sell (practice and building) is extended. While it is possible to sell both to a single purchaser, you should know that historically, when real estate and professional practices are combined in a single transaction, the values of both are compromised.

Although no two situations are alike, to maximize the return on each asset, we recommend a dentist who owns his building sell the practice initially and lease the building to the purchaser under a long-term agreement with an option and inducement to buy. This allows the purchaser time to build cash flow and equity in the practice before taking on the additional debt associated with buying the building.

20. Should I employ a professional to assist me in the sale?

Naturally any response we offer to this issue could be construed as partial. That being said, the only real benefit we have seen a doctor gain by undertaking the sale of his practice on his own is the avoidance of a professional’s fee. On the other hand, with the belief that they will save money by selling their practices without professional guidance, the doctor must also make certain assumptions and assume specific risks.

He must first be confident that he can accurately determine and objectively substantiate a value for his practice; a value that is very near market value or what a professional appraiser would place on it. Next, he must assume he can get a purchaser to believe his determination of value is objective, unbiased and fair. Then he assumes he will be able to establish the necessary banking connections to finance the purchaser’s acquisition, or else he assumes he will be able to self-finance the sale in a way that mitigates his risk yet is fair to the buyer. He must also posses the knowledge, ability and expertise to work through the complex legal, financial, and tax issues surrounding the sale. (A poorly structured transaction may cost far more in taxes than one would pay to a consultant.)

If the dentist uses an attorney or accountant to assist him, he must presume they know something about dental practice transitions, and that they will help rather than hinder the process. Moreover, the doctor risks spending hundreds, even thousands of dollars in legal and accounting fees without actually completing the transition.

Finally, he will surely spend many, many hours putting all of the pieces of the puzzle together–learning step by step as he goes. Of course it is possible for a dentist to facilitate the sale of his own practice with great success; however, should you decide not to use a qualified, experienced transition consulting firm to assist you, then at least be aware of the risks you take by doing it on your own.

These risks include, but are not limited to:

• the risk of wasting countless hours with a buyer candidate who thinks he/she can wait you out for a lower price;
• the risk of not being able to agree on the price or terms of the sale with the purchaser because neither of you can speak objectively or with authority to the issues;
• the risk of being caught in adversarial negotiations due to an unreasonable purchaser or an overzealous advisor for either party;
• the risk of locating the perfect buyer, only to later lose him/her because of an offense taken by something your attorney has requested or by the manner in which negotiations were undertaken;
• the risk of not realizing the full fair market value of your practice and selling it for less than it is worth;
• the risk of selling the practice above market value and bankrupting the buyer by effectively stripping his/her ability to meet his cash flow demands due to a stifling debt service;
• the risk of becoming weary of the process and negotiating away large sums of money just to get it over with;
• the risk that the purchaser will be unable to secure the requisite financing;
• the risk of drafting or having your attorney draft documents that do not properly address key issues, allow for certain provisions, and clearly define the essential obligations of both parties;
• the risk of leaving your practice in the hands of a successo who fails to manage the practice properly and alienates staff and patients;
• the risk of not properly securing your position as a lender should you choose to self-finance a portion or all of the purchase price;
• the risk that the anticipated sale will not happen during your lifetime or that your unforseen, early death will leave your spouse with the unpleasant responsibility of selling your practice (for a solution to this see Issue #24).

All of the above risks are taken from true accounts.

When all is said and done, the few thousand dollars saved by doing it alone may or may not offset the associated risks.

21. Then who should I call? My lawyer, my accountant, my financial planner, my supply salesman, or a broker? What kind of professional guidance will I need?

Ask yourself, “Who can I trust with one of the most important transactions of my life?” That is the quintessential question. Rest assured the purchaser will be asking himself the very same thing: “Who can I trust?” And what if his advisor tells him something different than your advisor tells you?

The ideal advisor is someone who can be trusted by both sides, someone who is knowledgeable, competent, fair, and objective. A mutual trust in such an advisor allows the respective parties to proceed with confidence toward a common objective, knowing that both of their interests are being properly addressed. Such an advisor is in tune with the needs and expectations of both parties, and is in a position to know how the demands of one party may impact the needs of the other. Such an advisor acts as an intermediary, a facilitator, a negotiator to minimize conflict, resolve concerns, and reach a solution that is “win-win” for both parties.

Of course, the ideal advisor is one who specializes in dental practice transitions; not one who works for a living doing something else. Too many dentists entrust their most valuable asset to someone who may sell dental supplies for a living and dental practices on the side. Ideally the advisor is competent in business, financial and legal matters, and is capable of properly assimilating input from each party’s lawyer and accountant. He has specific experience structuring transactions similar to the kind of transaction you are contemplating. An advisor with these skills, working in this capacity will save you hundreds or thousands of dollars in legal and accounting fees, and will ultimately help ensure the success of the transaction.

The right advisor is also performance oriented, deriving his compensation from the results of the process, not by the hours spent on it. Consultants who insist on being paid by the hour cast doubt on their own ability to get the job finished. Moreover, they may run up a sizable bill without really accomplishing anything. Remember, you are not paid for your practice until the transaction is closed. A good advisor has resources available to assist the purchaser with financing and with realizing the financial potential of the practice, thereby ensuring the purchaser the greatest chance of success while assuring the seller, his staff and his patients that they will be properly cared for.

22. If I do hire a professional to guide me, how much will it cost me to sell the practice?

A true professional will add value to the process as it unfolds. His expertise in practice appraisals will ensure genuinely fair market value. His credibility as a transition specialist will reassure the purchaser and assist him or her in making significant commitments without succumbing to the temptation to dicker over price and terms. His focus on the big picture and being just will help keep envy and greed from corrupting a good transaction.

Most professionals charge a percentage of the purchase price as a commission; however, some professionals prefer to charge a flat fee irrespective of sales price, depending on the type of transition. Either way, thoroughly check the background of the professional before you decide to use him or her. Issue number 25 of this booklet addresses many important questions to ask and things to consider before hiring a professional consultant or advisor.

23. If I don’t think I am quite ready to sell, what should I be doing now to prepare myself and my practice for a transition?

Four things (none of these are easy, but each of them will make your practice more valuable and/or marketable):

(1) Pay off any outstanding debt or do not incur any additional practice-related debt. Your practice value consists primarily in your cash flow and relationship with patients, not your equipment. Resist the temptation to go out and purchase a lot of new equipment with the false expectation that it will enhance your practice value dollar for dollar.

(2) Objectively evaluate your staff situation. You may want to conduct a staff performance analysis to see what can be done to make the practice run more effectively. A truly  excellent staff will make the practice much more valuable and attractive to a young purchaser.

If your spouse works in the practice, he or she should phase out (or be ready to phase out) once the new purchaser acquires the practice.

(3) Take positive yet conservative steps to increase practice collections and improve new patient flow. Generally speaking, practices with greater collections from fee-for-service patients will sell for more; however, canceling your participation in PPO type insurance programs shortly before a sale will result in greater risk of patient attrition and,  subsequently, a lower perceived value by the buyer. Practices with a healthy new patient flow and high patient retention represent greater value to purchasers.

(4) Check to see if the practice facility needs a face-lift. This may include items such as painting the walls, re-carpeting, re-upholstering dental chairs. For only a few thousand dollars, such improvements will pay dividends in marketability when it comes time to sell.

24. What should I tell my spouse to do if I should die before the practice is sold?

There are essentially two critical things your spouse should be aware of:
First, time is of the essence! The more time elapsed between the owner’s death and the sale, the less the practice is worth and the less the estate will receive. Only a few short weeks after the doctor’s passing, the practice value will have diminished by tens or even hundreds of thousands of dollars! (This is true even if other dentists are covering the  schedule.) All too often a grieving family will not act soon enough and will unwittingly squander away much of the practice value.

Second, in most cases, the only people who can successfully complete an estate sale in a timely manner are those who specialize in dental practice transitions. Write down the name an phone number of someone you trust to handle the sale and give it to your spouse today. If you cannot decide now on a transition consultant/broker or other professional now, write down the name and number of a colleague you trust to make that decision for your spouse if and when the time comes.

25. Which questions should I ask before hiring a practice broker/transition consultant? (You will notice we have taken the liberty of answering each of the following questions as they pertain to us and our services.)

1. How many practice transitions and/or sales have you been involved with?
Answer: 950 +plus

2. How many years in the business?
Answer: Over 20 years in practice transitions and another eight years consulting in the areas of business and finance.

3. How many sales ended up in professional divorce?
Answer: Two arbitration and nine separations of associate buy-in type transactions with no litigation.

4. How many purchasers have defaulted on their promissory notes to sellers and/or banks?
Answer: Four to the bank and three to the seller.

5 (a) How much do you charge for an appraisal?
Answer: $2,500.00

5 (b) Is it part of the total fee charged for the sale of the practice?
Answer: Yes.

6. What do you feel are your strong points in providing transition/brokerage services?
Answer: Integrity; responsiveness (returning calls within 48 hours or less); a flat fee for performance (not charging a percentage of the sales price); competence; experience (over 20 years of business and finance experience); follow up after the transaction; a successful track record (over 550 successful sales); and our resources (in addition to our experience, we have an attorney and accountant on retainer for updating and researching changes in the legal environment and tax law).

7. Is your appraisal contingent on signing a listing agreement?
Answer: No

8. How do you know you are accurate with your appraisal?
Answer: From extensive knowledge about the market and over 20 years of experience appraising practices. We use professionally recognized, time-tested formulas and track the results of our transitions for at least one year after the sale.

9. Do you feel there is a conflict between appraising a practice and then listing it for a percentage of the sales price?
Answer: Yes, because the higher the appraised value, the potential for more brokerage fees. Some brokers will inflate the sales price, i.e, tell the seller what he wants to hear relative to his practice value, in order to persuade him to sign a listing agreement. A biased appraisal makes it much more difficult in convincing a purchaser that the sales price is fair and may serve to delay the sale of the practice.

10.What type of post-sale/post-transition follow-up do you do?
Answer: Every month for the first three or more months after closing, then on “as needed” basis. Also, we prefer the buyer send us monthly reports for the first 12 month period to allow us to track the practice status.

11.A. Is this your main occupation or do you have other activities to help subsidize your consulting business (i.e. sell insurance, securities, real estate, equipment/supplies, or practice dentistry)?
Answer: This is our specialty. Our time is devoted entirely to facilitating successful transitions.

11.B. How will I know that these other activities do not conflict with the quality of service I’ll receive?
Answer: Our only activities are facilitating, consulting and coaching dental practice transition. Our compensation is derived solely from practice transitions and post-transition management. We have nothing to distract us from this.

12. How do I know I have the right candidate (seller/purchaser)? What systems do you have to help both parties better understand their compatibility concerning goals, needs and personalities?
Answer: Depending on the type of transition, many times we have each client fill out a personal needs analysis and/or a personality profile. This tells us more about their goals and their work style. We look to see if goals are complimentary with both parties. We encourage “Pre-courtship” activities (i.e. checking references, out of the office activities, spouses meet together, etc.) This helps establish a better understanding of both party’s needs and goals. We also look at how they follow through with their commitments through the initial consulting process.

13. Do you have “pre-qualifying” financial guidelines with regard to whether or not a potential buyer can secure funding?
Answer: Yes, we have established professional relationships with several lending  institutions which check credit references. We also review financial statements and income needs.

15. What do you include in your appraisal?
Answer: A comprehensive practice prospectus covering practice operations and statistics along with an appraisal report analyzing financial information and projections.

16.Does your appraisal cover enough information for one to complete a due diligence to the practice?
Answer: Yes, with the exception of a chart audit which the buyer completes independently.

17. What resources do you have to keep up on the latest changes in business and tax laws?
Answer: We have an attorney and accountant on retainer and also subscribe to publications on legal, tax and practice management issues.

18. How long does it take to transition/sell a practice?
Answer: This depends on various factors like location, size of the practice, terms, type of transition and market demand. In most cases, 6 to 12 months.

19. How are you compensated?
Answer: Our current fee schedule is based on a flat fee for performance typically between $17,500 and $30,000, but will never exceed 10 percent of the selling price. Our fee is based on performance and therefore not due until the sale is completed. The buyer may also pay a fee of anywhere from $3,500 up to $10,000, which primarily covers the post transition consulting.

