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Volume 2 Issue 5
S
upporting
Y
our
P
ractice
practical to count every chart, most
buyers audit a sample of all the
charts (i.e., 1 out of every 10 charts).
While going through the charts
you can get an idea of the type of
clinical work being performed by
asking:
• Are the current treatment plans
consistent with my clinical
philosophy?
• Are there opportunities to
provide comprehensive
dentistry—including crowns, root
canals, complete oral exams—
and some of the work referred
to specialists which you believe
your clinical skill set allows you to
perform?
4. Cash Flow Forecast
Cash flow, and not necessarily profit,
is the lifeline of any business. At
the outset, it is important to ensure
that a practice’s cash flow allows
you to repay the loan and provide
personal financial stability. Buyers
should prepare a monthly cash
flow forecast to help answer the
following questions:
• How much money is required
to purchase and pay for practice
expenses such as salaries, rent,
utilities and dental supplies?
• How much cash will be in the
practice or how much debt will I
owe at the end of each month?
• How much profit will be
generated each month?
Note that
profit generated may be different
than the amount of cash in the
bank account. Loan repayment
is not considered an expense and
does not reduce profit, but will
reduce the amount of cash in your
bank account.
• How long will it take to repay
the bank loan?
If it will take more
than 10 years to repay the loan,
you might question whether this
practice is suitable
for you.
5. Review the Vendor’s
Numbers
As a potential buyer, your advisors
should perform due diligence and
inform you of any unusual items,
exceptions and opportunities
associated with the practice in
question. This could include
potential tax liabilities, co-payment
issues or ways to structure the
transaction/agreement to save you
money.
6. Lease Agreements*
Read and review lease agreements
thoroughly.
• Relocation/Demolition Clause
The presence of a demolition
or relocation clause allows the
landlord to terminate the lease and
destroy or relocate the dental office
with short notice. This can be very
disruptive and under more severe
circumstances, could cost you the
entire practice
.
• Length of Lease Agreement
Banks are looking for a lease term
and renewal options of at least 7
years (preferably, 10). If the lease
term and renewal options are under
7 years, the term of the loan may
be adjusted to the length of the
lease. This means the loan will have
to be repaid much faster, thereby
reducing cash flow.
• Assignment or Transferability
Ensure that the practice’s premises
lease can be transferred or assigned
to another buyer.
* Note that in situations where the vendor intends
to sell only “patient charts and goodwill” not all
content in this section will apply.
7. Employee Severance
and Termination
In ideal circumstances, employees
of a dental practice are retained
when the practice is sold to a
new owner. However, in some
situations the buyer may terminate
a staff member. Work with your
advisors to ensure that the purchase
agreement defines who will pay
the costs associated with the
termination of a staff member.
8. Patient Retention
Minimizing the loss of patients
once ownership changes hands
is important. When the buyer and
seller collaborate for an effective
transition, the practice is more
likely to be successful in retaining
patients. However, you should
prepare yourself for at least a 10%
loss of patients under normal
circumstances. This loss should
be built into your cash forecast so
you understand its impact on your
financial situation.
Buying a practice is not an exact
science. For most buyers, the perfect
practice does not exist, but the
challenges can be made easier by
understanding what is most important
to you and where you are willing to
compromise.
a
Theviewsexpressedarethoseoftheauthoranddonotnecessarilyreflect
theopinionsorofficialpoliciesoftheCanadianDentalAssociation.
At the outset, it is important to ensure that a practice’s cash
flow allows you to repay the loan and provide personal
financial stability.