36
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Volume2 Issue5
S
upporting
Y
our
P
ractice
practical tocount everychart,most
buyers audit a sampleof all the
charts (i.e., 1out of every10charts).
Whilegoing through thecharts
youcanget an ideaof the typeof
clinicalworkbeingperformedby
asking:
• Are thecurrent treatment plans
consistentwithmyclinical
philosophy?
• Are thereopportunities to
providecomprehensive
dentistry—includingcrowns, root
canals, completeoral exams—
and someof thework referred
to specialistswhichyoubelieve
your clinical skill set allows you to
perform?
4.CashFlowForecast
Cashflow, andnot necessarilyprofit,
is the lifelineof anybusiness. At
theoutset, it is important toensure
that apractice’s cashflowallows
you to repay the loanandprovide
personal financial stability. Buyers
shouldprepareamonthlycash
flow forecast tohelpanswer the
followingquestions:
• Howmuchmoney is required
topurchaseandpay for practice
expenses suchas salaries, rent,
utilities anddental supplies?
• Howmuchcashwill be in the
practiceor howmuchdebtwill I
oweat theendof eachmonth?
• Howmuchprofitwill be
generatedeachmonth?
Note that
profitgeneratedmaybedifferent
than theamountof cash in the
bankaccount. Loan repayment
isnot consideredanexpenseand
doesnot reduceprofit, butwill
reduce theamountof cash inyour
bankaccount.
• How longwill it take to repay
thebank loan?
If itwill takemore
than10years to repay the loan,
youmightquestionwhether this
practice is suitable
for you.
5.Review theVendor’s
Numbers
As apotential buyer, your advisors
shouldperformduediligenceand
informyouof anyunusual items,
exceptions andopportunities
associatedwith thepractice in
question. This could include
potential tax liabilities, co-payment
issuesorways to structure the
transaction/agreement to saveyou
money.
6.LeaseAgreements*
Readand review leaseagreements
thoroughly.
• Relocation/DemolitionClause
Thepresenceofademolition
or relocationclauseallows the
landlord to terminate the leaseand
destroyor relocate thedental office
with shortnotice. Thiscanbevery
disruptiveandundermore severe
circumstances, couldcost you the
entirepractice
.
• Lengthof LeaseAgreement
Banksare looking fora lease term
and renewal optionsofat least7
years (preferably, 10). If the lease
termand renewal optionsareunder
7years, the termof the loanmay
beadjusted to the lengthof the
lease. Thismeans the loanwillhave
tobe repaidmuch faster, thereby
reducingcashflow.
• Assignment or Transferability
Ensure that thepractice’spremises
leasecanbe transferredorassigned
toanotherbuyer.
*Note that in situationswhere thevendor intends
to sell only “patient chartsandgoodwill”notall
content in this sectionwill apply.
7. EmployeeSeverance
andTermination
In ideal circumstances, employees
of adental practiceare retained
when thepractice is sold toa
newowner. However, in some
situations thebuyermay terminate
a staffmember.Workwithyour
advisors toensure that thepurchase
agreement defineswhowill pay
thecosts associatedwith the
terminationof a staffmember.
8. PatientRetention
Minimizing the lossof patients
onceownershipchangeshands
is important.When thebuyer and
seller collaborate for aneffective
transition, thepractice ismore
likely tobe successful in retaining
patients. However, you should
prepareyourself for at least a10%
lossof patientsunder normal
circumstances. This loss should
bebuilt intoyour cash forecast so
youunderstand its impact onyour
financial situation.
Buyingapractice isnot anexact
science. Formost buyers, theperfect
practicedoesnot exist, but the
challenges canbemadeeasier by
understandingwhat ismost important
toyouandwhereyouarewilling to
compromise.
a
Theviewsexpressedarethoseoftheauthoranddonotnecessarilyreflect
theopinionsorofficialpoliciesoftheCanadianDentalAssociation.
At the outset, it is important to ensure that a practice’s cash
flowallows you to repay the loanand provide personal
financial stability.
