TODAY S OBJECTIVE BUYER S CONCERNS. DENTAL PRACTICE TRANSITIONS - My Backgound. Agenda SELLER S CONCERNS 2/24/2015

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Allan Young
8 years ago
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1 FROM BOTH A BUYER S AND SELLER S PROSPECTIVE DENTAL PRACTICE TRANSITIONS - My Backgound Practiced dentistry for 31 years. Retired 11 years ago. Commercial RE broker for 1o years. Worked almost exclusively w/ dentists in all phases of RE. TODAY S OBJECTIVE Take both prospective buyer and seller through the complete process of a dental practice transition. i If both sides understand the whole process then they will know what the other side is facing. Real life examples Agenda Background Information and Considerations The Process -Step by Step 1. Selecting a Broker 2. Appraisal 3. Marketing the Practice 4. Buyer Due Diligence 5. Letter of Intent (LOI) 6. Purchase and Sale Agreement (PSA) 7. Bill of Sale Assignment 8. Non-Competitive Agreement 9. Informing Staff and Patients 10. Closing Summary SELLER S CONCERNS Fear of unknown don t understand transition process Where to start? Who to contact? Sale is the end of an exciting, rewarding career Loss of identity Feeling of separation and loss - leave behind staff, pt.s Retirement Plan Practice asset maybe important part of retirement plan STRESS!!!!! BUYER S CONCERNS Fear of Unknown Buyers usually out of school 1-4 years and have no clue of how a transition works Wide Range of Emotions Experience anxiety, if not sheer terror Exhilarated, intimidated Finances Maybe largest investment will ever make Debt on top of debt 1

i If both sides understand the whole process then they will know what the other side is facing. Real life examples Agenda Background Information and Considerations The Process -Step by Step 1.

2 REAL ESTATE vs DENTAL PRACTICE TRANSITION BROKERS Role of real estate broker in a residential or commercial real estate transition: In ninety-five per cent of any RE transaction there is: A broker 100% representing the seller A different broker 100% representing the buyer In approximately 5% of RE transactions: Dual agency (dual representation) where one broker represents both sides equally. WHY A BROKER? Complicated practice evaluation and sale process Peace of mind Time savings Fair Price Quarterback Role of Dental Transition Broker in a Dental Practice Transition In almost all Dental Transitions there is only one broker, solely representing the Seller TIME TO SELL PRACTICE -Factors Urban vs Rural Facility Cash Flow-Buyer, Lender Motive Selling dentist retiring or moving WHO INITIATES THE SALES PROCESS Seller initiates and assembles a team Financial Planner (Advisor) Determine if seller is ready financially Live longer now 20+ years after retirement Life Planning Prepare ahead of retirement date Practice Transitions Broker Accountant Attorney Spouse (very important) Emotional readiness STEP 1: SELECTING A BROKER -Interview the broker PRACTICE TRANSITION PROCESS Step by Step Request references What will they do for you Timeline Fees Availability Market your practice Experience Background Quarterback 2

3 STEP 1: SELECTING A BROKER Broker comes to your office to tour facility Meet Doctor and spouse in person - KEY Explain transition process in detail Minimum 2 hr process Emotional Aspect -Important Elements of an Appraisal Blueprint Practice Profile Employee Census Financials Fixed Assets (Tangible) -PRACTICE PROFILE Personal Facility Pictures, Floor Plans Staff History of practice State Board info Patient profile-demo, ethnicity Active patients, New patients PPO s, insurance companies Lease/Own Professional contacts Signature -Employee Census Everything about employees Date hired, salary, hours worked, benefits, vacation EMPLOYEE MANUAL - updated critical -Financials Discretionary income (personal expenses) Last 3 years corp. or personal tax returns Last 3y years P&L s, Balance Sheets (explain) YTD Accounts Receivable (A/R) aging report -Fixed (Tangible) Assets Dental Equipment Inventory Office Equipment and Furniture including technology Consumables Inventory Leasehold improvements 3

4 STEP 2.5: LEASE Full service vs. NNN STEP 3: MARKET THE PRACTICE Lender s role in the lease-5 yr-10 yr Example SELLER Market the practice Database-buyers Dental Network BUYER Buyer Profile Pre-qualify buyer Database STEP 3: MARKET THE PRACTICE Confidentiality agreement Buyer Appraisal Office Visit Meet Dr. and spouse Tour facility Time-30 minutes to 3 hours How many is enough Buyer and Seller Match Personality Philosophy Broker engages buyer Educate, guidance, explain the process Helps form their team Due-Diligence STEP 4: BUYERS DUE DILIGENCE -Selected core team of consultants CPA ATTORNEY BUYER INSURANCE LENDER Lenders Shop loans Pre-Qualification Accountant t Financials Insurance Agent Life Disability BOE Attorney Lease Letter of Intent (LOI) STEP 4: BUYERS DUE DILIGENCE -Second office visit More dialogue with seller Appointment book audit Pti Patient tchart audit Recall procedures Patient reactivation protocol Collection policies STEP 4: BUYERS DUE DILIGENCE -Buy practice based on historic results Base decision on facts, not emotion Focus on track record of seller Evaluate the past three years of financials Evaluate the past three years of practice statistics Don t speculate on the future, evaluate the present But. Recognize potential revenue of procedures referred out by seller But. Procedures not trained to do Procedure by provider 4

THE PRACTICE Confidentiality agreement Buyer Appraisal Office Visit Meet Dr.

