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Every successful transition must include that final push after the negotiations are complete and all of the documents are signed — the transfer of the practice’s goodwill. Successfully reaching this summit is of utmost importance to the buying and selling dentist.
Goodwill is a taxation and accounting concept designed to allow a purchaser to depreciate the intangible asset of a doctor’s professional reputation and personal efforts which provide revenue to the practice over time. This concept is often intermingled with the negotiation of a non-competition agreement with the selling doctor, an integral component to most transactions. We will leave it to your practice transition professional to further refine this concept as it applies to your particular transaction. More importantly, goodwill is the concept of transferring patient and staff loyalty to the purchasing doctor.
Generally, in a small to medium sized solo practice sale, the purchaser immediately takes over the practice and begins seeing scheduled patients. The primary transferring mechanism will be a well-drafted letter to the patients created together by the seller and buyer. The letter should be mailed to all active patients immediately following the practice closing. Jumping in and beginning to see new patients immediately may seem daunting to many purchasing dentists. However, always remember the primary goal is to transfer the patient base to the buyer. The best way to accomplish this goal is to remove the selling doctor from the practice, thereby preventing patients from the opportunity of continuing to see the selling doctor effectually preventing the immediate transfer of goodwill. Our research indicates that when patients cannot see their dentist they will choose to see the dentist their trusted dentist recommends. While not insurmountable, when a selling dentist remains easily available to see and treat patients in this size office, the transference of the patient load to the purchaser becomes a much more difficult task.
As with the transfer of patient loyalty, the staff loyalty transfer is essential to the purchaser’s success. It is rare for the purchaser to have problems with the staff if our simple rules of the road are followed:
The staff is essential to the success of the purchasing dentist and with a bit of common sense and creative thinking, the staff often becomes energized and can help take a practice to the next level.
Don’t change a thing. The value of purchasing a practice is not only in the tangible assets and transference of goodwill of both patients and staff, but also the value of the ongoing operational aspects of the practice. Ideally, the practice should operate itself, with just a little help from the purchaser. This means the new dentist should concentrate on producing dentistry. Systems, staff and patients should be somewhat self-sufficient. The only change a purchaser wants the patient (and staff, for that matter) to see is the new dentist’s face.
After a period of six to 12 months most dentists begin to adjust their practices to accommodate their vision without much difficulty. The greatest post-closing mistake that we see young dentists make is using additional capital to purchase new chairs, dental units and toys. Put yourself in your new patients’ shoes. What would you think were you to enter a newly remodeled office before even meeting the new dentist?
This is not to say that all change is to be avoided at any cost. Just be sure to take your time. Again, common sense will not lead you astray. Begin with purchases that accomplish one of two goals: it either makes you (a) a better clinician or (b) more profitable. If the purchase does not accomplish one of these two goals, think carefully before making it, especially during the first year.
The conclusion of negotiations for the purchase or sale of a professional practice is an exciting time for all parties involved. Do not forget to include two of your most important assets for the future in this excitement: the patients and staff. The transference of patient and staff loyalty is more often than not the harbinger of a practice’s success or failure. The transfer of loyalty can be affected by many factors so carefully think through your goodwill transition strategy with your practice transition professional and never forget that your financial decisions in the first year will be seen by not only you but those two most important assets to your future success.
Peter J. Ackerman, CPA, is a certified public accountant, licensed real estate and business broker and national speaker on business issues affecting dentists. For more information, email Mr. Ackerman or visit www.adsmidwest.com.
Suggestions? Email suggestions for topics to be covered, or any comments on this column, to Chicago Dental Society.
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