Elsevier

Dental Abstracts

Volume 63, Issue 2, March–April 2018, Pages 73-74
Dental Abstracts

The Front Office
Seller precautions in corporate offers

https://doi.org/10.1016/j.denabs.2017.11.014Get rights and content

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Background

Dentists seeking to sell their practice to a corporate entity should assess the offer from that entity to ensure that they understand what is involved. The recommended steps to achieve this include (1) recognizing the value of the practice, (2) knowing the buyer, (3) understanding the goals of the buyer, (4) clarifying when and how payment will be made, and (5) acknowledging the risk involved.

Practice value

Practice value is predicated on the practice profitability resulting in net cash flow and geographic location. Practices located in economically healthy areas have higher values than those in less advantageous settings. The practice value is approximately 65% to 75% of average net collections over the previous 3 years.

The seller should assess whether the buyer's offer is significantly above or below the value and then seek the reason for this offer. For example, any noncash elements that are

Buyer information

Just as the prospective buyer does his or her homework about the practice, the seller should investigate the financial strength of any buyers. When the buyer is a corporation, the dentist should have the practice accountant evaluate the reasonableness of the company's overall earnings goals and analyze the financial statements and corporate tax returns. Other items to research include third-party financial analyst reviews of the company, the references of any dentists who sold their practices

Buyer goals

Corporate buyers are primarily interested in acquiring the existing patient base, which translates to revenue, and is focused on growing practice profitability. Their transition process is based on retaining the current owner to ensure patient retention and then integrating corporate cost savings and revenue-enhancing processes to increase profitability. In this way, the corporate buyer marries the seller's economic goals to the corporate economic goals.

Payment

Corporate buyers usually already have lined up their outside financing, but the deal may be restructured with cash (deferred and contingent) and equity payments once a price is agreed upon. Often a portion of the purchase price is contingent on the achievement of future practice financial objectives over a set number of years. These objectives can be retaining existing patients, growing the patient base, meeting production growth goals, targeting high-revenue dental procedures, or implementing

Risk

If the seller agrees to finance, make contingent, or delay some of the sales proceeds, he or she is effectively investing in the new practice. Sellers should carefully analyze their ability, willingness, and need to accept that risk, as follows:

  • Ability is increased with a longer investment horizon. If the funds from the sale are not needed for retirement or other purposes, the dentist may be able to accept higher risk.

  • Willingness is determined by whether the seller can accept the risk to his or

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McAninch M: Dental practice transitions: a closer look at a corporate sale. Dent Econ 107:70-71, 2017

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