20. What services do you offer for the fees charged?
Answer: The following:
-Locate a buyer
-Secure financing for the acquisition.
-Determine the structure of the transaction.
-Draft contracts for attorney’s review.
-Oversee the closing.
-Conduct a staff meeting on how to have a smooth transition.
-Instruct doctors and staff on how to transition the patient base.
-Show ways to increase new patient flow.
-Provide practice management guidelines for a successful practice.
-Address any ongoing concerns during the first year of transition.

21.Please tell me how your form of compensation is best for me and the transition of the practice.
Answer: Adds more integrity to the process. It requires the consultant to handle the transition on a win/win basis and helps minimize the need to compromise the goals of either party.

22. Do you have any literature that will help me better understand the transition process and how I can better prepare myself for it?
Answer: Yes, we have compiled and composed information for both sellers and buyers covering many important issues on the transition process.

23. How well do your buyers do after the transaction is completed?
Answer: Over 91% of our buyers either meet or exceed the previous year gross production in the first year and usually experience less than 10% patient attrition.

24. Can you furnish a list of the five most recent sales and/or transitions of buyers and sellers?
Answer: References are furnished upon request without hesitation.

25. Would your clients refer you to their colleagues?
Answer: A recent survey of our clients shows that 96% were very pleased with our services and would refer their colleagues to us.

CTC Associates:
(303) 795-8800
(801) 298-4242
www.ctc-associates.com

Continued growth and success of a solo practice are becoming more and more difficult every day. With increased competition, the influx of capitation plans, HMO clinics, advertising retail centers, and an unpredictable economy, practitioners are experiencing a difficult time of maintaining their traditional patient base while trying to improve their quality of life.

Like many practitioners, chances are you spend almost all your earnings just to maintain your present lifestyle. Putting money away is a great idea, provided it does not require you to work any more hours or lower your current standard of living. You figure you need to practice for at least another ten years or so just to make ends meet, and that puts you even closer to retirement age. Many doctors rationalize away the need to save for retirement by convincing themselves that they will just work another five or ten years.

So where can you get the money you need for your pension plan?

A practice pre-sale merger may be the answer. In this type of transaction, one doctor sells their practice to an established practitioner and continues to practice for another five, ten, or fifteen years. A pre-sale merger is an excellent way to liquidate a large asset – your practice – to fund your pension while still working and maintaining your level of income before the merger.
The money in the pension begins to grow and by the time you are ready to retire, the money you received for the value of your practice can grow by two, or maybe four times what the value of your practice is today.

To illustrate this concept, let’s say Dr. Freedom wants to free up more of his management and administration responsibilities, fund his pension, and still practice and maintain a similar take-home pay. Dr. Freedom sells the practice and mergers with Dr. Dobetter. Dr. Dobetter’s goal is to increase his income without working harder, and still manage the office.

BEFORE MERGER                                          DR. FREEDOM                          DR. DOBETTER
Age:                                                                                48                                                  33
Gross Production:                                               $300,000                                     $150,000
Doctors Income:                                                   $120,000                                      $ 45,000
Work Days per Week:                                     4 (8 hr. days)                            4.5 (8 hr. days)
Overhead Expense:                                                   60%                                               70%

AFTER PRE-SALE MERGER                        DR. FREEDOM                          DR. DOBETTER
Gross Production:                                              $300,000                                      $150,000
Doctors Income:                                                 $105,000                                       $109,000
Fund Pension:               $ 22,800 per/yr
Work Days per Week:                                    4 (6 hr. days)                                 5 (6 hr. days)

Dr. Dobetter purchases Dr. Freedom’s practice for 180,000 with a down payment of $30,000 and a remaining promissory note of $150,000 at 9% interest for the next ten years, or $1,900 per month. The practice is moved over to Dr. Dobetter’s office. Dr. Freedom works 7am to 1pm Monday through Thursday and Dr. Dobetter works 12pm to 6pm Monday through
Thursday and all day Friday. Dr. Dobetter incurs production expenses of lab at 10%, supplies at 8%, staff at 15%, and Dr. Freedom’s commission at 35% ($105,000), leaving about 32% gross profit margin before debt service, or $96,000 per year. Assuming Dr. Dobetter borrowed the down payment of $30,000, his annual debt service would be about $32,000, leaving an
additional $64,000 income to Dr. Dobetter. This additional profit plus his present production income of $45,000 would total $109,000 per year.

With this type of merger arrangement and by consolidation certain expenses, both the Seller and Purchaser can complement each other’s goals. In the example discussed, both parties have improved their quality of life. The Seller can end up with  $350,000 or more in his pension plan ten years later, while substantially reducing his management and administration time in the office.

The Purchaser has more than doubled his income while working the same or fewer number of hours each week.
If you would like to learn more about your practice transition options, please call Larry Chatterley at 303-795-8800.

2. How many years in the business?
Answer: Combined 30+ years in practice transitions and another 10 years consulting in the areas of business and finance.

3. How many of your sales have ended up in litigation/arbitration or in professional divorce?
Answer: Fifteen. Two arbitration and thirteen separations of associate buy-in type transactions with no arbitration or litigation.

4. How many purchasers have defaulted on their promissory notes to sellers and/or banks?
Answer: Five to a bank and two to the seller.

5. What is the charge for an appraisal?
Answer: Between $1,600.00 and $2,500.00. (Is the fee part of the total fee charged for the
sale of the practice? Answer: Yes.)

6. What do you feel are your strong points in providing transition/brokerage services?
Answer: Integrity; returning calls within 24 hours or less; a flat fee for performance (not charging a percentage of the sales price); competence with 10 years of prior business and finance experience; follow up after the transaction; providing a transition guide for buyer and seller; conducting staff meetings on how to best handle the transition; and having an attorney and accountant on retainer for updating and researching changes in law and tax law.

7. Is your appraisal contingent on signing a listing agreement?
Answer: No.

8. How do you know you are accurate with your appraisal?
Answer: By using legitimate, tested formulas and tracking the results of previous transitions.

9. Do you feel there is a conflict between appraising a practice and then listing it for a percentage of the sales price?
Answer: Yes, because the higher the appraised value, the potential for more brokerage fees. Some brokers will inflate the sales price to persuade the seller to sign the listing agreement. A biased appraisal makes it much more difficult in convincing a purchaser that the sales price is fair and equitable. The broker might also play favorites with his more expensive listings.

10. What type of post-sale/post-transition follow-up do you do, both with the buyer and seller?
Answer: Every month for the first three or more months after closing, then on “as needed” basis. Also, we prefer the buyer send us monthly reports for the first 12 month period to allow us to track the practice status.

11. Is this your main occupation or do you have other activities to help subsidize your consulting business (i.e. sell insurance, securities, real estate, equipment/supplies, or practice dentistry or management)?
Answer: Our time is devoted entirely to facilitating successful transitions.

12. How will I know that these other activities do not conflict with the quality of service I’ll receive?
Answer: Our only activities are facilitating, consulting, and coaching dental practice transitions. Our compensation is derived solely from practice transitions and post-transition management.

13. How do I know I have the right candidate (seller/purchaser)? What systems do you have to help both parties better understand their compatibility concerning goals, needs and personalities?
Answer: Depending on the type of transition, many times we have each client fill out a personal needs analysis and/or a personality profile. This tells us more about their goals and their work style. We look to see if goals are complimentary with both parties. We encourage “Pre-courtship” activities (i.e. checking references, out of the office activities, spouses meet together, etc.) This helps establish a better understanding of both parties needs and goals. We look at how they follow through with their commitments through the consulting process.

14. Do you have “pre-qualifying” financial guidelines with regard to whether or not a potential buyer can secure funding?
Answer: Yes, we have established professional relationships with several lending institutions which check credit references. We also review financial statements and income needs.

15. What do you include in your appraisal?
Answer: A comprehensive practice prospectus covering practice operations and statistics along with an appraisal report analyzing financial information and projections.

16. Does your appraisal cover enough information for one to complete a due diligence to the practice?
Answer: Yes, with the exception of a chart audit which the buyer completes independently.

17. What resources do you have to keep up on the latest changes in business and tax laws?
Answer: We have an attorney and accountant on retainer and also subscribe to publications on legal, tax and practice management issues.

18. How long does it take to transition/sell a practice?
Answer: This depends on various factors, like location, size of practice, terms, type of transition and market demand. In most cases, 6 to 12 months.

19. How are you compensated?
Answer: Our current fee schedule is based on a flat fee for performance and ranges between $17,500.00 and $30,000.00 depending on the characteristics of the practice and the type of transition. In no case will our fee exceed 10% of the selling price of the practice.

20. What services do you offer for the fees charged?
Answer:
-Locate a buyer or seller.
-Secure financing for the acquisition.
-Determine the proper transition structure.
-Draft contracts for attorney’s review.
-Oversee the closing.
-Conduct a staff meeting on how to have a smooth transition.
-Instruct doctors and staff on how to transition the patient base.
-Show ways to increase new patient flow.
-Instruct on how to conduct effective staff meetings.
-Provide practice management guidelines for a successful practice.
-Facilitate office lease arrangements.
-Address any ongoing concerns during the first year of transition.

21.Please tell me how your form of compensation is best for me and the transition of the practice.
Answer: Adds more integrity to the process. It requires the practice transition consultant to handle the transition on a win/win basis and helps minimize the need to compromise the goals of both parties.

22. Do you have any literature that will help me better understand the transition process and how I can better prepare myself for it?
Answer: Yes, we have a booklets and audio presentations for sellers and buyers which cover many important issues regarding the transition process, as well as other written materials.

23. How well does the buyer do after the transaction is completed?
Answer: Over 93% of our buyers either meet or exceed the previous year gross production in the first year and experience less than 10% patient attrition. Survey: 96% client satisfaction

24. Can you furnish a list of the five most recent sales and/or transitions of buyers and sellers?
Answer: References are furnished upon request.

For more information regarding how we work and the services we provide, contact us.

CTC Associates:
(303) 795-8800
(801) 298-4242
www.ctc-associates.com

Most, if not all dentists start their careers with optimistic expectations of doing well financially only to find out in the real world practicing dentistry may not deliver the financial and/or emotional rewards they were seeking. They then feel a strong need to increase their income and to gain more control over their professional lives. You may have experienced this frustration already. If you have not yet, you can surely avoid it through proper planning and the implementation of the key concepts addressed in this booklet.

You will learn about several essential issues to be addressed before you begin the process of acquiring a practice. You will learn how to make the process a profitable experience, and perhaps more importantly, you will learn how to avoid mistakes that can turn the acquisition of a professional practice into an emotional and financial disaster. We trust you will find this presentation educational and beneficial as you strive to achieve personal and professional goals.

1. How will I know when it is the right time for me to purchase a practice?

The right time to buy varies with your needs and goals. If you have a strong need for substantial income and/or direct control over your professional career, then purchasing a practice may be your best options.

Purchasing a practice can produce $250,000 to $500,000 more in net earnings to the doctor during the first ten years of ownership when compared to starting a new practice and building it over the same time period. Unless dentists plan carefully and do start-ups only in high-growth areas, they may find themselves years behind their collogues who opted to purchased a practice.

Perhaps the best indicator as to what time is the right time, however, is how you feel about your situation. If you are uncomfortable with your current circumstances or are not sure what is best for you, seek professional guidance. Find someone who will help you determine the course of action that best meets your needs and goals.

Our experience suggests most doctors who do not have a plan early on for owning and operating a practice may be jeopardizing thousands of dollars in lost income. Far too many doctors wait too long waiting for the perfect opportunity. Remember, while taking a pro-active approach may present some risks, taking no action may involve even greater risks. By doing something positive, you have a greater chance for success.

2. What are my options?

The first option is to do nothing. For some of you, this may be precisely the right thing to do, but only in the short term. Over the long term, every dentist in America will face the dilemma of what to do with their professional career. The question is whether you want to take a pro-active role to maximize the positive potential a practice transition affords, or a reactive role to minimize the negative impact of change.

