At best, a dental practice buy-in is a smart way to make a smooth transition from the retiring, senior dentist to the junior dentist. At worst, buy-ins can be a painful mistake. If you are considering a buy-in, here are three important challenges to consider:
Making sure it is a good match
Partnerships are never easy. Along with recognizing and accepting each other’s management styles, dentists considering entering a partnership simply need to get along. A good relationship is a foundational element, and without it all parties will suffer. Remember, a business partnership is like a marriage. Both partners need to be committed to working together.
Working through all the complexity
There are many large and difficult points that must be worked out while putting together the terms of a dental practice buy-in. Some of those points include:
- Deciding on each dentist’s compensation. Now that there is a partnership, there must be a structured plan for compensation to ensure all parties are compensated fairly.
- The terms of the buy-in. What will the amount be? What will the percentage be? How is it going to be paid? Over what period?
- Buy out price. This needs to be addressed before the buy in, so there is no confusion about what is going to happen when the senior dentist retires and the junior dentist buys out the practice completely.
- If the senior dentist owns the facility, they’ll need to negotiate use of the facility where the practice is located. Will it be a lease or a negotiated purchase of part of the building? What are the terms for this component?
Putting together a fair and workable structure
The structure can determine and can drive if the cash flow of the transaction will even work. If it is not structured properly, cash flow may suffer and even the best put together plans may not come to fruition. The impact of tax obligations, especially for the buyer, can vary significantly based on the structure. Detailed, annual cash flow projections should be created for the purpose of testing all the financial components – compensation, taxes and the buy-out of the transaction.