|
Home |
|
Practices For Sale Associateships Available |
|
1-5 Yr. Sale Planning & Free Consultation |
|
Benefits Of Our Services |
|
How To Choose A Consultant / Broker |
|
Adding Associates Issues To Consider |
|
Protect Practice Value For Future Sale |
|
Sample Appraisal |
|
Practice & Equipment Loan Sources |
|
Our Experience |
|
Contact Us |
|
Forms |
|
Ask A Question — Dr. Stollings Will Reply |
|
Specializing in Dental Practice Sales, Transitions, and Appraisals |
|
George D. Stollings and Associates, Inc. |
|
PROTECTING PRACTICE VALUE FOR FUTURE SALES |
|
Depressed Retirement Plan Values Often Delay Practice Sales
Many dentists, faced with reduced retirement reserves as a result of the recent stock market decline, would like to sell their practices and retire now, but hesitate to do so because they feel that they need ongoing income so as not to quickly deplete their retirement reserves.
This Often Results In Practice Value Declines
While potential sellers wait on retirement reserves to rebuild, many will see a significant part of the benefit negated by decreases in the values of their practices. This is doubly damaging if the stock market does not recover as much as they expect, or as soon as they hope.
If dentists wish to practice longer, a plan should be developed, if possible, to preserve the value of their practices.
Key Factors To Preserve Practice Value For Future Sales
1. Least Critical Factor: Equipment Values Decline With Additional Age
If a dentist practices 3 to 5 more years, his / her equipment will age more, and its fair market value will decline. This will result in some decrease in total practice value, but not a dramatic decrease in most cases. Real caution must be used before purchasing new equipment near retirement, to prevent such a decline. In many cases the resulting increase in practice value is less than the purchase cost of the equipment, because the new equipment later sells as used equipment when the practice sells. Its value decreases versus its purchase cost. Many equipment upgrades, in the years immediately preceding sales, end up costing practice owners more than they gain. We can help you determine if equipment upgrades would be financially advisable in your situation. However, an equipment value decline is not the most critical factor.
2. Most Critical Factor: Maintaining “On-Going Business Value”
The most important aspect of value to preserve is the value of the practice as an ongoing business. In most practices this accounts for 75% to 90% of the total practice value. Therefore, this aspect of a practice is far more important to preserve. There are many other factors, but this aspect of a practice’s value is most closely related to a combination of:
¨ The level of annual collections; ¨ The level of annual income derived from the practice; and, ¨ The number of patients seen on recall.
To protect this major portion of a practice’s value, the practice must be kept in full operation. The production and patients seen cannot decline.
What If You’re Tired? What If You Want To Cut-Back On Your Workload?
It is not uncommon for dentists, when delaying sales that would otherwise occur now, to want to work less days or hours per week, plus reduce the amount of average hourly production that they do in the remaining hours that they do work each week.
If a dentist wants to preserve his / her practice’s value, but wants to “take it easier”, there needs to be a plan developed under which an associate or future buyer will supplement the production as the owner slows down and produces less. This will help keep production and income potential up, and also allow the practice to continue to serve as many recall patients.
For any such plan to work in a manner that protects the practice owner, before the owner cuts-back on his / her workload:
¨ The practice should be analyzed, to see if it can support the addition of an associate, and still provide the ongoing level of income required by the owner;
¨ The value of the practice should be determined and documented;
¨ An associate should be recruited, who truly wants to own the practice within a few years, and who is willing to enter into a contractual obligation to make the future purchase (An associate simply seeking a job and a source of income is not the right candidate for a transition plan of this type.). The plan can also be developed with an associate that is already working in the practice;
¨ The contractual terms of the future sale should be developed and signed by both parties before the associate begins work.
The Eventual Sale To The Associate Could Be Structured & Timed In One Of Several Ways:
1. If the owner is not ready to accept some decrease in income at the present time, the potential buyer could remain the owner’s associate until the date of the owner’s future retirement in 3 to 5 years, and then complete the purchase at that time.
2. If the owner is ready to accept some decrease in income at the present time, the buyer could purchase the practice now and the owner could work as the buyer’s associate for 3 to 5 years, or more, able to take it easier as desired, but still able to maintain a source of income that reduces the depletion of retirement reserves.
3. If the owner needs to maintain current income levels for a year or two, but then can accept a decline in income, a mixture of the above plans is possible. The future buyer can remain working as an associate for 1 to 2 more years, the sale can then occur, and the owner can then work as the buyer’s associate.
Critical Issues
The contractual issues surrounding any of these approaches are critical. So is the practice analysis and planning stage. These practice value preservation plans can be very successful, but they can create adverse career and financial impacts for a practice owner if they are not structured correctly, or if the plan Is not financially feasible for the specific practice.
We Can Help
We can help in one or all of the following ways:
¨ ANALYSIS: Analysis of your practice, it’s value, your ongoing income needs, your desired retirement date, and your practice’s ability to support an associate addition, to see if any of the above approaches is feasible in your specific situation;
¨ PLAN SELECTION: Determine which optional approach would best accomplish your specific financial goals and objectives (and those of your associate if you already have an associate working in your practice);
¨ DEVELOP APPROPRIATE CONTRACTS: Develop the contractual agreements required, including the provisions of the associate’s employment prior to the purchase; the provisions of the contract for the sale (when it is to occur); and the provisions of your employment contract for your employment period after your sale (if the final plan incorporates that phase); and;
¨ ASSOCIATE RECRUITMENT: Help you recruit an associate, who would like to buy and own your practice (now or in the future), if you have not already found one.
|
|
Company General Contact Information: |
