Maximizing Value and Minimizing Risk Preparation and ... and Positioning for a Successful Transition...

DE Study Club Tuesday, March 29, 2016

1

Peter J. Ackerman, CPA, CVA

Preparation and Positioning for a Successful Transition

PRACTICE TRANSITIONS THAT WORK!

Maximizing Value and Minimizing Risk

UNDERSTANDING THE MARKET￭ Economy

– Practices– Buyers/Sellers

￭ Demographics– Graduation rates/Dental schools– Baby boomers– Underserved areas

￭ Practices– Technology– Auxiliaries– Profitability

WHAT SHOULD YOU DO TO PREPARE YOURSELF FOR PURCHASE OR SALE?

￭ Determine your personal, professional and financial objectives

￭ Use competent help throughout your career

￭ Commit to a timeline for contacting advisors

￭ Minimum? The sooner the better!


2

PREPARATION PLAN WITH THE PROS￭ Financial Objectives

– Both Seller & Buyer– Right match

￭ Advisors/Timing– Financial Planner– Accountant– Practice Consultant– Transition Specialist– Lenders– Attorney

WORD TO THE WISE!§ Not all advisors are created

equal§ Use pros who specialize in

dentistry§ Benefits?- Know the profession- Get the “gotchas”- Don’t learn on your dime

– saves $$$- Experienced guides- Non-adversarial

Don’t call Cousin Vinnie

WRITE IT DOWN!!!!In 1979, Harvard University surveyed business school graduates, asking if: § They had specifically defined

future plans, and

§ They had committed them to writing § Only 3% of graduates had clear written

goals for their business and their life

§ 13% had goals and plans but hadn't written them down

§ 84% had no plans or goals at all

WRITE IT DOWN!!!!In 1979, Harvard University surveyed business school graduates, asking if: § Ten years later, in 1989, the school

surveyed the same participants § 13% of the people who had plans and

goals and hadn't written them down were earning, on average, twice as much as those who had no goals at all.

§ 3% of the people who had written plans and goals and had a blueprint to follow were earning, on average, ten times as much as the other 97%.


3

THE BUYERS WANTS & NEEDS

￭ Income

￭ Pay off debt

￭ Finance 110%

￭ Run their own practice

￭ Growth potential

￭ Style & Image

￭ TechnologyTwo-Way Street

PRACTICE VALUATIONMULTIPLE FORMULAS & METHODS!

PRACTICE OPTIONS

Advantages:

§ No investment required

§ Opportunity to build speed and skills

§ Opportunity to learn from another’s successes and failures

§ Holding pattern for the right opportunity

§ Usually does not require binding commitment

Associate


4

Disadvantages:

§ Cannot always do things your own way

§ Income is usually limited

§ May be limited in services that can be performed

§ No tax benefits

§ Usually restricted by covenant not to compete

Associate

PRACTICE OPTIONS

Advantages:

§ Can be built very near to your choice of location

§ Can be designed to your exact specs (office layout, equipment, décor, etc.)

§ Ability to build your own team

Starting A Practice

PRACTICE OPTIONS

Disadvantages:

§ No (or negative) cash flow to start

§ Need to hire and train staff

§ No systems

Starting A Practice

PRACTICE OPTIONS


5

PRACTICE OPTIONS

Disadvantages:￭ Negative equity position initially

– You owe more than the value of the practice

￭ Incur leasehold improvement costs that accrue to landlord

￭ Potential need to subsidize income

Starting A Practice

A COMPARISON

Net

Inc

ome

Time

Net Income of Acquired Practice:

Net Income of Start-Up Practice:

PURCHASE A PRACTICEPros:

§ Shorter decision tree

§ Instant patient base

§ Instant stream of business

§ Instant stream of cash flow

§ Instant experienced staff

§ Management/marketing support from seller (transition period following sale, seller letter, etc.)

§ Proven market potential and site effectiveness

§ Ongoing business momentum


6

Cons:

§ Limited availability within desired dental care delivery market and time frame

§ Purchasing the seller’s business and clinical reputation (“for better or worse”)

§ Possible ill-fitted or outdated equipment

§ The challenge of fitting into a pre-existing dental office staff family, unaware of the family dynamics

§ Entering cold into a rapid day-to-day business and clinical operating pace

PURCHASE A PRACTICE

TRANSITION ALTERNATIVES

￭ Retirement Sale

￭ Associate Buy-out

￭ Extended Sale

￭ Co-Ownership

￭ Merger

FINDING THE RIGHT BUYER￭ Successful transitions happen when you find not

just a buyer, but the right buyer!– Attitude

– Capability

– Experience

– Philosophy

– Income requirements

– Financial wherewithal

– Confidence


7

HOW MUCH INFORMATION IS ENOUGH

￭ Due diligence, what is it?– Financial

– Clinical

– Community

CONTRACT ISSUES ASSET SALES￭ Offer to Purchase/Letter of Intent￭ APA

– What is being purchased– Records how long – Tax Allocation and Form 8594– Accounts Receivable– Conditions of Closing– Transfer of Goodwill– Staff/Liabilities– Representations and Warranties– Indemnification– Rework– Covenants Not To Compete



Moderated by

Chris PagePennWell – Dental Economics & RDH


8

Randy Marie Daigler

Transition Options & Impact



FULL SALE￭ Typical transition￭ Cash Sale￭ Asset Sale￭ Very little transition time if any￭ Practice grossing up to

$600K-$750K

REAL ESTATE￭ Lease￭ Purchase￭ Timing


9

CAN YOU SHARE YOUR SAND BOX?

