Tuesday, March 17, 2009

Dental Charts - How Much Should Dentist Pay?

A DDS 4 miles away from my office wants to sell his patients and transition them to me over a few months. These are the terms:

-Sale price=$77,000.00
-$50,000 down
-balance paid on contingency at 59% of production on his patient base as they come in to see us. This 59% will be paid over 14 months or until balance paid off whichever comes first.
-He will be in my office seeing his patients according to a schedule we set up over a 6 month period. In that time I pay him 30% of his production and I will provide him an assistant.

Does his compensation as an "associate" seem reasonable??

So where should I negotiate; on the outright price or the percentage paid to him when he works out of my office to transition patients or both??

I’m not sure I would waste time with patient chart counts at this point, that's assuming you can work the deal that you simply pay for what you get. What do you care if there are really 2,000 patients and you only get 1,000 of them as long as you've only paid for the 1,000? Do you care about the other 1,000 you didn't get when you didn't pay for them?

Here’s how the deal should work:

$5,000 down, that's it! Rest is paid based upon what you get.

He wants 60% spread over 2 years, offer 50% OF COLLECTIONS spread over 4 years but calculated based upon the time he's there.

For example, if he's there, in your office 1 year, offer 50% OF COLLECTIONS payable over 4 years. If he's there for 2 years, offer 50% of the average 2 year COLLECTIONS payable over 4 years. That’s basically a payout of 12.5% each year for 4 years.

If he works for you and the compensation deal is 30%, great. That’s separate from the asset purchase and don't commingle the two.

Good luck.

Great Timothy. Now as to his time in my office, he is willing to keep his two days a week for one month and then taper to one day a week for two months, then two days a month for two months etc. until six months are over. He is willing to come into town after that if need be. Is that kind of arrangement satisfactory for the percentages you sited???

Yes, again, you're only paying for what you get, in my opinion, the longer he's "seen" in your office, the better the chance more will come. You also want to work in the agreement that you can use his name for at least a year for marketing if you want, i.e. sending letters to his patients and surrounding community that you're now seeing his patients, or something like that. Maybe include his name on your deal for a short period of time (a year or two).

Oh, and did you mean pay him these percentages up to his asking price plus interest?? So if we pay him off sooner than the payout period we are done?

Yes, up to his maximum asking price. Interest is negotiable and it's certainly reasonable for him to ask for it on any unpaid balance.

Thank you so much Timothy! Well me, my accountant and broker met yesterday and when I proposed a lesser upfront payment with more contingent on collections I thought the broker was going to stroke!!! Well I told him my reservations and asked him to be creative and give me more assurances. Of course he made me feel like a hysterical female but I stuck to my guns.

You’re welcome...remember...it's a negotiation!

If they could, they'd get ALL their money up front and if you could you'd pay ALL the money at the end, so you meet somewhere in the middle.....hopefully.

Thank you very much for your advice. Well I argued so much about the legitimacy of the active patient numbers and demanded three months of day sheets so that we now have a more realistic head count!!!!!!!!!!!!!!!!!

-It is, just as you guessed, 716(three year count) 80 of which are PPOs and do me no good.
-problem with going through charts is that they mostly got wet during hurricane Ike recently and going through the few they had with mold all over was not worth it.
-I love the idea of 40,000 down and 100$ a patient after the first X number?? Any ideas on that number? And for how long do I pay him after that X amount of patients?

I still wouldn't give more than 25% of their asking price upfront, $20k at most, that'll pay the brokers fee and save them the stroke.

Maximum payment for charts is $20k per year for years 2, 3, 4 whether you use $100/chart or a percentage of collections generated in the first year.

If the patients generate $154k for you within 12 months they can get their $77k, again, spread over 4 years. Keep it simple and if you think money per chart is easier go with it.

By the way, 600 charts winds up being about $128 per chart for $77k. 716 charts is $107.54/chart at $77k. If per chart price is easier for you, offer $75 per chart you get within a 24 month period.

Good luck

This post first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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