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

What’s On The Horizon For Practice Transitions

As was our custom this year, here is our reflection on current economic conditions and how they may impact your practice transition plans.  As the economy shows some signs of recovery, some may begin to consider “ramping up” their practice transition plans to get into high gear for 2010.

Many doctors have asked us if it is difficult to sell a practice in today’s economic climate.  Well, the answer to this question is simply… it depends.  As is always the case, location of your practice is the major determining factor. Practices in urban and suburban areas, particularly in desirable areas of the country, have many qualified purchasers “lining up” to buy a practice. Why so? As the last few years have been lean ones for dental practice sales, many doctors who would have purchased a practice if one were available, are still “on the hunt” to buy one.  Therefore, the supply of qualified purchasers who are frustrated by not having purchased a practice already are usually the first in line to look at a new practice coming available in their market.

The good news for some potential sellers is that they may find themselves receiving a premium for their practice where there is high demand. The sad news is that many doctors who have excellent practices in small towns or rural areas are continually frustrated by the lack of interest for potential buyers. These doctors are earning considerable income with little or no competition. So, we tell our young doctors to consider purchasing a practice of this nature, rather than buying a practice in an area with lots of competition as well as higher practice sale prices. If young doctors want to get out of debt quicker, then consider this option!

We still see a number of dentists selling their practice to relocate to another area of the country.  Although this trend still continues, frankly, the options to relocate to certain parts of the country have narrowed somewhat due to the Great Recession.  Therefore, if you are contemplating a move to another part of the country this year, do your homework first by researching the area’s economy. We know of situations where doctors have relocated to an area thinking it to be desirable, but due to the economy, the area became distressed and suddenly their relocation plans went awry. This could be a very costly decision.

On the banking front, the lending landscape has changed dramatically. Some dental lenders disappeared from the market in 2009, and who is to say more won’t follow in 2010.  One thing is for certain, lender requirements have tightened up significantly over the past year. Questionable loans that may have been funded in prior years are now being rejected. Many transactions whereby 100% financing was provided by the lender are now requiring the seller to hold a note for a portion of the sale price for a few years. 

On the Purchaser's side, credit requirements have become more stringent, meaning FICO scores are rising and some lenders want to see some assets on the purchaser’s balance sheet.  What this may mean for some sellers is a scenario where a practice can’t be funded by a bank and if the seller needs or wants to retire, then the only option may be to finance the sale by holding a note. We also continue to see a growing trend of deferred transitions.  Recruiting a qualified candidate today and locking them into a future transition has become more common place. In the case of a future sale, requiring the purchaser to make a down payment to take the practice “off the market” is a must.  Some lenders will now provide the down payment for a deferred sale so when it’s time to purchase the practice they will fund the entire transaction.           

We have also seen a surge in partnership formation, as many doctors who desire to find the “right” candidate are locking them in to a plan that ensures their eventual buy out.  Partnerships can be very complicated as to the many facets governing any relationship, so securing experienced advisors who know how to structure them properly is critical. There are many ways to share income and profits, and alternatives need to be explored carefully to meet the needs of each partner. Proper tax planning is critical for the doctor selling his/her interest in a partnership buy in or buy out, as the tax ramifications placed on the buying doctor can be severe if not considered properly. Well-crafted partnership agreements are essential to ensure that all contingencies that a partnership may face are clearly articulated so there are no surprises to either party. Experienced advisors can guide you along the path to forming a successful relationship. 

In summary, it’s hard to be totally on target with any predictions, however, given our current economic climate, continued proper financial management is becoming more critical, regardless of what phase you are in your practice transition planning.

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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