How to Buy or Sell A Practice Without It Feeling Like An Anesthesia-Free Root Canal Procedure
Everyone knows that great dentists are often not the best examples of being CEOs of a practice. A DDS or DMD is not an MBA, and it is certainly not a law degree. It is no big surprise that when some dentists try to manage the sale of their practice or the process of bringing on an associate, it can be like trying to pull their own teeth, with the long-term consequences of not replacing them with implants.
"When it comes to the most important transaction of a dentist's life, it is key to work with a team of professionals and not cut any corners," said David Cohen, managing attorney of the Cohen Law Firm PLLC, a dental law firm that focuses on practice transitions.
Cohen’s father is a periodontist, and since he knew many of his father’s colleagues, he decided to establish his law firm in 2010 to help dentists and other professionals.
"I have always been a deal maker, so the transactional world was an organic fit for me. I wanted to help small to medium-sized businesses, and having grown up in a dental family, assisting dentists was a perfect fit."
His firm now performs legal work for 300-400 practice transitions annually. Approximately half are sales to Dental Service Organizations, and the other half entail doctor-to-doctor sales.
"When we are brought on for a practice sale, we often find that the doctor is not optimally set up for transition success, particularly as it pertains to employment documentation with associate doctors," he said. "We find that either the doctor does not have an employment agreement in place, or the one in place lacks assignability rights [the ability to transfer rights to another]. In order to optimize the value of a practice and, in some cases, make the practice sellable, the contract and its restrictive covenants need to be assignable. Also, the contract being assigned needs to be palatable for a buyer."
Cohen says he has seen many doctors have to take price reductions in their sales or have difficulty selling without the proper legal foundation, with the above being an example.
He notes that it is often overlooked that personality clashes can doom an agreement, even if there is harmony in the rest of the deal. That's why bringing on an associate who wants to own the practice or become a partner eventually is the best way to test-drive the relationship.
Alternatively, a personality test can reveal surprising results to both parties and prevent misunderstandings from developing. There are many tests popular with businesses, such as Myers Briggs, DiSC, Hogan Personality Inventory, Keirsey Assessment, Big Five Personality Test, and the Enneagram.
Buyers are often younger dentists who rely on the advice of colleagues, even though their experiences may not be standard. Cohen says due diligence from a team of experts for everything from accounting to real estate is critical.
"If you are in your late 50s or early 60s and are thinking about selling your practice, you really need to plan in advance to have the best options," he counseled. "DSOs need the dentist to continue to practice for at least three and usually five years, and if you decide to get out earlier, you significantly narrow your options. Additionally, private buyers need financing, and many lenders cannot make loans over $2-3 million for a bigger practice. So, the way for a bigger practice to stay sellable is to bring an associate into the practice and have them purchase interest over the years in smaller increments or sell to a DSO. To keep all options open, pre-planning years in advance is critical."
Cohen explained that while DSOs often have been looked upon in a negative light, they have worked hard over the years to accommodate dentists and help them maintain high quality in their practices.
"In the best cases, clients tell me that they don't even notice the difference when a DSO takes over management of the business, which allows them to concentrate on the work they love to do."
Featuring
David Cohen, the owner of Cohen Law Firm, PLLC, specializes in helping dentists and specialists with their legal business transactional needs, including practice purchases, sales, partnerships, associateships, business structuring, and formation. David speaks extensively to dental audiences across the country on these topics. David conducts approximately 200 practice transitions per year, and Cohen Law Firm serves clients nationally and understands the unique nature of the law as it relates to dentistry. David’s academic background includes Stanford Graduate School of Business, Stanford School of Engineering, Seattle University School of Law, and Bucknell University.
