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36

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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.