Road map for transition: the devil is in the details

May 31, 2017|Nancy Streck

So you gathered the right team and you think you’ve got the right practice for the right price. Done deal, right? Hardly. Now the fun begins and the devil really is in the details.

Create a written transition checklist and corresponding timetable

Identify your professional, personal and economic goals before creating a plan. Using a checklist or action plan can help you stay on track. Throughout the process, keep the patient’s perspective at the forefront. To them, there should be no change except for seeing a new dentist’s smiling face after the sale has taken place.

Right structure

Determine the structure prior to negotiating the sale price, as knowing this is important from both tax planning and risk management perspectives. Generally speaking, sellers often prefer stock or partnership sales while buyers tend to prefer to purchase assets.

If you intend to remain partners after the sale, clearly define how any subsequent purchase would be formulated, how significant changes in circumstance such as death or financial distress would be addressed, outline scheduling expectations, determine budget, create a plan for engaging new patients and discuss staffing decisions.

Draft clear agreements

Discuss each side’s needs and expectations and draw up written agreements to ensure clarity. These can include associateship agreements, buy-in agreements, conditions of sale and practice sale agreements, among others. Any agreements should be reviewed and approved by the buyer, seller, and their attorneys and financial advisors.

Specifically, some terms to address and define could include:

  • Prepaid expenses and liabilities, which may not be evident until closing
  • Staff-accrued vacation
  • Supplies
  • Furniture and equipment
  • Accounts receivable, which will need to be discounted to the average rate of collection of the practice if sold
  • Goodwill and other intangibles
  • Non-compete agreements
  • Liabilities and expenses—and who is responsible for them
  • Compensation and benefits
  • Amount and nature of work to be performed if the seller will stay on as an independent contractor or employee
  • Proof of satisfaction of unpaid liens
  • Note that both the seller and buyer need to file Form 8594 with their tax returns and these forms must match

Review insurance and credentialing

Review items such as commercial liability, life insurance, disability, workers’ compensation and malpractice insurance. Review insurance-carrier agreements and fee-schedule approvals, including Medicare and private pay. Will seller contracts transfer over? Perhaps the buyer will want to renegotiate.

Realize that credentialing and updating licensing and ID numbers can take some time, so don’t wait too long.

Determine time for seller to stay on

What kind of relationship will continue between the buyer and seller? Will the seller stay on and help during transition? This type of structure often allows you to work out any kinks during this gradual transition process, providing mentorship, transitioning staff and describing current processes. It also allows the seller to feel comfortable with transitioning the practice to a new practitioner that he or she respects. Timeframe is usually 3 – 12 months, with the seller spending more time in the beginning and then only as needed later on.

Get your operations in line

For buyers, you’ll need to need to address operations before the close.

  • If the practice location is leased, set up a long-term lease or create a purchase option or right of refusal. You don’t want to spend a bunch of money on the practice only to be evicted or have rent skyrocket.
  • Meet with supply representatives to set up ongoing orders
  • Set up credit card processing
  • Look at contracts—Which do you want to keep? Can any be renegotiated?
  • Secure new accounts
  • Make payroll arrangements
  • Order new business cards
  • Meet with your accountant to apply for Federal Tax Identification and employment identification numbers

Send letters to patients and referral sources

  • Sellers should inform patients of the pending transition through an introduction letter using a friendly and professional tone. Share details about the buyer’s background, family and personal interests. Limit it to one page and include a photo of the new dentist. Remember that patients ultimately want to know how the change will affect them, and you can use the letter as an opportunity to reassure patients and waylay any potential concerns about the transition.
  • Keep in mind the cost to prepare, mail and distribute the letter is often absorbed by the seller and should be specifically spelled out in any agreements.

Don’t rest after the sale... yet

  • Once the papers are signed the work is done, right? For the buyer, the work is just beginning. As a new owner, your goal is to retain as much of the previous patient base as possible. Consider the patient experience on all fronts and find ways to make it positive and express that the practice is top of the class in all areas.
  • Keep a consistent staff. For new owners, use data and objective information when making any initial changes—especially when it comes to hours and compensation. Dealing with potential staff shortages could be extremely detrimental when attempting to ramp up a newly acquired practice. Take a few months to evaluate and absorb before making any major changes.
  • The new owner should also send a welcome letter to patients, detailing any improvements such as expanded office hours or equipment upgrades. You may even want to host a patient social in the office. Then, set clear, realistic goals for growth, focus on team building, remember to reward your staff and enjoy the fruits of your success!

When you need to consult with a trusted advisor during any practice transition, contact Nancy Streck or any member of the Dental Advisory Group at Schenck at 800-236-2246.


Nancy Streck, CPA, CFP®, CVA, is a senior practice consultant and member of Schenck’s Health Service team. She focuses on assisting dentists, physicians and other health care providers, providing guidance in practice management, valuation and tax planning for both the owners and their practices.



Tags: Dentists