(Part I of III)
As a dentist nears retirement age, it is crucial for them to contemplate the best way to transition the ownership of their practice and choose a strategy that fits their individual needs. One of the more popular options is to bring an associate dentist into the practice with the expectation that they will purchase the office at a predetermined date (typically one to two years from joining the practice). This “Associate to Purchase” strategy can be advantageous to a senior dentist for a number of reasons:
Finding the Right Fit: It provides the practice owner with the ability to evaluate the associate dentist prior to the sale to ensure the successor is a good fit for the patients and staff. During the associate period, the senior dentist will have the opportunity to mentor and train the associate, helping to ensure a successful and smooth transition.
Increasing Revenue and Cash Flow: An associate with a vested interest in the success of the practice will be motivated to promote the practice and increase new patient flow, revenues, and cash flow, thereby maintaining the practice value and possibly increasing the practice owner’s personal income during the transition period. The addition of another dentist may also allow for an increase in office hours and services offered, further increasing revenues and cash flow.
Reduce Hours, Maintain Practice Value: Practice revenue and cash flow have the most significant impact on practice value. As a dentist approaches retirement, the tendency is to reduce their hours and spend more time pursuing other interests without considering the adverse effect these actions have on practice value and marketability at the time of sale. When dental practices are for sale, bringing on an associate prior to the selling the office may allow the senior dentist to reduce his/her work schedule while maintaining their personal income and practice value.
In parts II and III of Dental Practices For Sale, we will continue our discussion on “Associate to Purchase” transitions from the perspective of the associate/buyer and explore the most important aspects of structuring these types of transactions.
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This article is brought to you by David McLerran and Brannon Moncrief of Mc Lerran & Associates specializing in Dental Practices for Sale in Texas.