It’s important to do the math before you start the transition of your dental practice
There is a lot of math involved in a practice transition, and it should not be ignored. The numbers do not lie, and figuring things out before starting to make changes will save a lot of headaches down the road.
Many early baby boomer dentists are preparing to make a practice change. Hopefully, before they do this, they’re investigating all the transition offerings, because quite frankly, the numbers that I’ve seen being contracted lately are a concern to me. Does anyone read the contracts before beginning a five-year buyout? There are many unfulfilled expectations, disappointments, and anger, and then attorneys must become involved.
Approaching a five-year partnership and ultimate buyout, the selling doctor may believe he will nurture the new, young dentist, who will pay 50% of his $1M price to start. The selling doctorbelieves there is no concern about money because by bringing someone in, even someone who has no patients or a practice to merge, the selling doctor thinks he will be able to continue working on all his favorite patients, that there will be no change in his net, and that the practice will grow to cover all expenses.
The purchasing doctor believes, that for 50%, she is buying half of the hygiene, half of the existing patients, and half of the new patients. She also feels she will grow into the large treatments, have a say in the leadership, AND receive half the net.
Here’s a math problem for these folks, and others like them – how can a solo practice of $1M with a net of $400K suddenly acquire another doctor and expect for each of them to receive half the net. And how can the selling doctor believe he can continue practicing as before with no drop in net? If the practice could grow to support two net figures without a drop, don’t you think the selling doctor would have accomplished this by now? You may think math is crazy, but it speaks the truth.
A $500K purchase results in $100K repayment a year, or $8K a month. Without growth, the net for each is $200K. The new doctor’s payment is $100K, leaving her with $100K net. In two years, the seller would have given up $400K in net for half the practice, and now he has a partner.
In some transitions, the selling doctor tells his staff the new doctor is the associate, rather than partner. The staff is loyal to the selling doctor and patients are not steered to the purchasing doctor. After a year or two of loan payments and little net, the purchasing doctor becomes frustrated but has no one to talk to, because she really was not represented in the sale, and the broker worked for the seller.
As you can seem, both sides are frustrated because the expectations of numbers are not fulfilled. A beautiful transition turned ugly because the dentist did not do the real math, and because both parties were naive. Take the proper steps to ensure that your practice transition goes smoothly.
Dr. Bill Blatchford, dental business coach, can be reached at (888) 977-4600, or blatchford.com. He just finished “No Nonsense Transitions” being offered now. His complete DVD "Blatchford In A Box" offers the team and doctor sales skills, bonus, team selection, and training.