Katie Collins, a Practice Integration Advisor with Buckingham Strategic Wealth, helps dentists order their financial lives and reach financial peace of mind so they can better focus on what truly brings them joy.
While every dentist will have a different vision for their practice transition, there are some general models common in this space. Today, I’ll take a high-level look at five common transition models. Each one has its pros and cons.
1. Sell and walk away is the first method. In this model, a seller and a buyer come together, the practice is sold, and the seller does not work back at all. He or she simply walks away. This tends to work best with a practice that comfortably supports one dentist. In such instances, sellers may find themselves tired of running of the business and have identified other interests (perhaps retirement) that will keep them busy. The seller frequently is emotionally ready to walk away from the practice and leave it someone else’s hands.
2. A merger transition is the second model. This is where a smaller practice is sold to (or merged with) a larger practice. From the seller’s standpoint, this type of transaction can inspire confidence that he or she has realized value for the practice. Often the seller still has some gas in the tank and is happy to work part time to help transition patients to the buyer. From a buyer’s standpoint, this is a great way to build up a patient base. This transition can be good for a buyer who is interested in growth and feels he or she could use an inflow of new patients. There will need to be some considerations for the seller’s equipment and office space, as most of the time the practices will merge together into one location.
3. The third model is a role reversal. It works well in a practice that might have too many patients for one dentist, but not quite enough patients for two full-time dentists. When the associate dentist enters the practice, or shortly thereafter, contracts, purchase price and transition date are agreed upon. The associate dentist, the buyer, gains assurance that the time and effort he or she is putting into the practice will be rewarded with ownership. The seller gains confidence that he or she has help with the current workload, and has secured value for the practice down the road. Role reversal transitions are best suited to a seller who may want to work part time after the practice is sold, and who can let go of some of the control of running the business.
4. A partnership the fourth method. This usually works best in a practice that can support two full-time dentists. It also works best when the dentists have very similar production levels and philosophies regarding the practice of dentistry. If a seller feels this model is a good fit, then a trigger for the purchase of the first half of the practice, typically driven by production levels, is established. Once the associate dentist is hitting close to 75 percent or 80 percent of the seller’s production, it would make sense for a partnership to form. The parties agree on a practice value and contracts are signed. In some instances, it’s assumed the associate dentist will buy both the first half and, in the future, the second half of the practice. In other circumstances, there may be a third party who will buy the practice’s second half at a designated time.
5. Corporate dentistry is the fifth model. If you are open to the idea, and are comfortable working back for a period of time, this model can help you realize value for your practice if you’re having a hard time finding a buyer. Things to consider under this transition model are how your buy-out will be structured, what your responsibilities will be after the sale, how you will be compensated following the sale, how long you will need to work, and whether you are ready to be an employee.
The transition of your dental practice is a very personal event, informed by your specific goals and life or financial situation. Each dentist comes to this experience with a different emphasis on which facets of the process are most important. We spend a lot of time talking with our clients about whether they are financially and emotionally ready to transition. We’ve found the financial side of the equation is easy. It’s the emotional side that can be a lot harder.
If you have questions or would like to discuss this further, please don’t hesitate to reach out to schedule some time.
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