Acquiring a dental practice represents the biggest financial and emotional investment most dentists will make during their careers. Whether you're a graduating dental student preparing for your first practice purchase or an experienced dentist seeking additional locations, approaching this opportunity systematically and methodically is critical to success.
Bruce Bryen, CPA, CVA.
Systematic means retaining the best advisers available. Methodical means proceeding carefully based on answers to questions your advisers pose to the seller, the seller's representatives, and, ultimately, to you as the buyer.
Everyone mentions due diligence, but its meaning should not be lost on practice buyers. Significant time and money must be spent before acquisition to ensure critical items aren't missed in the purchase agreement.
Buyers must follow the advice their advisers provide. The following points address why specific guidance matters and how choosing the right professionals protects your investment.
Assembling your advisory team
Who should advise recent graduates and experienced dentists alike? The answer depends on finding specialists, not generalists.
One of the most important professionals to retain is a dental certified public accountant (CPA) who has been involved with at least hundreds of dental practice valuations and transitions. The dental CPA should have courtroom experience in case information provided proves inaccurate or incomplete. This specialist is more important during early due diligence stages than an attorney, since most lawyers have little to no experience representing clients in dentistry.
An experienced dental CPA has likely represented many dentists approaching practice acquisitions. He or she will know a certified valuation analyst (CVA) who specializes in the dental profession. Once the CVA completes the dental practice valuation, the dental CPA can review it and discuss findings with the analyst. After this process concludes, the attorney can prepare legal documents for closing.
The dental CPA and the dental practice evaluator -- who should be a CVA specializing in dental practice valuations -- should then review legal documents to ensure the attorney hasn't omitted anything from the closing letter. After the dental CPA and CVA have reviewed all available data before the attorney drafts final documents, the dental practice buyer can feel confident knowing he or she retained the best advisers for acquiring the practice.
Why dental specialists matter more than general business experts
Compare the advisers described above to an excellent general business appraiser who may hold CVA credentials but who specializes in general business valuation, not specifically dentistry. It's equally detrimental to work with a CPA who doesn't specialize in evaluating dental practices. The CPA should have or had many dental clients.
Consider the CVA who excels at business appraisal without specializing in dental practice evaluation. A major problem for dentists who retain this evaluator is that he or she doesn't understand what comprises the greatest asset values in dental practices.
In general businesses, like manufacturing companies, inventory value represents a significant asset, typically comprising a large portion of total company value. Personal goodwill has less significant value in general business. In fact, some states like Mississippi don't recognize goodwill in business valuations.
Do general business evaluators and non-dental specialist CPAs who aren't trained in determining dental practice values know this distinction? If not, and these are the advisers a dentist retains, hundreds of thousands of dollars could be -- and probably will be -- lost.
The essence of value within a dental practice -- as dentists and their advisers readily know -- is that personal goodwill attributed to the dentist, who is probably also the owner, represents the most significant asset value. This holds especially true in small dental practices. Unless equipment is nearly brand new, and even then, that equipment will be considered secondary in value to the individual dentist's personal goodwill.
Making the investment in specialist adviswrs
In an era of specialty services, don't get caught retaining and working with generalists when your current and future livelihood depends on thorough due diligence and finding the best available specialists.
Finding the best available dental CPA who specializes in working with the dental profession can be accomplished. Finding a CVA who specializes in working with the dental profession also takes effort but proves worthwhile when practice value is at risk.
Consider the funds already spent obtaining your dental license. At this potential tipping point, where the value obtained depends on your choice of advisers, is the time to seek the best. When thinking of investments made to reach this point, spending slightly more on specialists will prove well worth it.
Your practice acquisition deserves the same level of specialized care you provide your patients. Don't settle for general advisers when dental-specific expertise is available.
Bruce Bryen is a certified public accountant with more than 45 years of experience. He specializes in providing litigation support services to dentists, with valuation and expert witness testimony in matrimonial and partnership dispute cases. Bryen assists dentists with financial decisions about their practice, practice sales, evaluating whether to join a dental service organization, practice evaluation during divorce proceedings, and questions about the future or financial health of dental practices. He can be reached at [email protected].
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