To give you an idea of the financial costs associated with waiting too long, we ran an analysis of two dentists starting their careers at the same time. Dr. A bought his practice using a deferred buy-out arrangement in which he worked for two years as an associate for the seller prior to buying the practice outright. Upon selling, the seller “worked back” as an associate for Dr. A over the next two years before retiring. Dr. B worked as an associate for a couple of years, then decided to start up a practice of his own.

Who made the right decision? Dr. A averages a take home pay of $120,000 per year while working three and a one-half days per week with five weeks vacation per year. Dr. B averages about $70,000 per year over the same time period, works five days a week and struggles to get in a week of vacation each year. Both doctors had the same educational background; both completed the same number of fillings and crowns.

When the time arrives for you to seriously consider a practice transition, you should know there are two basic ways to buy a practice: you can buy all of it, or you can buy a portion of it. The variations of those two basic structures are numerous. But first, you should decide what type of practice you want and whether or not you want to work and/or associate with another doctor over any extended period of time.

So what are some of the more common transition variations used? Another common variation besides the deferred buy-out mentioned above is the sale/walk-away, i.e, an outright purchase of a practice with the seller walking away at closing. If done correctly, this scenario can be very smooth and patient retention can be as high as 90% or better. A third, very popular arrangement is the pre-sale (or work-back) transition in which the practice is purchased outright from day one and the seller “works back” part-time as an associate for the buyer. This allows the seller to phase out of the practice at a comfortable pace while maintaining the integrity of the patient base and staff. If you decide to buy, the seller doesn’t have to walk away necessarily. You simply need to structure the right kind of relationship with the seller. If properly structured, pre-sale arrangements can be an excellent mechanism for lowering your risk while maintaining a good level of income. As with any long-term relationship, working with the right partner will require more effort than having them simply walk away, but the quality of life and financial rewards associated can be well worth it.

For example, a buyer who has a strong need for control might consider buying 100% of a practice. This arrangement is typically easier and far less complicated than only buying a portion and usually is the preferred method of transition for dentists acquiring a practice. If you need (or choose) to share clinical, managerial, and overhead responsibilities, you may want to consider buying part of a practice now and the rest later, when the seller is closer to retirement. This method has proved best for middle-aged “selling” dentists who are still experiencing excellent growth and who could use another set of committed hands in the practice. Becoming an equity partner is much more preferable to the revolving door of associateships we see so frequently.

Each method, i.e., buying a portion or buying all of a practice, offers certain advantages and disadvantages. Carefully consider both the opportunities and risks associated with each approach before entering into any legally binding agreement. New relationships can be very rewarding if built properly; they can be devastating if they are not.

We discuss additional transition options and structures later in this booklet (see question 6).

3. Where should I look for practice opportunities?

Simply stated, look in areas where you and your spouse want to live. However, where attractive practice opportunities are found and where you decide to live may not be one in the same. In most cases, there are fewer practice opportunities in the more desirable areas (newer suburbs, for example), and if such opportunities do become available, they usually sell quickly and for a higher than average price.

As a general rule, the best opportunities are in the older parts of town and/or in rural areas. Nevertheless, these opportunities are frequently overlooked because of certain characteristics such as older equipment, an older facility, and the office location. However, these practices tend to have older patients who need a lot of dentistry, and when they are transitioned to a younger doctor with a lot of energy, the revenue frequently increases. As such, purchasers may choose to live in the more desirable areas but commute 10 to 40 minutes to the office, giving them the best of both worlds, a good practice and a pleasant living environment.

4. What should I look for in a practice opportunity?

First and foremost, when a practice opportunity presents itself, you should ask yourself, “Is this practice opportunity complementary to my goals and needs?” Goals and needs such as: “Does this practice opportunity address all my financial obligations? And is the philosophy similar enough to allow me to do the type of dentistry I want to do?” Establishing guidelines about your needs and goals will make it much easier to identify opportunities that are right for you.

When it comes to gathering the information required to make an educated decision, many doctors feel perplexed and overwhelmed. Obviously, a practice should not be purchased without first sufficiently studying the data. Nevertheless, enthusiasm frequently overrides objectivity, and many dentists decide to close a purchase prior to conducting the proper due diligence.

A good indicator of the future success of a practice, i.e., it potential is its track record. That is, a practice that has demonstrated stable income over an extended period of time is likely to continue to do so. A productive history of active patients and referrals indicates satisfied consumers who are happy with the quality of care they have or are receiving. An extremely positive attribute is a good active patient base coupled with a healthy flow of new patients. Add to this a cooperative seller, good staff, and a profitable bottom line, and you have the ingredients for a successful practice.

Consequently, it is imperative that you, as the purchaser, regardless of the opportunity, conduct a patient chart audit. To accomplish this, pull every tenth chart and review the following:

1. Frequency of patient visits
2. Type(s) of insurance
3. Distance patients live from practice
4. Amount of restoration done in the past and amount left to be done in the future
5. Type of dentistry previously completed

Review these five areas and rate each patient (chart) on a scale of one to five (five being the best). For example, if the patient comes in every year for hygiene, has some restorative work done, has good insurance, and lives within a five-mile radius of the practice, then he or she is probably a five. However, if the patient visits infrequently and has poor insurance coverage, he or she might be rated around a one or a two.

If after you review 100 charts the composite score is less than 200, you may need to re-evaluate the intangible value of the practice. A healthy practice should have 250 to 350+ active patients (patients of record seen in the past 18-24 months) and 30 or more new patients for every $100,000.00 of gross, annual revenue. The number of active good patients and number of new patients is critical to the degree of success achievable in the practice.

As a buyer of a dental practice, you are purchasing a future stream of income. The most important part of the income stream is what remains after paying all necessary overhead expenses and debt related to the purchase of the practice. This is referred to as the pretax, economic earnings or pretax profits. This figure should be around 25% (or more) of gross collected revenue. If you are unable make a reasonable income (at least 25% of your gross production after overhead expenses and debt service in the first year), then either an adjustment should be made to the purchase price and/or terms or you should continue looking for another opportunity.

In addition to reviewing the patient profile of a practice, there are several other items you should investigate such as the reasons the seller has for selling, the seller’s philosophy in treating patients, the price and terms, the location, the current status of the local economy, profit and loss statements for the last three years, the condition of the equipment, the staff profile, a fee schedule, the type and prevalence of insurance plans, the terms of the office lease, and the level of OSHA compliance in the office. These are several of the numerous criteria for evaluating an opportunity.

As you can see, it can be a costly mistake to undertake researching a practice opportunity alone. Seek professional help in this area. It may be the best decision you make in planning your career and will ensure that you “do it right the first time.”

5. Why not be an associate for a while to see if we get along and to see if he or she is the right partner?

If we have learned anything over the many years of transitioning practices, it is the odds of an associateship breaking up and becoming a disappointment for all concerned are about 70%. We call these arrangements ambiguity-ships, because of the ill-defined parameters that govern them as well as the lack of any equity investment on the buyer’s part. In fact, the only reason to be an associate without an equity investment is if, and only if, both you and the host doctor have short-term goals and needs (meaning 12 to 24 months or less). If you work as an associate without a well-defined agreement or an equity investment, plan on a future separation.

Contrary to conventional wisdom, you do not have to live together for a year or two to see if he or she is the ideal candidate. In fact, the longer the relationship goes without an equity investment or a well-defined agreement, the greater the likelihood that it will end in disappointment. Keep in mind that a commitment to ownership is a much different kind of commitment, and brings with it an entirely new mind-set. We see countless associates work for a few years without any problems, all while expecting to buy out or buy into the practice only to discover the seller has no real intention of selling. Many of these situations have ended tragically, costing the associate years of lost equity and income. Do not put your future at risk! If you start things off on the wrong foot, it is unlikely that anyone can resurrect what may otherwise have been your best opportunity for an excellent transaction.

6. How can I know what is best for me?

The first step is to do exactly what you are doing now. Educate yourself about the process and the possibilities. Ask yourself appropriate questions, like: “Am I meeting my real needs, and what information do I need to educate myself about all viable options?” The second step is to ask yourself how you really feel. Questions such as: “Does my decision show I am being honest with myself? What would I decide if I wasn’t afraid? What would I do if money or other concerns were not an issue?”

There are basically five types of buy-out arrangements. Depending on your goals, the structure can be set up complementary to both parties.

The first option is called a deferred buy-out. This method is used when the practice production is not big enough initially to accommodate a straight buy-out and fully support two dentists. Therefore, the new practitioner works as an associate for one to two years while building the practice production such that when he or she starts the buy-out, there is sufficient production to service the debt on the practice acquisition, make a good living, and still allow the seller to work back as an independent contractor associate for the next few years. This is accomplished by having both parties commit early on in writing to the price, terms, and conditions that will govern the practice sale and by having the buyer to put down some earnest money to insure that commitment.

As for scheduling, many times there is simply not enough room for two doctors to work at the same time in the same facility. So we suggest they straddle their schedules, having one doctor work from 7 a.m. to 1 p.m. and the other from 12 p.m. to 6 p.m., for instance. Often doctors produce more income on a six-hour day than on an eight-hour day. Using the office in a more efficient manner allows both parties to leverage their practice activities, lower their overhead, and generate more net income. This is due to the fact that some of the fixed expenses stay the same, and as the production increases, the overhead percentage decreases.

The second option is called a merger pre-sale. Under this scenario, the buyer has an existing patient base but is looking to increase his or her net income without suffering an increase in workload. So one of the parties moves his/her practice to the other party’s facility. The objective is for one doctor to sale the practice and work for the other doctor as an independent contractor for the duration of his or her career. The buying doctor benefits by receiving additional income from the seller’s production in exchange for purchasing and managing the seller’s practice. If structured properly, both parties may end up taking home more pay and overcoming solo-economic dependency. This type of transition is very economically sound, but the difficulty lies in finding the right candidates within a five-mile radius of one another. Therefore, mergers usually require long-term planning and can take up to five years to consummate.

The third option is to purchase a practice outright and have the seller work back part-time for the purchaser. (We briefly discussed this option in the answer to question two of this booklet.) The seller’s schedule is subordinated to the purchaser’s schedule after the sale, and the seller is usually paid 30 percent of his or her respective gross collected production. The buyer may purchase 100 percent of the practice by making a down payment of 20 to 40 percent of the purchase price and having the seller carry back a promissory note for the balance over a seven to ten-year period. The seller works part-time for the buyer as an independent contractor for a period of time ranging from a few months to several years. With this type of option the seller’s income is usually cut in half; however, he/she has the monthly income from the buyer’s promissory note to help offset the reduction in income. This allows the buyer to have the seller’s help in building up the practice as well as maintaining the seller’s goodwill over a longer period of time.

The fourth option is to buy 50 percent undivided interest in a practice. This is only advisable, however, if the seller’s time horizon for retirement is beyond seven years. If that is the case, consider buying part of the practice now and the rest later, when the seller is closer to retirement. A new business entity is established with each doctor owning 50 percent interest in the partnership (in some states a limited liability company is set up, which is taxed like a partnership, but can limit certain potential liabilities that may arise). Each doctor receives two types of income from the partnership. The first is referred to as provider compensation, which is usually 30 to 35 percent of the doctor’s respective, individual gross collected production. The second is in the form of distributable profits, or profits remaining after all overhead expenses are paid. These profits are generally split 50/50 between the partners. This structure rewards each doctor for his/her own production as well as for being a part of a co-building, synergistic relationship. Many doctors cite sharing in the success of their partner and overcoming solo-economic dependency as the two greatest advantages of a partnership arrangement.

The fifth and final option is a deferred buy-in. The new partner works as an associate for one to two years for the host doctor. This two-year period allows the practice to grow sufficient enough to allow the new practitioner to buy 50 percent of the practice and service the debt payments on the purchase. Once the buy-in is accomplished, there is a partnership or an operating agreement that governs the relationship. Both parties may choose to have a six-month courtship period before committing to a future buy-in. After the six-month courtship period, the associate pays the seller an amount of non-refundable earnest money which commits both parties to complete the buy-in at some designated time in the future (usually one to two years).

Beware of compromising the deal. Compromising is the art of getting both sides to agree to a resolution that neither side likes. Compromising is many times a defensive strategy: It does not play to the party’s strengths, it seeks to minimize vulnerability to weaknesses. Instead settle only for a win-win arrangement in which both sides feel comfortable and content with the outcome.