5 STEP 4: BUYERS DUE DILIGENCE -Buyer financing Buyer $2-300,000 school loan debt plus personal Lenders - Large National Banks vs local regional banks 100% %loans, no down Seller carry-back-cash Flow Term, interest rate, bank re-finance STEP 5: LETTER OF INTENT (LOI) -Creation Drafted by buyer and/or attorney Terms and conditions Non-binding Puts the whole process in motion Escrow Money Contingencies STEP 5: LETTER OF INTENT (LOI) -Components -Creation and Purpose Price Allocation A/R s LOI Restrictive Covenant Contingencies Seller s Attorney drafts LOI Used as outline of sale agreement PSA Fills in all the blanks, is a novel Thorough and comprehensive Nothing left to the imagination Contract--binding Agreement not to neg. -Components Allocation Treat Family Members Transition Assistance PSA Non- Compete- Solicitation Employees Account Receivables -Transition assistance from seller Seller stays on for specific time Introduces patients Consult by telephone In-office consultation 5

Contingencies STEP 5: LETTER OF INTENT (LOI) -Components -Creation and Purpose Price Allocation A/R s LOI Restrictive Covenant Contingencies Seller s Attorney drafts LOI Used as outline of sale

6 -Employees At closing seller: Terminates employees Pays wages, accrued paid days off, retirement pay, and any other compensation At closing buyer: Rehires, no obligation -Exhibits List Furniture, Fixtures, and Equipment (Fixed Assets) List of Excluded Items -Accounts Receivable (A/R) BUYER SELLER-retain buys A/R s at ownership-180 discount days, 5% -Treating Family Members Seller provides list Seller pay cost Dental assistant Labs fees Any other costs, e.g. consumables Day off -Repair or defective work (1-year) -Repair or defective work continued.. BUYER- Notify Seller within 10 days SELLER- Option to re-treat Dispute BUYER- Treat patient Charge seller 75% SELLER- 15 days to respond 6

days, 5% -Treating Family Members Seller provides list Seller pay cost Dental assistant Labs fees Any other costs, e.g. consumables Day off -Repair or defective work (1-year) -Repair or defective work continued.

7 - Professional corporation vs. sole proprietor INCORPORATED PSA and Covenant not to Compete for the corporation Separate sale of Personal Goodwill Agreement and Covenant not to Compete Dentist is employee of Corporation (Personal) SOLE PROPRIETOR Only one PSA and Covenant not to Compete -Allocation of purchase price (corporation) Furniture, Fixtures, Equipment $ 40,000 Supplies $ 10,000 Seller s Covenant Not to Compete $ 10,000 Goodwill $300,000 (Patient records - charts, telephone, trade names) -Allocation of assets, personal goodwill & covenant not to compete Goodwill $ 175,000 Restrictive Covenant $ 10,000 Total Purchase Price $545,000 (both corporate and personal equal price of practice) STEP 7: BILL OF SALE AND ASSIGNMENT -Assets being sold Furniture, Fixtures, and Equipment Inventory-Dental, Office Supplies/Software Patient Records Charts Practice Telephone Number Warranties Equipment Sellers Goodwill - Trade Names Step 8: NONCOMPETITION AGREEMENT Separate from PSA Time/Distance Non-solicitation of patients Non-solicitation of Employees Exclude Locum tenens (time limit-3 weeks) Volunteer clinics Teaching Family/Redo Work STEP 9: INFORMING STAFF & PATIENTS -Staff Timing Signed LOI Agreed upon PSA, lease, loan Staff vs. Patients,,possible consequences BUYER meets staff When you know it s a DONE DEAL STEP 9: INFORMING STAFF & PATIENTS -Letter to patients Draft letter 2-3 weeks before closing Seller and buyer working together Broker a number of samples, pictures Costs shared Mailed day of practice transition closing 7

SOLE PROPRIETOR Only one PSA and Covenant not to Compete -Allocation of purchase price (corporation) Furniture, Fixtures, Equipment $ 40,000 Supplies $ 10,000 Seller s Covenant Not to Compete $

8 STEP 9: INFORMING STAFF & PATIENTS -Staff s role in transition Keeping key personnel Receptionist Hygienist Assistant Staff script Consistancy STEP 10: CLOSING Stated in PSA Time and Place Transfer control of Practice from Seller to Buyer Not unlike buying/selling your home Seller/Buyer equally divide expenses related to escrow Perfect world days after signed LOI SUMMARY A successful transition requires Willing and able seller and buyer Seller years of blood, sweat, and tears, It s your baby b Buyer and consultants (accountant) need to see long term picture BOTTOM LINE Win-Win for Everyone: Seller-Buyer-Staff-PATIENTS! Snowflakes THANK YOU DENTIST TO DENTIST PRACTICE TRANSITION SERVICES info@reasorprofessionaldental.com

transition requires Willing and able seller and buyer Seller - 30-40 years of blood, sweat, and tears, It s your baby b Buyer and consultants (accountant) need to see long term picture BOTTOM LINE

Objective. Objective 4/13/2015. Resume. Why am I Speaking to You Today? Legal and Practical Issues for Buyers and Sellers

Objective. Objective 4/13/2015. Resume. Why am I Speaking to You Today? Legal and Practical Issues for Buyers and Sellers Blueprint for a Successful Transition: American Association of Orthodontists 115th Annual Session Practice Transition Seminar San Francisco 2015 Blueprint for a Successful Transition Robert Gallagher,