Protect The Goodwill It’s Taken Years to Build — Before, During and After the Sale of Your Dental Practice

This is a guest post from Dr. Phil LoGrippo of ADS Florida.

The most valuable component of the price of a dental practice is the portion allocated to “goodwill.” Goodwill represents the intangible assets of a business—the difference between an established, successful business and one that has yet to achieve success. In an established dental practice, goodwill consists largely of the name, reputation and skill of the dentist and team, which have led to a strong, loyal patient base and consistent inflow of new patients. For the buyer, goodwill greatly increases the likelihood of continued cash flow from retention of that patient base and from new patients.

For you, the seller, preservation of the goodwill of your practice is paramount to a successful transition. A young dentist who purchased an established practice in Southwest Florida recently said, “The goodwill of the seller in my transition was priceless. His vote of confidence to our patients has increased retention and allowed me to succeed on a level I never would have been able to do otherwise.”

Keep on Building Goodwill

In order to assure that you retain goodwill not only prior to selling but also through the critical transition time during and after the sale, you should maintain your reputation and good name within the practice and community at all times. Through the transition process and even afterward, remain involved in study clubs, the local dental association, community organizations and volunteer groups such as Rotary. This not only will help ensure that you receive proper compensation for your years of practice building, but also that your buyer receives full value. Even after you retire, positive support and praise for the new dentist (such as in social settings) will go a long way toward continued retention of  patients in the new practice.

Choose the Right Broker

Working with an experienced and ethical transition broker is also invaluable in preserving goodwill and value. The right broker will perform a legitimate appraisal and value the practice in a manner that reflects the true anticipated cash flow following the sale, rather than telling you what you may want to hear and subsequently luring a buyer into a bad deal that destroys goodwill. The right broker will also work to find a buyer who is an appropriate fit for the practice, one whose abilities, ethics and practice style match your own, preserving your reputation and the reputation of the practice. Additionally, the right broker will guide the entire process, working with lenders, accountants, and counsel who are knowledgeable in dental transitions. The right broker will also work toward the ultimate goal of having a satisfied seller and buyer, preventing negative interactions that can sometimes occur when working with an inexperienced or self-serving advisor.

For more information, please contact info@dentalcpas.com

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Dental Practice Brokers

Tim, can ask you what types of qualifications you recommend that your clients look for when seeking a broker? Does a broker typically have to be licensed or have a particular type of education for you to recommend them?

No problem. What do I look for in a broker to whom I may refer a client?

First and foremost in my opinion is experience in brokering dental practices.

For example, there's a broker here in Maryland who's been in the business for as long as I've been doing this (which is 26 yrs). He's not a dentist and never was; however, he's done thousands of deals and that experience is priceless.

A good brokerage will have a HUGE inventory of sellers so that, as a buyer, you will know you'll be able to be somewhat selective with respect to where you want to look and the type of practice you want to buy.

For sellers, knowing that a broker has a HUGE inventory of practices for sale may scare you; however, simply know that because of this, they will also attract many more buyers than a broker with very few practices for sale. So you want to be listed by someone who can get you the most exposure, again, in my opinion.

I think the license thing is a state-by-state regulation. Still, having the license won't necessarily get a referral from me. I’m licensed to sell life, disability, health, annuities and certain investments. I'm not really active in those areas, and I wouldn't expect anyone, even my family, to refer someone to me for those products simply because I have a license. It's not what I do everyday, so how can I really be "good" in those areas? Again, experience!

"Formal" education isn't necessarily a factor. Certainly I expect a good broker to stay abreast of the current economic conditions, changes in transition structures, and tax issues that may impact specific structures. I don't expect them to know the tax code. Again, similar to me with insurances, I know enough to give me a base of knowledge to help provide clients direction in where they need to go for accurate advice. They don't expect me to know the finer details about each life insurance product by each life insurance company. I would expect a broker to know in general terms the impact of an asset purchase vs. a part stock\income shift purchase.

Does this help?

Tim,

 It is my experience that Attorney's and CPA's bill hourly, so they don't get commission on the price of the practice. So, they have no interest in blowing up the price of a practice as a Broker would, I would assume they work in the best interest of the party paying them aka the seller or buyer.

This may be an incorrect statement.....only my experience thus far in dealing with 3 CPA's and 2 Attorneys, so limited experience admittedly.

I'm glad I didn't assume, I thought you meant we didn't care if the practice was overpriced.

You're correct though, most do bill by the hour and I agree, they have a duty to work in the best interest of their client.

However, this is where we differ to most. Our buyer rep engagements are fixed price engagements structured in such a way that basically lets the buyer pay us for services received and there is an absolute cap. While we track our hours like every other CPA, we prefer to work with fixed price engagements when we can. There are consulting engagements where we simply cannot fix a price because there is no way to know what our involvement will be. With buyer rep engagements, we've done enough to know what we should charge. Most buyers are surprised when they learn this....actually pleasantly surprised.

Should a dental broker have experience in what they sell. Yes, that may be a good idea and a good reason to pick a dental broker that is a dentist and has experience at what they do.

A dental broker doesn't need to be a dentist to have the experience in what they sell.

That said, I have NO problems with a dentist that has learned the brokering trade with years of experience in that trade.

Again, I'll use me as an example: I'm a licensed insurance rep, but that does NOT make me a good insurance professional. I believe I would need many, many years of active insurance sales activity with a lot of training to make me a good insurance professional.
Just the way I see it.

This first appeared on Dentaltown.

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

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