7. What do I really know about buying a practice? Are my expectations realistic?

Every dentist who has decided to buy a practice has certain preconceived ideas about what the process entails. Sometimes those ideas match reality; sometimes, they do not.

It would be virtually impossible to list all of the misconceptions that dentists bring to the process, some of which cost them tens or even hundreds of thousands of dollars. Here are just some of the things you can realistically expect as the process unfolds.

• Expect the process to take time: 4-8 months for locating general practices in major metro areas, and up to 24-36 months in smaller rural communities.
• Expect to either pay cash or make a sizeable down payment for the most desirable practices.
• Expect to deal with a sincere but sometimes uninformed seller looking for the highest price, with unreasonable terms. Unless you have someone carefully review each opportunity in advance, expect to spend time and money finding the right practice.
• Unless you take the proper steps up front, expect to have every representation you make to the seller scrutinized, questioned, and negotiated.
• If you’re not sure how to utilize your lawyer and accountant in this specialized process of practice transition, expect to pay for their education without the guarantee of a completed transaction.

And, just when you think you have everything in order, expect the seller and his advisors to change their minds at the last minute about this or that or the possibility of him/her choosing not selling the practice at all.

As you can see, a successful transition is not the absence of problems, but the ability to deal with them. Having a qualified professional at your side can truly enhance your ability to deal with the unexpected.

8. What is a practice really worth, and who is most qualified to appraise it?

A practice is worth exactly what someone will pay for it in the marketplace. This may sound like a cliché, but it is a fact.

Currently, buyers of general practices are paying prices that range from 50 to 75 percent of the most recent 12 months collections. (This range excludes duress sales for death, disability, or health reasons. Studies show these sales average closer to 30 to 60 percent of the prior year’s gross.) Specialty practices typically sell for less. Circumstances surrounding each sale vary widely, from estate sales to partnership buy-ins. In general, healthy and active practices with fee-for-service patients and a strong new patient flow sell for more. Sometimes older practices, i.e., practice with older equipment, older patients, and outdated decor, bring less even though they often represent the best value for the money.

You may already realize that the value of a practice is really in the mind of the buyer rather than in the mind of the seller. Getting a seller to understand and appreciate this concept may not be easy. Perhaps the best way to illustrate this is by illustration: Suppose you are a physician. Assume you are looking to buy a medical practice consisting of the same revenues, overhead, and location as your neighbor, the dentist. What is your practice worth? You will find medical practices with identical revenues will sell for far less than their dental practice counterparts. Why? Young physicians beginning their careers simply do not experience the same level of competition for patients that young dentists experience. Without a specific need to plug into someone else’s patient flow, most young physicians can start their own practices or join a large group practice. In the dental field, however, there is much more intense competition for patients and therefore more value in practices with established patient bases. This is why the intangible assets of goodwill, patient records, and restrictive covenants are so important to you as a buyer and why up to 80% of the value of a practice may consist of these intangibles. The process of establishing and substantiating the true value of a practice is crucial to your success. The wrong approach can lead to unfortunate results.

As mentioned, the intangible value of a practice may range from 60 to 80% of the total value. There is substantial value in goodwill, loyalty, trust, established relationships, perceptions, and covenants. Unfortunately, there is no simple formula for objectively evaluating these essential aspects of a practice, and yet these are the major items you, as a purchaser, need to buy. You can find newer, better, and less expensive equipment and furnishings just about anywhere. You may also be able to find a better facility or location, and a staff with better abilities. What you will have difficulty finding are the intangible relationships of goodwill and trust that a seller has spent many years developing with his or her patients. Out of those relationships of goodwill and trust come the financial rewards that you seek. That is why you will pay a considerable amount of money to access the revenue stream developed by the seller. And, despite the concerns of many buyers, the value of these intangibles will not diminish or leave the practice when the seller does because almost all patients are willing to transfer their trust to the buyer after having received a strong endorsement from the seller.

What you ultimately pay for a practice is entirely dependent on what you believe, how you feel, and in whom you trust. Be sure to pay attention to your gut feelings about the proposed transaction. If you feel good about the seller and the practice, and trust that the appraiser has been objective and can actually facilitate a fair transition, there is a high probability that you will want to pay the appraised value.

The person most qualified to appraise a practice is someone who has demonstrated the ability to transition practices and meet the needs and expectations of the parties involved. Remember, the appraisal is not worth the paper it is written on if the appraiser can not back it up with a track record of successful outcomes for other purchasers. All too often unrealistic, ego-inflated appraisals and poorly structured transactions have created heartache instead of creating success.

The moral of the story: know with whom you are dealing. Ask lots of questions, and check references from both buyers and sellers.

9. How will I know I have the right seller or partner?

You may not know for sure until long after you have signed the contract. Fortunately, there will be many signs along the way to help give you and idea. Keep in mind you will be asking the seller to take on some contractual commitments, but before those major commitments are made, there will be plenty of smaller ones. The acid test in determining how the doctor will handle major commitments is how he/she handles the smaller ones. The right seller will be enthusiastic and cooperative and will agree to a fair market price with reasonable terms.

The transition of a professional practice is a very revealing process. As you move along the path of commitment, you will learn new things about the seller and, more importantly, about yourself. In our experience, somewhere along the way and usually prior to closing, the questionable ones reveal themselves in one way or another.

Some things to look for in selecting the right seller or partner: Someone who demonstrates a high degree of integrity and moral character in their dealings with everyone. (Dave Barry said, “Someone who is nice to you but rude to the waiter is not a nice person.” In other words, notice how he/she interacts with and treats his/her staff, spouse, and other family members.) Someone with a track record of making and keeping commitments. Someone with goals that are complementary to yours. Someone with a willingness to cooperate and accept sound advice. Someone possessing these characteristics is likely to be a very good candidate.

10. How can I pay the least amount of money for a practice, and at the same time be fair to the seller?

Begin by considering what you feel is fair to you. Ask yourself, “Can I buy this practice with these price and terms and still make a good living?” For the practice value to be meaningful to you, it must address the fundamental issue of feasibility and income potential. In other words, can you take home a reasonable income before taxes (say 25 to 30% of your gross production) and still pay all overhead expenses including debt service on the practice sale? Obviously, the challenge is to offer the seller fair compensation for the intangible and tangible assets of the practice, yet economically substantiate that value from a cash flow perspective.

Unfortunately, many buyers inadvertently offend the seller by offering to purchase the practice for a sum well under what the seller is asking. To avoid making this mistake, be sure you can substantiate a reason or reasons for offering less than the asking price. In other words, conduct your due-diligence research on the practice (as described under question 4) and present your findings in logical and reasonable way which will show the seller exactly why you feel the practice should sell for less. If you cannot substantiate a reason for offering less, then offering less then the asking price may be risky-even foolhardy. Keep in mind that paying five, ten or even fifteen thousand dollars more than you “feel” you should now will make very little impact in your financial success over the long term, but offering less just so you can say you “got a deal” may negatively influence your relationship with the seller and have serious negative repercussions later. Please understand, we are not suggesting you pay more for the practice than what it is worth, but that you not allow your perceptions of its value be skewed by an intense desire to “get a deal.”

11. I have little cash and a lot of school debt. How will I have the financial resources to purchase a practice?

Since most buyers have few financial resources, they usually borrow the down payment from a bank and then have the seller carry back a promissory note for the remaining amount. This amount can vary from 20 to 80% of the purchase price and is usually financed at a fixed rate determined by the market over a five to ten year period. If the seller feels confident the buyer will be a success, he/she will likely be more flexible in carrying back a promissory note with reasonable terms on the practice purchase. Furthermore, having the seller carry back financing helps give the buyer some insurance and assurance that the practice is and will remain a viable, successful entity. Moreover, the seller maintains a vested interest in the buyer’s success.

Many purchasers search to find a bank that believes enough in them and the practice potential to lend the money to get started. That is never easy, but with the right banking connections and proper presentation, it is possible.

Fortunately, this type of bank and seller financing combination has been used for long enough to confidently say the odds of the purchaser failing to service the debt are extremely small. On average, less than 0.05% of dental practice purchasers default on their practice acquisition debt each year.

12. What if the patients stop coming to the practice after the seller is gone?

One of the greatest myths surrounding practice transitions is that 20 to 50% of the patients will not stay with the practice after the sale. Truth is, with a well-managed transition the attrition rate is actually less than 8%. Several independent studies from various regions of the country confirm this figure. We know of cases where the patient loss has been over 30%, but those transitions were poorly handled by the doctors and staff, and are, fortunately, rare.

The very best way to keep patients in the practice is to have the seller give you a strong endorsement to the patients via a personal letter. The staff is will also play an important role by recommending you to the patients and creating a sense of continuity in the practice. Most patients agree to see the “new” dentist with little reservation. Then it is up to you to win them over during their visit.

13. Is there anything I can do to help ensure my success with a practice transition?

• First, educate yourself on the process. Take some courses on practice transitions and practice management. Work closely with someone you trust and who understands your expectations, but more importantly, who is competent in this specialized area. There are many so-called professionals, but being a self-proclaimed expert and having the ability to get the job done right are two different things. You will want to seek professional advice from someone who specializes in managing dental practice transitions. This person should educate and advise you in dealing with the myriad situations you will face as an owner or partner in a practice; things such as effective leadership and management, hiring and firing, patient retention and case presentation, regulatory compliance, financial monitoring, clear communications, and so on. Most importantly, a transition specialist can anticipate problems in advance and help you avoid costly mistakes and detours.
• Second, don’t get hung up on the age of the dental equipment. Even though this is factored into a valuation process, you are buying a business that produces an income flow, and those tangible assets are required to produce that income. Besides, when the practice becomes more profitable, you will be able to afford to buy new equipment.
• Third, don’t negotiate directly with the seller; you risk damaging the very thing you are buying, the seller’s goodwill, trust, and cooperation. If you try to negotiate a deal, the seller may resent your requests. Even if you conclude the transaction, the seller may try to get even later on if he/she feels slighted or used.
• Fourth, show respect to the seller by being on time and by not being judgmental on the way the practice looks and how it is run. The seller may not be managing the practice the way you would, but that doesn’t mean it can not be molded to be more in line with your expectations.
• Fifth, build trust with the seller. Building trust before talking about business in earnest will tremendously increase your chances of obtaining favorable terms and a cooperative seller, without compromising either party’s interests.
• Sixth, when possible, meet with the staff members before the transaction is completed. Many times, they provide valuable insights on how the business is really doing. They will also be an important catalyst to a successful transition.

14. Can the seller walk away from my practice, or do I need him to remain on for a transition period?

Except in the case of most specialty practices, it is usually not necessary for a seller to remain with a practice for a transition period. If handled properly, patient retention will likely be high whether the seller stays on or leaves immediately. Personal introductions of the purchaser by the seller are not necessary, and sometimes are counterproductive. The seller remaining with the practice after the sale should be viewed as a possible option available to you and the seller, not as a prerequisite for your success. However, the loss of good staff can be detrimental to a positive change. Patients who hesitate to accept the new doctor generally take the risk of coming back if they can identify with the original staff members. Initially, the fewer the changes, the greater the likelihood of patient retention.

15. How long will it take to find a practice and close a transaction?

This largely depends on your desired location as well as your financial resources and other requirements. The best locations are in high demand and are difficult to locate. As a general rule, it requires a time period of a year or so to locate such a practice opportunity. However, some of the best opportunities are located in the older parts of town or in rural areas. They may not be the ideal practices you were looking for, but with the proper planning and practice management, they can very well become the ideal practice.

Once you have located a committed seller and all the terms have been agreed upon, it usually takes six to eight weeks to close the transaction. If no bank financing is involved, the process may take only three to four weeks.

16. How do I best handle the staff?

Always tell the staff the truth. Make sure you understand what the seller has conveyed to the staff. Be sure to emphasize their individual job security and the need for their continuing support. It is important to understand and address their needs and goals. By doing so, a high degree of trust can be established which will pay big dividends not only financially but emotionally as well.

Initially, the establishment of good rapport and a good working relationship with staff will have a great impact on patient acceptance of the new doctor. Why? Patients will typically ask the staff (before they ask the seller) what they think of the new doctor. Even a glowing letter of recommendation from the seller does not necessarily indicate that the staff has an equal amount of enthusiasm for the new doctor. It is imperative that the staff feel the buyer is good with people and has competent skills. This confidence allows the staff to make recommendations about his abilities without qualification.

