Dental Practice Transition Plan - It's Never Too Early

Posted on July 15, 2014

By: Thomas M. DiPiazza, Jr. Esq.

1. Principal Asset and Income Source – For the typical dentist, ownership of the dental practice is the major focus of his or her time and energy and the primary income source.A well-conceived transition plan is important to maximize the value of the practice and facilitate a seamless transition.

2. Developing a Transition Plan – Some Non-Exclusive Factors to Consider

(a) Unexpected Death or Disability – Inactive practices resulting from death or disability lose value quickly.Consideration needs to be given as to who will provide professional services in the event of the practitioner's death or long-term disability.

(b) Timing of the Transition Plan – Transition upon a dentist gearing down or retiring is generally best when a dental practice is productive, healthy and most viable as a business in order to realize the maximum value of the practice.

(c) Methods of Transition

  • Internal Transition – involves the hiring of a younger associate with the goal of buying into the practice at some designated point in the future.The buyout could be in phases.Upon the complete equity buyout, the older dentist could either retire or work in the practice as an employee or as an independent contractor on some basis mutually agreed upon.
  • External Transition – involves a sale to a third party entity or individuals that are not working in the practice.Generally, this is more difficult than the Internal Transition process.

(d) Identify What Makes the Practice Valuable

  • The most valuable asset is the ability to generate long-term income to the buyer.This is driven by patient relationships and in specialty practices, by other referring dentists.
  • Long-term staff members with good relationships with the patient base, other referring dentists and their staff are important assets that any potential buyer would likely want to retain.

3. Other Considerations

  • Tax considerations in structuring the transaction in order to maximize after-tax proceeds.
  • Review and update of estate plan and related documents to take into account the transition plan.
  • Determine the value of the practice and identify goals and time periods with which to maximize the practice's value.
  • For those dentists practicing in a group, preparation and/or review of buy-sell agreements among the members.

The above are just some of the considerations in developing a transition plan.For more information, contact Thomas M. DiPiazza, Jr., Esq.

Thomas M. DiPiazza Jr.