￭ After years of solo practice some dentists consider partnership

￭ Not used to sharing the decisions

￭ Key point to the success of any joint ownership options– Regardless of time

DELAYED FULL SALE￭ Purchaser in hand prior to sale￭ Cash Sale￭ Asset Sale

DELAYED FULL SALE￭ Rarely successful with no planning￭ Can be successful with proper planning￭ Pitfalls

– Long term associates– Recovery


10

DIFFERENT TYPES OF ASSOCIATES

￭ Permanent employee vs. Potential Partner for purchaser

￭ Different types of methods to recruit￭ Can’t make one out of the other

PARTIAL SALE￭ Selling a fractional interest in the practice￭ Practice Co-ownership￭ 5 years or longer￭ Stock sales￭ Owner financed

FORMS OF ASSOCIATESHIP

￭ Employee - withholding taxes, benefits

￭ Independent Contractor -no taxes withheld, no benefits

￭ Space share


11

EXTENDED SALE￭ Seller stays after the sale 1-5 Years￭ Can be mutually rewarding￭ Emotional adjustment￭ Cash Sale￭ Asset Sale￭ Must be financially secure￭ Must be mutually rewarding￭ Pitfalls

NEGOTIATIONSDESCRIPTION TAX EFFECT TO SELLER TAX EFFECT TO BUYER

Accounts Receivable Ordinary Income Collected Tax – Free up to Amount Allocated

Supplies /Ins truments Ordinary Income Immediately expensed

Office/Dental Equipment and Furniture

Ordinary Income to Extent Allocation Exceeds Tax Bas is

Depreciable over 5-7 years of the amount exceeding $500,000 expensed in year of sale.

Patient Files , Records and Contracts Capital Gain Depreciable over 15 years

Goodwill Capital Gain Depreciable over 15 years

Covenant Not To Compete Ordinary Income/Capital Gain Depreciable over 15 years

Consulting Agreement Ordinary Income + Payroll Taxes Deductible as paid

Deferred Compensation Ordinary Income + Payroll Taxes Deductible as paid

Stock Capital Gain Non-deductible

Leasehold Improvements Ordinary Income (Generally) Amortizable over 39.5 years

SHOW ME THE $$$$$￭ Local Banks￭ National Specialty Lenders￭ Seller Financing


12

MERGER￭ Seller Benefits

– Allows a Pre-Retirement Sale– Purchaser is a “Known Entity”– Financial Security– Allows Continued Practice

MERGER

￭ Purchaser’s Benefits– Expanded Patient Base– Enhanced Profitability– Passive Income– Practice Value Enhanced– Associate Buy-in Opportunity

Caveats

￭ Date before you mate

￭ Difficult to unravel

￭ Size does matter

￭ Lease timing

￭ Some are market-share mergers – seller retires

MERGER


13

WHICH IS BEST FOR YOU?￭ Depends on your circumstances

￭ Are you a risk-taker?

￭ Do you want to co-own your business?

￭ Do you want to practice with another dentist?

￭ Can you be an employee?

￭ Your temperament

COMPASSION SALEDeath or Disability￭ Solo practice more

complex ￭ Some coverage with

partner or associate ￭ Little to no time to plan￭ Often no plan or…￭ One lacking basic or comprehensive details￭ Do the imperative

TOP TEN DEAL KILLERS10. Accounts Receivable9. Post Employment8. Selling too late/Letting

the practice go7. Space sharing6. Poorly Planned Associate agreement


14

TOP TEN DEAL KILLERS5. Spouse not in the Loop4. Landlords/Leases 3. Accountants 2. Attorneys1. Death or Disability



Moderated byPeter J. Ackerman, CPA, CVA Randy Marie Daigler

Question & Answer Session

Chris PagePennWell – Dental Economics & RDH

THANK YOU!

This presentation is supported by ADS through an unrestricted educational grant.

To claim CE credit for your participation in this activity you must complete the program post-exam.

Instructions for completing the post-exam and receiving your Letter of Credit

are provided on the following slide.

Questions, comments or inquiries:[email protected]

rdaigler@dentalbusinesss uccess.c om


15

CONTINUING EDUCATION CREDITSTo receive CE credit for participating in this program you must complete the online post-exam and evaluation.￭ To complete the online post-exam click the ”Claim CE Credit” button.￭ On the returning page click the “Take Exam” link displayed directly

across from the course title. ￭ Complete the online exam and submit it.

– An immediate grade report will be provided (for credit you must score 70% or higher).￭ Click “Continue” and complete the online program evaluation. Once

submitted your Letter of Credit can be accessed by selecting the “Print/View Certificate” link displayed from within the MyCE Archives.

Letters of Credit are immediately available from within the MyCE Archives page for v iewing and/or printing at ANYTIME in the future. Future access to your CE records may be obtained by signing back in to this CE eVent website.

Claim CE Credit

Maximizing Value and Minimizing Risk Preparation and ... and Positioning for a Successful Transition...

Documents

Transcript of Maximizing Value and Minimizing Risk Preparation and ... and Positioning for a Successful Transition...