We suggest you spend some quality time with the staff. Initially this means spending some one-on-one time to understand each staff member’s personal needs and goals as well as learning how he/she feel about the strengths and weaknesses of the practice. Also, ask them for suggestions on how to change or improve the practice.

When a doctor is truly interested in the staff’s point of view, staff members are more likely to accept change without feeling threatened. They are then more likely to loosen their hold on tradition and consider new ideas. With this type of environment, more energy can be directed toward the desired results versus toward protecting self-worth and self-interest. By seeking to understand the staff, the doctor gains respect and trust in his relationship with them.

In an effort to clearly define expectations and desired results, doctors and staff should institute a regular meeting schedule. Initially, staff meetings with a specific, pre-assigned agenda should be held weekly. Effective staff meetings should consist of the following:

1. Objective: The purpose or intended result of the meetings.
2. Attendance: Who should come and what each person should contribute.
3. Guidelines: What is the best way to accomplish desired results? What resources are available to achieve those goals?
4. Accountability: Assignments to who (person receiving the assignment); of what (nature of the assignment) and when (due date of the assignment).
5. Follow-up: Review the progress by scheduling subsequent meetings and following the same format.

This type of accountability system, where each individual has the responsibility to carry out assigned tasks, enables the staff to work more interdependently, thus freeing the doctor’s time to do what he does best: treat patients.

In addition to weekly meetings, daily 10-15 minute huddles to review the day’s schedule help to achieve the short-term and long-term goals which have been established in the weekly staff meetings. More importantly, these daily meetings will provide you an excellent opportunity to learn about the patients scheduled to be seen that day from the staff. The general background information you can glean about each patient during these meetings will assist you in making a good impression with the patient and beginning to build a strong relationship of trust with him/her.

If the transition structure involves some “overlap” with the selling dentist, the new doctor should see all of the new patients as well as most of the existing ones. Unless the patient expresses concerns about the new doctor, the staff schedules him/her with the new doctor. If the staff detects any hesitation or concern by the patient, they should empathize with the patient and mimic the content of his/her concerns. Then the staff should go on to say, “I know how you feel, Mrs. X. Other patients have felt the same way, but we have found when they have met with Dr. New, they have had a very pleasant experience. I know he would appreciate the opportunity of meeting you.” OR “If I were in your shoes I might feel the same way, but I can assure you that once I saw how he treated patients, I felt very good about the new doctor’s level of professionalism and competence. Mrs. X, we really want to earn the opportunity to continue giving you [and your family] the service you expect and desire. [Especially for being such a loyal patient.]” Then the staff member should go ahead with scheduling a time for the patient. If the patient is still reluctant, the staff could schedule them with the seller (assuming he is still available.)

It’s important to know that since the buyer is assuming the overhead responsibility as well as the debt payments, his schedule should be booked first. The seller’s schedule is subordinate to the purchaser’s schedule.

17. What about taxes? How do I lower my tax liability from a practice acquisition? From day-to-day operations?

It is possible to minimize taxes on the purchase of a professional practice. This is a complex and tedious part of developing the appropriate structure for a proposed transaction. Unfortunately, some professionals are not aware of some of the more sophisticated and highly effective alternatives that are at your disposal to minimize the tax impact. Proper planning in this area can easily save many thousands of dollars being sent on a one-way trip to Washington. You should be aware that when you purchase a practice as an asset sale (as opposed to a stock sale) you can generally deduct or amortize the entire purchase price over a 7 to 15-year period. However, be sure to get advice early in the process.

Once the practice is bought, the type of business entity under which you choose to do business will have a direct and significant impact on your ability to save taxes. There are advantages and disadvantages to each entity. Again, consulting a profession with knowledge, background, and experience in this area is very important and will save you money.

18. What if the seller wants me to buy the building too?

The inclusion of real estate with a practice sale can complicate matters. We suggest you purchase the practice initially, then lease the building under a long-term agreement (i.e. a 3 to 5 year term) with the option to buy at any time. This allows you time to get get your feet on the ground and increase your cash flow before taking on the additional debt associated with the acquisition of the building.

19. Should I employ a professional to assist me in the sale?

Some dentists believe that they will save money by buying a practice without professional guidance. For that to be true, the doctor must make some dangerous assumptions. He must first assume that he can actually determine and objectively substantiate a fair value for a practice. Then he must convince the seller he was truly objective and sincere in his analysis. Next, he must assume he has all the necessary banking connections to finance the purchase. He must assume he has the knowledge and expertise to work through all the complex legal, financial, tax, and staff related issues surrounding the sale. Finally, he will surely spend many hours trying to put all the pieces of the puzzle together. If you do hire a consultant or work with a broker, you may want to first ask them the following questions:

1. How many practice transitions and/or sales have you been involved with?
2. How many years have you been in the business?
3. How many sales ended up in litigation/arbitration or in professional divorce?
4. How many of your purchasers have defaulted on their promissory notes to sellers and/or banks?
5. What do you charge for an appraisal?
6. What do you feel are your strong points in providing transition/brokerage services?
7. Is your appraisal contingent on signing a listing agreement?
8. How do you know you are accurate with your appraisal?
9. Do you feel there is a conflict between appraising a practice and then listing it for a percentage of the sales price?
10. What type of post-sale/post-transition follow-up do you provide?
11. Is this your main occupation or do you have other activities to help subsidize your consulting business (i.e. sell insurance, securities, real estate, equipment/supplies, practice dentistry, etc.)? How will I know that these other activities do not conflict with the quality of service I’ll receive?
12. What systems do you have in place to help both parties better understand their compatibility concerning goals, needs, and personalities?
13. What do you include in your appraisal?
14. What resources do you use to keep up with the latest changes in business and tax laws?
15. How long does it take you to transition/sell a practice?
16. How are you compensated?
17. What services do you offer for the fees charged?
18. Do you have any literature that will help me better understand the transition process and how I can better prepare myself for it?
19. Can you furnish a list of the five most recent buyers and sellers you worked with?

20. If I choose to use the help of a professional, who should I call first: my lawyer, my accountant, my financial planner, my supply salesman, or a broker? What kind of professional guidance will I need?

The real question here is: Whom can you trust with one of the most important transactions of your life? That is the quintessential question, and rest assured the seller will be asking himself the very same thing. And what if his advisor tells him something different from what your advisor tells you? The ideal advisor, therefore, would be someone who could be trusted by both sides to be competent, fair, and objective. With that trust, the respective parties could proceed forward in confidence toward their mutual objectives, knowing that everything would work out. Such an advisor would be in tune with the needs and expectations of both parties and would be in a position to know how the demands of one party might impact upon the needs of the other. He or she could then act as an intermediary for minimizing conflict and resolving concerns.

Of course, the ideal advisor should specialize in dental practice transitions. Your advisor should be competent in financial as well as legal matters and capable of coaching and interacting with the lawyers and accountants who likely will be involved. An advisor who works in this capacity to the fullest extent will help you better utilize the services of your attorney and/or accountant, and ultimately will help ensure the transaction really happens. He or she should have direct experience in structuring successful transactions similar to the kind of transaction you hope to have.

This advisor should be performance-oriented, deriving compensation from the results of the process. Ideally, this advisor will have resources available to assist you in realizing the potential of the practice, thereby assuring the seller that his practice and patients will be properly cared for and that you will have the greatest chance for success.

21. How much will it cost me to hire a professional transition consultant?

The real costs of selling a practice are incurred by those few dentists who insist on going it alone. How strange it seems to us when, in order to save a few thousand in fees, dentists end up losing thousands in what could have been a very successful practice transition.

A true professional will add value as the process unfolds. His or her expertise in practice appraisals will ensure fair-market valuations. His or her credibility as a transition specialist will give comfort to both sides and assist each in making some difficult commitments, without succumbing to the temptation of structuring a deal that is too one-sided. His or her focus on the big picture will help keep envy and greed from corrupting a good transaction. And finally, his or her broad knowledge of legal, tax, and financial issues will save both doctors untold thousands they would otherwise spend having their respective advisors research, explore, and revisit the critical issues.

Depending on the type of transition, most professional consultants will charge a fee between $2,500 and $7,500, which may or may not include any post-sale support. Either way, you need to check on the background of the professional and on the types of services offered.

22. How do I negotiate a win-win transaction?

We suggest the following four-part system for developing a win-win transaction with another doctor.

1. First, seek to understand before being understood, that is, understand and define the other parties expectations. This will lead to a developed climate of mutual trust and empowerment for both parties to act upon.
2. Second, plan activities that allow a positive relationship to develop.
3. Third, cultivate a sense of mutual trust by opening questions about your goals and needs.
4. And fourth, allow the relationship to fully develop before discussing business in earnest, thereby enabling both parties to discuss issues without being defensive.
5. If each party becomes sensitive to the needs of the other, and if they can clearly see that their individual goals and objectives are intertwined, then the resulting synergy will allow the doctors to achieve a far greater degree of success.

23. What questions should I address to the seller?

In addition to the obvious questions surrounding the production and collection figures, overhead percentage, active patient count, and overall profitability of the practice, you should consider asking most or all of the following:

1. Which service/social organizations do you belong to in the community?
2. How would you describe this community demographically?
3. What kind of people live in this community?
4. Do many of your patients work at one or two particular companies? That is, are there major employers who contribute a significant amount of patients to your practice?
5. Do you involve yourself in any PPO or capitation programs? If so, with whom and how much do you have?
6. If you rent the building, what is your relationship with the landlord? Do you find him/her cooperative or is that relationship strained?
7. Have you ever had an associate or associates? How has it worked out? What do you see as the positive and negative parts of this relationship? How long ago did you have an associate?
8. Have you ever done any type of external/internal marketing and if so what kind?
9. Do you see any value to changing the hours of the practice? If so, why?
10. Where are most of your new patients coming from and how many do you get a month?
11. What type of procedures do you primarily perform in your practice? What type of procedures could be done in your practice which you are currently referring out?
12. What advice would you give concerning ways of generating additional income for the practice?
13. Do you see any ways of decreasing the overhead of the practice?
14. How would you rate the competition from other dentists in the area?
15. How would you rate your staff?
16. Do you delegate many of your responsibilities to your staff?
17. Would you describe the staff situation as stable or unstable?
18. Is the practice amalgam free?
19. How do you treatment plan your patients?
20. How does your recall program work?

What issues need to be addressed before I make a offer to purchase?

If a prospective purchaser has conducted due diligence in researching the practice, including a verification of the seller’s data and a careful review of the appraisal, etc., he or she will likely be ready to make a offer on the practice. However, this offer should be made either contingent upon or after the completion of the following items: a thorough chart audit, approval of adequate financing, procurement of the appropriate state license, and negotiating an acceptable office-lease agreement with the landlord. In addition, you should agree with and feel comfortable about the terms and conditions of the proposed purchase agreement.

Many times the seller’s current staff can shed some light on how the practice has been and is presently operating. Take time to “interview” the staff and ask the following questions: what do you like best about this practice? Which area’s do you feel the practice could improve in? What attributes do you feel the doctor should posses or exhibit in order to precipitate effective practice operations? What things should I know to help make this a smooth transition? Please tell me about the patient profile, i.e., type(s) of insurance most frequently dealt with, the type of recall system being employed, how scheduling is done, and what new patient flow is like, etc.

Should I put down some earnest money with my offer to purchase?

Unfortunately there is no definite answer to this question. Since most offers contain certain contingencies similar to those previously mentioned, there is very little guarantee that either party will be able to “force” the other to follow through with an offer to purchase or a letter of intent. In most case, either party will be able to back out of the deal without penalty if he/she finds one or more of the contingent items unacceptable. However, earnest money seems to create a greater mental commitment by both parties to go forward in good faith and complete the transaction. Oftentimes the seller will require some form of financial commitment from the purchaser before taking his/her practice off the market. Some offer-to-purchase agreements furnished by brokers and/or attorneys may contain language which makes it very difficult for the purchaser to get his/her money back if the transaction is not completed. We suggest purchasers draft and send a letter of intent, without the inclusion of any earnest money, but a strong moral commitment to close the transaction if all is found satisfactory.

