Thomas L. Snyder, DMD, MBA Managing Partner The Snyder Group, LLC Printer Friendly Version

Increasing Your Income through an Acquisition

No doubt in today’s economy, many have experienced a tough year. However, there is a strategy for you to consider that has been growing in popularity and can be a win/win proposition for all parties. Have you considered purchasing a practice in your area from a doctor who is not yet ready to retire, but is willing to spend the last few years of his or her professional career with you?  Perhaps there is a dentist in your vicinity who practices in a “home office” situation or may be faced with a lease expiration and prefers not to renew.

Obviously, this strategy works best if your facility is under-utilized. By developing a facility sharing agreement accompanied by a mandatory buy out for your prospective candidate, you immediately gain better use of your facility as well as create additional income possibilities. In the long term, once the candidate retires, you will have a larger patient base that may prove helpful in recruiting an associate for your own transition plans, not to mention a practice that will command a higher fair market value than it would today.

Here’s an example of how this strategy works. Let’s assume the proposed candidate has a small practice consisting of 400 to 600 patient records. The candidate wants to continue practicing and is not ready to retire for one to two years. In this instance, you form a facility sharing arrangement whereby the candidate retains his/her own business entity, pays you rent as well as perhaps some other usage charges and then at retirement sells you the patient list. In this scenario, we recommend that a formula for a future purchase price be agreed upon using a percentage of the last twelve months of the candidate’s gross collections at the time of sale.  

These gross collections should also include any revenue that you or other providers in your practice produced in that twelve month period. Often times an older practitioner refers many procedures to area specialists. So, if you choose, you now have the opportunity to perform some of these services, such as endo and perio, advanced restorative, etc., thus increasing your own clinical production immediately, as well as increasing the future value for the retiring doctor. If you already have an associate, some of these services could be provided by him/her.

In order to track production/revenue referred by the candidate that you or other providers in your practice provide, this revenue must be properly coded. You can create unique doctor and/or hygienist numbers to track this referred production/revenue. This provides a win-win scenario, boosting your income immediately and giving the retiring doctor a bonus on his/her practice’s value, since the revenue generated by your efforts is credited to his/her future value. In fact, it will create an incentive for your candidate to refer procedures to you including hygiene during the time they are practicing in your facility! 

For example, if the candidate generated $300,000, and an additional $75,000 was produced by you over the last twelve month period, you would use a revenue number for valuation purposes of $375,000. However, you have benefitted in the short run from increased revenue on those additional services referred to you, and the candidate benefits from their referring patients to you by getting a higher value. Chances are there is still plenty of dentistry remaining in these patient records so when you eventually acquire the practice, this additional investment should reap substantial benefits.

 Agreements should be prepared before the candidate moves to your location, so there are no surprises on either party’s behalf. These agreements would include a Facility Sharing Agreement and an Asset Purchase Agreement. Creating this type of a transition plan becomes “a win” for both parties because it:

• Lowers your overhead by the candidate reducing your fixed expenses in paying you rent and possibly other usage charges such as computer, staff, etc.
• Increases your total practice revenue from those additional services that can be referred to you, which will translate into a higher practice value for you in the future.
• Provides your associate, if applicable, an opportunity to create more opportunities to be productive.
• Provides a reasonable practice value for a soon to be retiring doctor.
• Provides you with a solid patient base to initiate or accelerate your transition plans.

Dr. Thomas L. Snyder is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With more than 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can be reached directly at 1.800.988.5674.

If you would like additional help, email Dr. Snyder at drsnyder@thedentistsnetwork.net.

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