Two endo practices are for sale in a highly desirable major metro area.
Practice 1: Wife has been working there for two years. She put in a lot of sweat equity. Practice is in excellent condition. Has digital, Zeiss microscopes, all the bells and whistles except a computer software package. Fee for service in a wealthy area. 2008 Gross 780K/ Net 520K. Purchase price 485K. I'm ready to close the deal on this but the owner is being weird at the closing moments. Originally he wanted me to buy the practice in Dec. 08 and close in Aug. 09. As I watched the economy and markets tumble around me I got a bit spooked out. We went back and forth for awhile in discussions and the owner grew increasingly paranoid over the sale. Business slowed considerably in Jan./Feb. but has since picked up again. Owner starts doing weird stuff. He pulls last years appointment book out of the office. I have not seen it since to compare the schedule. He grows increasingly hostile in tone and actions. I am at final contract now and would like to see an updated quarterly PnL statement, gross production statement or just a collection statement to ease my mind that I can support the huge nut I'm taking out before I sign the contract. The owner absolutely refuses to give these to me and threatens me with a "sign the contract or we are finished" rant. I'm probably being paranoid as usual but I just wanted to see some updated numbers before I sign away for peace of mind, nothing more. I tried explaining this to him but I don't think he understands. The bank loves my wife and I because we have immaculate credit and low debt/income ratio, so financing is not the issue. It makes me suspicious that the owner has pulled the old books out and won't give me any kind of new indication as to current practice performance (keep in mind we are still closing in Aug!).
The only downside to this practice is that if I buy it, I have told my wife that we will not live near the practice. Although the area is spectacular it just does nothing for me. I am an outdoorsman and for me to do my recreational activities after work it is a real chore. So we would have to accept a 35 minute commute (20 miles) to work so that I can be within reasonable distance to recreational activities.
Practice 2: Mixed FFS/Major insurance plans practice. Much smaller than #1. Gross 350K/Net 260K. Purchase at 260K. Practice is in a larger office than #1, has a sublet to lower rent, and has similar bells and whistles. I need to make a few small upgrades over time but it is functional as is. There is room to add more ops, practice 1 has room for 1 more op. The downside to this practice is that the doctor has not been marketing at all, maintaining referral base or meeting new docs. He has let this slide a bit and it shows in the year to year performance. What I really like about this practice is the location. It is close to my home town. My commute would be about 5-10 minutes since I really like the town and could see myself living there. For the cost of a startup, I could get some immediate income and have a much smaller loan.
So what do you think?
There are always two side to every story....
I have all of the previous tax returns including '08. I just wanted to see how the first quarter performance was. My feeling was that it was a bad quarter.
And what are you planning to do if it was a bad quarter? All businesses have cycles...going forward the work will be on your shoulders anyway to get and maintain referrals, whether it's a good or bad quarter.
As I've said I just wanted to evaluate what the cash flow was during a down time and make sure I'm going to be able to cover the nut that I'm taking out.
You can evaluate that yourself by doing some projections with lower revenue, no?
My wife has been there for two years. She knows how cases are documented, the equipment is in good condition, etc. We did a lien search, no liens came up. There are no pending lawsuits, never been a disciplinary action, etc. I'm making the guy sound like a nutcase which he is to some degree but really I do like him and he has been very generous and treated my wife well with the exception of this purchase negotiation.
He may be getting annoyed with all the requests and if your wife has been working there you know so much more than the average non-working buyer.
I recall a few years back one of my clients was selling and the buyer kept asking for information, they were asking for every little thing and we complied all along. even a week before settlement they asked for some additional information that seemed so irrelevant, however, we smiled and complied (by the way, my guess is these requests were coming from buyers CPA who hadn't done any dental deals that I was aware of). What I remember most is that the day before settlement the buyer called one more time (I happened to be in the sellers office when he called) and the seller, my clients says "look Tom, if I can gather by tomorrow I’ll bring it, I’ll also come to settlement naked in case there's anything else you'd like to see"...to which I laughed so hard it brought tears to my eyes. Settlement went off without a hitch...though I think the buyer had some anxiety about what my client was going to wear that day....
We had a CPA look at all the accounts.
Endo. practices here are in high demand. They typically sell for 65% of gross.
With an off-the-street buyer I see endos selling for 40-60 % of gross.
What makes endo practices in high demand? Is it a lack of endodontist in the area? If so seems to me that would reduce the demand for the practices since one could do a start up for less then $250k and get busy rather quickly. Or is it a saturation of endos where you'll need to join and do a phase in\out to get the referrals?
I agree with you that the goodwill is risky.
As an owner\seller the best way to transition goodwill and have any value on it is for the type of transition your wife was in, i.e., work in the practice for a couple years and become an owner.
Well at this point, practice 1 seller has told my wife that her last day is next week.
Wow, that is strange. Either something really ticked off the seller or something in the seller’s life changed where they need to maintain ownership and profits. Very weird turn of events indeed.
Good luck, sounds like you'll do very well with #2.
This post first appeared on Dentaltown.
Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com
For more information or to sign up for our newsletter, please contact arose@dentalcpas.com
No comments:
Post a Comment