26. Items you should review when conducting a due diligence research on a practice opportunity.

• Have you personally reviewed 50 to 100 patient charts?
• If so, did you look for:
  • • Complete, thorough, readable treatment notes by the doctor and/or RDH.
    • Recommended but uncompleted dentistry clearly noted and tracked.
    • Dentistry performed by the selling doctor that matches the type of dentistry you do or intend to do.
    • Overly aggressive or very conservative approach to treatment completed.
    • Patterns of patient treatment acceptance evident (high or low)
• Have you examined the computer hardware and software?
• Will there be a software transfer fee?
• Is there a computer maintenance agreement in effect? For how long?
• Were you able to review a computer report of the following?
  • • Number of patients grouped by ages.
    • Percent (and number) of active patients as well as percent and number of patients who have been in for restorative and hygiene treatment in the past 12 months/the past 18 months.
    • Percent (and number) of patients consistently receiving hygiene treatment in the past 12 and 18 months.
    • How far are operative appointments booked in advance?
    • How far are hygiene appointments booked in advance?
• Have you reviewed an accounts receivable report? Is there a sizable amount outstanding over 90 days?
• Do you know how flexible or how strict the practice is about extending payment terms to patients?
• Have you examined written records of patient financial agreements?
• What is the average monthly payment amount allowed for patients with outstanding balances? ($25 per month vs. $200 per month)
• Are over-the-counter collections consistently done (for insurance co-pays, etc.)
• Have you reviewed the selling doctor’s fee schedule, and does it match with the fees you intend to charge?
• Does the practice have two or more fee schedules due to the restrictions of a managed care plan? If so, how well are the different schedules managed by the front desk staff?
• When did the selling doctor last increase his/her fees and by how much?
• Has the selling doctor informed his/her staff of the practice sell?
• Have you interviewed all or some of the staff that will be staying on?
• Do you have a transition plan for what you will do about salary increases, paid vacations, working days/hours, sick time policy, etc.
• Is the staff currently taking an active role in marketing the dental practice? How? Do they do this willingly?
• Have you observed the practice in full operation for at least one full day?
• Do the staff and Doctor seem to have a good rapport with one another? With patients? Do patients seem to trust Doctor and staff?
• How does the practice communicate with its patients (newsletter, birthday or holiday cards, etc.) Does this match with your intentions?

27. What items or checklist should I address before closing a transaction?

1. Have a qualified consultant/appraiser or accountant review the appraisal. Review practice polices and procedures. Complete financial statements and a household budget and meet with a banker.
2. Preview a list of all assets included and excluded in the practice sale. Both parties walk through the office and discuss these items before closing.
3. Have your attorney review the contracts to cover debt obligations.
4. Have your accountant review purchase price allocations and any sales tax implications. Accountant files IRS form 8594 after the sale is completed (this is usually filled out when you file your tax returns).
5. Both parties assist in writing a letter of introduction to patients. Send out letters after closing.
6. Hold a staff meeting to build rapport and discuss how to handle the transition and how best to address staff and patient concerns.
7. Review communication dialogue between doctors, staff members, and patients.
8. Secure malpractice insurance and notify D.E.A. about the practice address.
9. Possible printed material needed:
   • a) Appointment Cards
   • b) Letterhead and Envelopes
   • c) Professional Business Cards
   • d) Referral Thank-You Cards
   • e) Billing Envelopes
   • f) Rx Forms
   • g) Recall Cards
   • h) Office Signs
   • i) Rubber Stamp with Name and Address
10. Call insurance agent for life, disability, and casualty insurance.
11. Establish the entity under which you are going to do business (i.e. professional corporation, limited liability company, sole proprietor, etc.)
12. Apply for Tax I.D. or EIN number for your new business entity (your accountant can do this).
13. Change name and account with the phone company.
14. Inform any answering and/or pager services.
15. Check with the City/County for applicable business license.
16. Set up bank accounts and credit card/financing arrangements and establish a line of credit.
17. Seller makes keys for the buyer.
18. When the buy-in occurs, call the other utility companies to change billing name (i.e., sewer, water, electricity, gas, garbage, etc.) to the new entity or owner.
19. Have the landlord, if applicable, sign the lease assignment agreement.
20. Inform staff and help reassure their job security, because the buyer or partner really needs their help. Seller supplies a list of employee benefits and any accrued vacation. If accrued benefits and/or accrued vacation is owing, this needs to be reconciled on the closing date.
21. Have a copy of all accounts receivable on the date of closing.
22. Try not to make too many changes in office policies in the first six months (despite this suggestion, you may need change the way financial arrangements are made with patients in order to meet your cash flow demands).
23. Meet regularly with the seller (if he/she is staying on) to understand and define each other’s expectations. Identify and verify personal and practice goals. Review options to achieve those goals.
24. Initially hold staff meetings weekly, then bimonthly. Conduct daily 10-15 minute morning huddles to go over the day’s schedule.
25. Spend time with patients to help understand their expectations. Ask the patient after their appointment: Is there anything we can do to make your visit more pleasant? Call the patient after their appointment to see how they are doing.
26. Conduct one-on-one interviews with staff members to understand their needs and concerns.

28. If I don’t think I am quite ready to buy, what should I be doing now to prepare for a practice transition?

Maintain a good credit rating, save money, enhance your clinical skills, continue with your educational courses, plan for the type of practice you are looking for, and continue to learn and study more about the practice transition process, leadership skills, and practice management systems and procedures.

We hope the information contained in this booklet was helpful to you. There are far too many specific and complex issues surrounding a successful practice transition than can possibly be addressed in a format of this nature. If you have any further questions, or would like additional information regarding our services, please call us (303) 795-8800 or (435) 654-1717.

CTC Associates
PO Box 1357 Midway, UT 84049
2305 E. Arapahoe Rd., Ste. 220 Littleton, CO 80122
(801) 298-4242 (435) 654-1717 (303) 795-8800

It’s been said that you can’t argue with success.

With more than 650 dental practice transitions under its belt — not to mention a stack of glowing testimonial letters and a 96 percent satisfaction rating — it’s hard to argue with the success of CTC Associates. Since 1988, the firm has specialized in dental practice appraisals and transitions — specifically, the sale of a practice or bringing on an associate-partner.

CTC Associates is comprised of Larry M. Chatterley; Frank J. Brown, J.D., LL.M.; Randon J. Jensen; and Eric S. Chatterley. All have impressive business backgrounds and extensive knowledge of the dental industry and market. In fact, the partners frequently are asked to speak to professional clubs and associations about practice transitions, practice management, empowered leadership and practice promotion. The Chatterleys, Brown and Jensen also have authored several publications
and articles on practice transitions.

Such expertise is critically important when you’re transitioning your practice and facing a host of complex issues, such as determining the right structure of the transition to meet the parties’ needs, drafting contracts or understanding ever-changing legal matters and tax laws.

“We conducted a survey of nearly 200 dentists who transitioned their practices using the services of CTC. The dentists confirmed the need for professional guidance, which was the number one reason given for hiring a consultant,” says Jensen.
Meeting this need for professional guidance is exactly what CTC Associates is all about. Just ask Dr. Dennis B. Iverson, a client who says, “I cannot express how unbelievably well CTC Associates handled every single aspect of our goals, concerns and details of this successful endeavor. Looking back, I would consider myself totally unwise if I had tried to do all that was necessary without the expertise of CTC from the beginning.”

A HOST OF SERVICES

Facilitating more than 40 practice transitions annually, CTC Associates works with clients ranging from small-town practitioners to high-profile industry leaders in the dental community. Clients include dental students and dental veterans.
All CTC Associates’ clients have something in common, according to Larry Chatterley. They provide quality service, he explains, “and expect the same in return.”

With that in mind, CTC Associates offers unmatched customer service and attention to detail. As examples, phone calls are answered within 24 hours or less, both buyers and sellers receive an informative transition guide and checklist, and clients are walked through each step of the transition process.

Complementing this is CTC Associates’ full spectrum of professional services, ranging from locating a buyer and seller, securing financing and overseeing the closing, to assuring a smooth transition and ensuring all critical
steps have been performed for the practice’s future success. Specifically, CTC Associates’ services include:

• Appraisals – A credible, fair-market value of the practice is determined and prepared by the seasoned experts of CTC Associates. This saves the seller the time of researching an asking price, eliminates conflict and uncertainty, plus lends credibility to the process. “We establish a purchase price that properly and fairly compensates the seller, yet provides a viable investment for the buyer,” says Brown.

• Negotiations – CTC Associates acts as a third-party mediator to help both buyers and sellers reach a fair and equitable agreement. This avoids undermining the trust of the parties and potentially destroying one of the most valuable assets of the practice — the goodwill between doctors and their patients. It also saves time and reduces the involvement and fees of attorneys.

• Facilitation – CTC Associates handles the myriad of details, providing direction and answering questions, so dentists can focus on patient care, retirement or relocation plans — all with the peace of mind of knowing that all points are covered.

• Candidate matching – CTC Associates takes the time to define the buyer and seller’s expectations, practice philosophy, values and leadership styles. This may be done by having clients fill out a personal needs analysis and/or a personality profile, as well as encouraging efforts such as checking references and out-of-the-office activities.

By carefully determining the compatibility of involved parties, CTC Associates increases the likelihood of a successful transition. “We’re committed to mutually beneficial, win-win arrangements,” Jensen says.

Satisfied client Dr. Ralph M. Downey agrees. “CTC Associates sold my dental practice and created a win-win situation for both the purchasing party and myself. They fulfilled my expectations and then went the extra mile. Their services were worth every penny, dime and dollar,” he says.

• Documents – CTC Associates not only has a member of the firm who is an attorney and accountant, but also keeps an attorney and accountant on retainer for updating and researching changes in the legal environment and tax laws. CTC provides the documents needed to complete the transition.

Documents are comprehensive, thorough and fair. This saves time and money while ensuring the parties’ needs are protected and all issues are addressed.

• Post-transition follow-up – Well after the sale is complete, CTC Associates continues to answer questions, address issues and track results. It’s one more way the firm increases the chances of the transition being not only easier, but also successful.
As evidence of this success, Chatterley notes that more than 91 percent of CTC Associates’ buyers either meet or exceed the previous year gross production in the first year and usually experience less than 10 percent patient attrition.

• Staff involvement – Ensuring a smooth transition and optimum patient retention, CTC Associates meets with staff members before and after the sale to provide direction, offer advice and address questions and concerns.

• Practice management – CTC Associates can provide direction and information for proper management of a practice, including ways to increase new patient flow. This can increase value and marketability of a practice prior to selling as well as productivity and profitability after the sale.

NOT YOUR TYPICAL BROKER OR CONSULTANT

CTC Associates’ impressive track record is not surprising when you consider that the firm is unlike other brokers and consultants in several key ways.

In fact, while other brokers generally charge a 10 percent commission of the selling price of the practice, CTC Associates works on an all-inclusive flat fee arrangement or on an hourly fee based on what the client requests and needs. The all-inclusive flat fee is between $15,000 and $35,000, depending upon the size and location of the practice, as well as the type of transition. CTC Associates assures its clients that its fees will never exceed the 10 percent other brokers charge.

Additionally, the all-inclusive flat fee is contingent upon completion of the sale and is paid at closing, so dentists risk very little. By comparison, some brokers or consultants demand payment regardless of the outcome.

According to Chatterley, the all-inclusive flat fee generally equals only 4 percent to 7 percent of the selling price, which can mean substantial savings compared to other brokers and consultants. Additionally, the flat fee adds integrity to the process and enables CTC Associates to present practices with an unbiased opinion of their value. This provides credibility with the potential buyer and allows practices to be sold with little or no negotiation over price.

In addition, the flat fee structure means CTC Associates does not “play favorites” with its listings. In other words, the firm will not try to sell higher-priced practices first because the commission is higher. Instead, CTC Associates will honestly try to match prospective purchasers with the practice that is best suited for them and vice versa.

Thanks to this fee structure, “40 percent of our clients, both buyers and sellers, have already found each other and are hiring CTC Associates to facilitate their transition,” Chatterley says.

Another key difference is that while other brokers aren’t concerned about developing a professional relationship with buyers, CTC Associates goes above and beyond to establish contacts and rapport with prospective buyers.

This can help the transition take place in a timely manner, Jensen says, plus creates a foundation of trust right from the get-go. “Most buyers who contact us have been referred to CTC Associates instead of merely finding our name on a practice listing registry. That raises the buyer’s initial trust level and opens the lines of communication,” he adds.

CTC Associates is unique in that it works with the buyer and seller, rather than just the seller exclusively. Acting as a neutral intermediary, the firm focuses on creating a win-win arrangement, saving time and attorney’s fees.

“We customize each transaction to provide what is needed by the parties. We spend the time to understand each client’s expectations and provide professional experience and guidance to accomplish their goals,” says Brown. As a result, he notes that CTC Associates has a 98 percent success rate in matching buyers and sellers.

Two of those successes include Drs. Michael Unser and Steven Baumgart, who jointly say, “We’ve known CTC Associates for over 10 years and trusted them with the transition of our practice from a solo to a duo practice. The process was smooth. We recommend them over all the others in the field.”

Another advantage is that instead of walking away at closing, as is all too often done by most brokers and consultants, CTC Associates continues working after the sale. This includes tracking the results of the sale and working with the doctor(s). Because of this effort, CTC Associates has been able to verify the accuracy of its initial appraisals and learn what works well and what doesn’t. In turn, this increases the chances of a successful outcome and helps avoid costly errors.

“Our clients’ transitions result in higher patient retention and lower buyer default than the national average,” says Jensen. According to him, out of the more than 650 transitions handled by CTC Associates, only three purchasers have defaulted on their promissory notes to the bank while a mere two have defaulted to the seller.

Perhaps most importantly, CTC Associates specializes in dental practice transitions, while others may lack experience in this highly technical and complex field. For some brokers or consultants, dental transitions are a hobby or sideline. However, for Jensen, Brown and the Chatterleys, it’s their professional business. All four partners devote their full time to facilitating successful transitions through CTC Associates.

Together, they offer not only expertise in dental practice transitions, but also the creativity sometimes needed to successfully solve problems. For example: CTC Associates recently was approached by a dentist who had become partially disabled almost 12 months earlier. He had kept the practice in hopes that his health would improve, but experienced a significant drop in income in the meantime. When the dentist finally decided to sell the practice, he contacted CTC Associates and had two primary concerns: maximizing the proceeds from the sale after taxes and maintaining his health insurance coverage.

CTC Associates went to work. Since the client was operating as a regular “C” corporation, CTC Associates proposed making a personal assignment of goodwill to the buyer, thus avoiding double taxation on each dollar allocated to goodwill and saving the seller more than $30,000 in taxes. One down, one to go.

With his poor health, the client was virtually uninsurable under an individual health insurance plan and needed to keep his group plan in place. How could this be done if he were selling the practice? CTC Associates proposed that his corporation sell its assets yet continue to employ the staff. The client would then lease his former staff to the purchaser, thereby allowing him to maintain his group health insurance plan. Problems solved — creatively.

“We offer experience, value, honesty and integrity. We have knowledge and broad professional contacts,” sums up Brown. “We know the dental marketplace and can answer each client’s specific questions and meet their specific needs.”

When it comes to transitioning your dental practice, what more could you need? In fact, would you consider the transition of your dental practice, one of your most valuable assets, without the professional expertise and guidance of an industry leader?

It is true that more than half of all marriages end in divorce, but even more relationships end before a marriage even takes place-during the engagement, as it were. In the field of professional dentistry, associateships can easily be compared to an engagement. When it comes to business relationships between dentists, perhaps no relationship is more common than the associate-dentist arrangement. Not surprisingly, too, is the fact that associate arrangements have one of the highest failure rate of any business relationship. This leaves most dentists asking, “What should I do to structure a successful associateship?”

Some associateships work very well, while others drag on in disappointment or end in agony. If you are contemplating some type of associateship, we are confident the following “rules of engagement” will help you structure and maintain a successful associate relationship. These ideas will help you understand the right way and the wrong way as well as the risks and the rewards of bringing on an associate or accepting an associate position.

Our company has facilitated more than 560 dental practice transitions over the last sixteen years, many of which involved some type of associate arrangement. Fortunately fewer than a dozen of those arrangements have ended in premature separation. Our experience in the industry has exposed us to a myriad of different methods for structuring an associateship. Many of these methods are very similar, yet some have worked better than others. Regardless of any commonalities, most methods will require customization in order to meet the specific needs of the dentists and address the issues surrounding each unique situation. That being said, the ideas we will present do not pretend to be the only means of structuring an associateship, nor do they constitute a comprehensive guide to doing so. They are instead simple and essential elements common to successful associate arrangements.

With that in mind, lets take a look at the most important rules of engagement:

Rule #1

The goal of any associate-type arrangement is to create and maintain a mutually rewarding personal and professional relationship between two or more doctors. Unfortunately, too many associate arrangements are intentionally structured to benefit only one of the parties (usually the host, i.e, the doctor who hires an associate). Ego and selfishness will destroy a good relationship faster than anything else we know-including money! The only truly successful associate arrangement is one in which both the host and the associate feel they have been fairly treated. Although it may sound overused, the arrangement must be win-win. Rule #1: Make the associate arrangement as fair as possible for both of you. Look at the proposed transaction from the other party’s viewpoint and consider their needs. Then match that viewpoint with your own.

To understand what makes an associateship successful, we should take a look at what motivates a doctor to pursue one in the first place. Why do most host doctors want to bring on an associate? If you are interested in bringing an associate dentist into your practice or have already brought one in, chances are you have already answered this question. But are your reasons the right reasons?

Most host doctors choose to bring on an associate for one of the following reasons:

• They have so many patients that they are having a difficult time keeping up with their schedule or patient needs.
• They would like to spend less time in the office, yet would like to have another doctor treat patients in their office as a means of assuaging their facility costs.
• They are contemplating a future transition, whereby the associate will be committed to buying half or all of the practice (at a predetermined date for a predetermined price).
• They want another pair of devoted hands to help pull the overhead cart and relieve some of the stress associated with managing the practice.

On the other hand, why do most junior or non-host dentists choose to accept or enter into an associate position? As a general rule they are:

• Just out of school or a residency program and would like to gain some real-world experience as well as increase their clinical speed.
• Not exactly sure of where they want to be or what they want to do with their new career but are in need of a job to start earning money.
• Interested in acquiring a practice but would like to be associated with it for a brief period before making the commitment to buy part or all of it.
• Marking time before they enter into speciality training.
• Waiting to pursue another job or move somewhere else and using the associate position as a holding pattern.

Rule #2

As you can see, a host and an associate may each be pursuing an associate arrangement but for very different reasons. The challenge, then, is to find two parties with similar motivations for entering into an associateship. In addition, it is important they have complimentary needs, like-kind values and compatible personalities. Failed associate arrangements usually fail because of this one simple reason: the parties have incongruent expectations. In other words, one of the parties is expecting something to happen or for things to happen a certain way, yet somehow those expectations where not met. Rule #2: Define your expectations and motivations in advance, communicate them to the other party, and seek to understand his or her’s in return. Do not wait until you are working together, with the thought that you will “just address those issues when they come up.” (An associateship built on poorly defined expectations or one lacking any formal structure is more aptly referred to as an “ambiguity-ship.”) An ounce of prevention is worth a pound of cure. Similarly it is more difficult to turn back time in an attempt to correct a problem than it is to address the issue in advance. So, what are some of the issues, the expectations that are so important to address?

We touched on one of them in the previous paragraph. Determine if your needs are complimentary with the other party’s. For example, you might ask about your income needs and expectations as they pertain to scheduling, i.e., how much will each of you be working. A common mismatch we see in this regard has to do with what we call the host dentist’s “motivational status.” Is he/she an “increaser” or a “decreaser?” If you can hardly wait to get back to the office on Monday morning, if you still enjoy managing and motivating your staff, or if you are constantly looking for ways to grow and improve your practice, then we consider you an “increaser.” On the other hand, if you have seriously entertained thoughts of cutting back the time you spend in the practice, if you experience a lot of stress and fatigue, or if you are bored with the practice and just marking time until retirement, you would likely be deemed a “decreaser.” (Note: There is nothing wrong with being a decreaser. It simply means that you are in a different phase of your career and have different goals and needs than an increaser or a “sustainer.”) A decreaser host and an increaser associate are likely to have complimentary needs; each is filling a need for the other. Be aware, however, that in some cases decreasers may want to spend less time in the office, yet he/she cannot afford to take home less than he/she is presently earning. Often host dentists in this situation think their solution is as simple as hiring an associate to perform all of the “grunt work,” i.e., the lower-end procedures, while they continue to perform all of the high-end procedures, thereby allowing them to earn just as much in fewer hours. We call this “dumping” since the associate feels “dumped on.” He/she is limited as to which procedures he/she can render and the operatory time available to him, and thus he/she is limited in his/her income earning potential. Obviously it does not take long for an associate to become disenchanted and disgruntled with such a situation. Unfortunately, too many hosts feel this situation is perfectly acceptable because, in their mind, “the young guy has to earn his/her keep and pay his/her dues, and if he/she wants to be busier or perform certain treatments, then he/she should work hard to build up his/her own practice.” Unless there is some type of earned equity program in place, this type of arrangement may eventually create problems for both paties.

From our discussion on decreasers it is easy to see that they make good candidates for associate relationships, but unfortunately not many associate dentists are in the decreaser mode-most are increasers. So what if the host dentist is also an increaser? If both the host dentist and the associate are in increaser mode, chances are an associate arrangement between them will only work successfully if the associate is given a clearly defined opportunity to become an equity owner down the road.

Rule #3

Evaluate the financial and patient flow capacity of the practice in advance. Too often an over eager host dentist will bring an associate into a practice that does not have enough patients to go around or is not in a fiscal position to support two dentist financially. An associateship started under these circumstances will soon strain the relationship of the doctors and will more than likely result in the associate looking for additional work elsewhere. Be sure to count the costs and review the numbers before committing to an associate. (Hire a professional to help you if you are not sure what the numbers are telling you.) Just because the practice feels busy does not mean it is ready for another dentist. An exception to this rule may be a practice in a high growth area, i.e., a practice with high new patient flow. Even then the host dentist must be committed to growth and in a financial position to subsidize an associate during the short term. Otherwise the practice will need a sizable active patient base sufficient enough to keep both doctors busy. If the host doctor is only booking a week or two in advance, there may not be enough volume to justify an associate. The only way to make an associateship work in that case is by cutting the host dentist back both in terms of schedule and income and/or finding another part time position for the associate.

Rule #4

You are likely familiar with hit television series “American Idol.” If this popular television program has taught us anything it is that some people are just not cut out to be a superstar. Likewise, some dentists are simply not cut out to work in a close professional relationship with another dentist. We do not mean this in a derogatory sense, nor do we mean to disparage certain types of doctors. Frankly stated, some doctors are meant to be the “captains of their own ship.” They have a certain way of doing things and prefer not to be encumbered by another doctor. If you think you might be this type of doctor, don’t feel bad, but don’t kid yourself into thinking that an associateship will be right for you. Everyone has a different approach to business and a different way of doing dentistry. Consequently, Rule #4 is to evaluate your own work ethic, practice philosophy, leadership style, and personality type. Then compare these characteristics to those of a prospective associate. And although matching your values with a dentist possessing similar values is very important, we find there are certain “default” values both parties must possess if a successful relationship is to develop between them:

• Honesty. Are you honest in all of your dealings? Does he or she tell the truth?
• Integrity. Do you keep your promises? Do you do what you say you will? Does he or she?
• Consistency. Do you vacillate on issues or do you make a decision and stick to it? Are your actions congruent with your words? Are his or hers?
• Compassion. Do you have a genuine concern for those you treat and those you work with? Does he or she?
• >Skills & Knowledge. Are you confident in your level of knowledge and skill? Are you confident in his or hers?
• Sensibility. Do you exercise good judgement and make decisions based on what is best for all concerned? Does he or she?
• Motivation. Are you motivated to always do your best? Do you inspire others to be and do the best they can? What about him or her?
• Humility. Are you willing to learn new things or is your way the only way? Is he or she teachable?

In some cases, it might be wise to do a working interview with an associate candidate for a day or two to get a true sense of the other party’s values. Involve your staff in this process and seek their feedback. Have them rank the prospective associate on a scale of 1 to 10 in relation to his/her values and how well he/she matches with you and the practice. Then have the staff rank you on a scale of 1 to 10 in relation to your values and your match with the associate as well as whether or not they feel you and the practice are prepared to bring on an associate.

So what if you have evaluated your style and determined that you like to be the captain. Are you then doomed to sailing solo throughout your entire career. Not necessarily, since co-captain arrangements can often be successful and rewarding. However, in these cases the parties need to understand that the arrangement will likely not last over the long term.

Rule #5

There are two or three specific questions commonly asked by both host and associate dentists who are seriously contemplating entering into an associate arrangement. Going into an arrangement with these questions already answered is

Rule #5: Do your homework beforehand. The first of these questions deals with the associate’s compensation. What is typical and what is fair? Most associates are paid a percentage of their respective gross production. In most markets and most situations, this percentage is about thirty percent (30%). (Note: Specialty practices/specialist associates are often paid a higher percentage.) It is not uncommon, however to see flat wage or salary rates paid as well, or variations of the two, such as a draw against future compensation. In other words, the associate is paid a flat rate or a percentage, whichever is higher. Then, as his/her production increases, any draw that was taken is paid back. This method is particularly effective in situations where it may take the associate several months to “ramp up.” However, the host doctor should expect to see a consequential decline in income over the short term as he/she subsidizes the associate’s income via the draw. This will last until the associate’s percentage wage is sufficient enough to cover the minimum and pay the draw back, at which point the host should expect to begin earning an override on the associate’s production.

Rule #6

The second commonly asked question pertains to the inclusion and terms of restrictive covenants. This can often be a sensitive subject for both parties. Our experience has taught us that-in most cases-a non-compete agreement from the associate is not necessary during the first six months of his/her employment. We find a non-solicitation agreement much more prudent during this time, while a non-competition agreement makes more sense after six months of employment and when it appears that the arrangement will last longer term. It is rare for many patients to follow an associate to a different job or different location after only six months (or less), as long as the associate is not allowed to solicit patients. An ingenious alternative to the non-solicitation clause, however, is a covenant “option.” This arrangement allows the departing associate to determine the price and terms of a restrictive covenant upon separation. The host dentist is then free to choose either to purchase the covenant or sell it. By purchasing the covenant, the host is paying the associate consideration for his/her adherence to the terms of the covenant. Conversely, by selling the covenant, the associate is paying the host consideration for freedom from any restrictions on his/her practice of dentistry in the area of the host dentist’s practice. Obviously these provisions can be complicated and delicate to negotiate, structure and enforce. As such, the final rule is Rule #6: seek professional help and define your associateship agreement in writing.

Beating the Odds…

Most people who marry do not do so intending to divorce. Likewise, success is the goal of virtually every business venture. If handled correctly, an associateship should be very rewarding-both personally and professionally-to both doctors. And although business is inherently risky (particularly in light of the number of associate arrangements that fail), you can still structure and benefit from a successful associate arrangement by following the rules of engagement we have outlined above. In summary, remember to be fair, define your expectations, crunch the numbers, make the right match, do your homework, and seek advice. Attention to these things will increase your likelihood of beating the odds and living happily ever after.

Around the year 2000, an article was published in the ADA journal projected that an increasing number of retiring dentists from the baby boomer generation coupled with an increasing population could result in a shortage of dentists serving the public’s needs.  Since then, perhaps in response to that projection, there has been a rise in dental school enrollment and four new dental schools have opened.  However, the dental market is hardly suffering from a shortage, as the increased demand for dentists does not equate to a profusion of ideal opportunities.  While the factors predicted may be accurate, additional factors in the dental market are currently affecting demand for new dentists.  These factors include location and type of position available.

Most dental school graduates prefer to live in cities and suburbs, not in rural America, resulting in greater competition in the more populated parts of the country.  As the demand for acquiring a practice in a preferred city has gone up, the purchase price in those cities has also gone up.  By contrast, in rural areas (population less than 25,000), a lack of interested purchasers is driving the prices down. Therefore, a shortage is not occurring in the more populated areas but in the rural areas. This trend is even more evident in certain states, including California, Utah, Idaho, Colorado, Arizona, and Nevada.

Beyond the location concerns, the availability of associate positions, buy-ins and buy-outs in Colorado, Utah, and many other states, is less than the demand for those positions. Without those traditional opportunities to join an existing practice, the number of start-ups has increased in high growth areas.  Currently, the number of new dentists exceeds the number of dentists retiring or moving away, making the dental marketplace in Colorado, Utah and other states very competitive. Consequently, the projected nationwide “shortage of dentists” is not likely to reach the more populated areas of Colorado any time soon, while Wyoming and rural areas of Colorado are beginning to experience a shortage and will continue to feel the effects.

Compounded with the location and availability factors, are the changes to the dental market by Insurance companies and Dental Management Service Organizations (DMSOs). Consumers and their employers who want to save money are choosing PPO plans and in-network dentists.  Subsequently, patient loyalty often follows the dollar, not the dentist. DMSOs and similar types of practices are growing due to their wide acceptance of these plans and due to extensive marketing their services to the public. With more practices doing external marketing, and more patients looking for in-network providers, traditional fee-for-service practices are feeling the pinch of decreased patient flow. Fewer patients are choosing to stay with and be treated out-of-network by their current dentist on a fee-for-service basis, especially when the economy is slow.  While some may decide to return to their fee-for-service dentist over time, the fact remains that more and more consumers choose providers who accept their insurance plan.

Due to this trend, traditional fee-for-service type practices are decreasing every year and PPOs and DMSOs are proliferating the market.  Without a sufficient capacity of patients to support an associate, it is more difficult for dental practices to offer traditional associateships that would lead to a buy-in or buy-out. In most cases, a dentist’s choices are limited to doing an immediate buy out (because he or she will need to see all the patients to make it financially), joining a DMSO, working for public health or military, or starting a new practice.

The first task for a dentist wishing to practice in a certain area is to learn about what practice opportunities are available. Start with the opportunities listed on our web site at www.ctc-associates.com.  Additional resources include reviewing publications, gathering information online, speaking with colleagues, contacting practice brokers, and sending letters to dentists in the area. However, it takes time to find an opportunity that feels “just right”. Therefore, some dentists opt for working for one of the corporate-type clinics or public health clinics until another opportunity arises. Many dentists try to lock up a relatively “for-sure” associate position somewhere (even in an area that may not be their first choice to live).  If they are willing to live in or commute to a less preferred areas for a year or two, having a position like that lined up can put their minds at ease and takes the stress off while they search for a more ideal and permanent opportunity.  Furthermore, if they end up needing to take the position, at least they are employed and can gain experience and earn income while they continue their search for a more ideal and permanent opportunity.

Often times, a dentist graduating from school or finishing a residency program wants to dive into a buy-out or start-up situation.  However, these options are often overwhelming.  In some cases, it is more advantageous for a new doctor to build clinical and business confidence in an existing practice before venturing into ownership. For these doctors, an associateship is often ideal.  We receive a multitude of associateship requests, and about 80% of them express desire for a traditional fee-for-service practice, new high-tech equipment, in a good location, in a new part of town, and the option to buy-in or buy-out within a few years.  Unfortunately, there are few positions that fit this description, and it could be a long wait until the “ideal” practice opportunity comes along. What, then, can one do to gain the clinical confidence and business savvy necessary to feel comfortable with ownership?

Working in a position that you know is temporary allows you the time to check out where you would like to eventually live, to see the different practice opportunities that are available, to learn from your associates’ techniques or behavior (be they good or bad), and to begin to form your personal style and preferences, all without having your back against the wall financially.  After you have gotten your feet wet in this kind of a situation, ownership becomes a logical next step.  Should you then look for an associateship with ownership potential, purchase an existing practice, or start a new one?

Practice transitions (sales or associate buy-ins) usually occur in well-established areas of town that may not be ideal for a new dentist. The high growth areas of town are more attractive to new dentists, since the population is closer to their age, housing is newer, there are usually more people without a dentist, and in most cases the facility is closer to your expectations.  However, opportunities for traditional practice transitions like associate buy-ins or buy-outs are difficult to find in these newer areas.  Traditional retirement from practice or other life events may trigger a practice sale, but most younger dentists in those areas are still growing their practices and are not ready for a practice transition, and with few transition opportunities, the wait for such a practice sale may be long.  For these reasons, some practitioners decide to start a new practice.

If you are unable to locate an opportunity in an area in which you would like to practice, you may want to investigate the option of starting a practice from scratch.  Careful planning is essential if you are to succeed in this endeavor, as the risks of starting a new practice are commensurate with the great rewards therein.  The good news is that there are experts who specialize in consulting new dentists throughout the process of starting a new practice.  If you want to increase your odds for success, we suggest you contact Marie Wuthrich, who specializes in dental practice start-ups.  She can be reached at marie@ctc-associates.com or 720-219-4766.

If you are looking for associateship positions, we suggest the following options:
State clinics: 303-761-1977
Federal clinics (eg. The Federal Bureau of Prisons at www.bop.gov/jobs/hsd/index.jsp )
DMSOs (Dental Management Service Organizations);
Perfect Teeth at www.BDMA-PerfectTeeth.com
Bright Now at www.brightnow.com
Dental One  (Rich Nicely at 972-755-0836) at www.dental-one.com
Franchise: Comfort Dental at www.comfortdentalpartners.com
Medicaid Offices: 877-367-0960
Online at www.uchsc.edu/sod/ then click on opportunity listings
Colorado Dental Association Classified at www.cdaonline.org and click on classified ads

Another viable option is to send letters to dentists in the area in which you are looking to practice. You can obtain a list from the Colorado Department of Licensing at www.dora.state.co.us/dental/. It is very helpful to have basic computer skills, as you can then import the data into a spreadsheet and sort the data by zip code.  If you want to increase the odds of the recipient opening your letter, it is best to hand-write their address on the envelope.  Keep the letter short and to the point, and then attach a CV to the letter.  The Yahoo yellow pages can also be helpful.  This site allows you to search by city for dentists in your area (type on location, then doctors, then dentistry). If you are a ADA member, then you have access to their listing via the internet.

If you are investigating an area, www.data-city.com and www.dataplace.org are helpful, and if you’re not sure where you want to live, www.findyourspot.com can be of great assistance.  Also, for a $50 fee, Dr Eric Solomon will do a demographic study in the area you want to practice. You can reach him at esolomon@bcd.tamhsc.edu. For a more comprehensive demographic report, contact Scott McDonald at scott@scottmcdonald.org.

Now for some information on how we work. There is no initial fee for checking out any opportunities that we have listed. We try our best to address any concerns and/or questions you may have about our opportunities in a timely manner. Please keep in mind that the opportunities we have listed may not meet your needs and/or expectations. Note that the most desirable practices will be on the market for only a short period of time, thus, making it difficult to find the right opportunity at the right time.   When an excellent opportunity does come along, there may only be a short window to act upon such an opportunity. As much as we would like you to pursue the opportunities we have available, you really need to explore all opportunities that come available through other sources and other brokers.

The most important part of this search is what to do when you locate an opportunity that you are interested in.  How do you know its rights for you and if it is structured fairly for all parties concerned? That is where we at CTC Associates feel confident that we can help out.  The first step when working with a client, is to spend 1-2 hours reviewing an opportunity for a client and help the client understand the value and feasibility of that opportunity (that charge is $275 per hour). If our client decides to go forward, then we either can continue to charge $275/hr for our services on the project or we can charge a tiered flat fee to be paid at the time of closing and as part of the financing. Note that with the fee-for performance option, we take part of the risk, because if the transaction does not close we do not receive compensation for the services rendered. Also, fee-for-performance fee does not include the cost of doing an appraisal. This fee is usually $2,500 to $3,500 and in most cases, is paid by the seller. In the case of hourly billing, we receive compensation regardless of whether the transaction closes or not.

I hope this information as been beneficial. If I can be of further assistance, please do not hesitate to contact me.

Sincerely,
Larry M. Chatterley
CTC Associates
303-795-8800