Dentist Using Dual Representation for Practice Purchase

I wanted to get a head start at locating a practice to buy before my NHSC obligation is up which is on January 1, 2013.  The good news is that I found one. It's been on the market for about a year.  I have a broker but I feel as if he is rushing me to purchase this practice.  ...

He's really not working for the both of us at the same time (dual agent). He has confidentiality on both sides. He is in the middle, he has to try to be fair for both sides.

And he just called me saying that the owner will stay for 6 months but at 40% collections instead of what we initially talked about (35%) working 2 days a week.

I'm trying to reconcile what all these statements mean, so maybe you can help clarify:

How did you find the practice, through this broker or did you happen to stumble upon it?

Through the broker 

Is the seller using a broker? 

The broker is a dual agent; he represents the both of us. I do realize that this is not an ideal situation but I can't buy this particular practice with a different broker because the one I have is who introduced it to me.  

Is this the broker you're speaking of in these posts? 

Yes.

 Who is paying the broker?

 Both seller and buyer are paying the broker 

How are they getting paid? From proceeds of the settlement? 

 Yes

 Ahead of time like a consultant? 

No

When you say "we" initially talked about 35%, who is "we"?

The broker mentioned it based on the seller staying for 90 days.

You and seller or you and broker or all three of you? If you can answer these questions we'll know what arrangement is.

Ok, so we now know it's a dual representative broker and more than likely they will favor the seller. The fact that they said 35% then changed to 40% gives you a clue I hope.

 Does this give me any money to pay the business loan is my concern ...

How are you going to address that concern? Are you going to run the projections to answer that? Is that what the broker is doing?

The accountant, I'm paying him to make sure it works.

So hold off on making an offer until I meet with the lender?

So it sounds like you're ready to make an offer, I assume you've done a price and practice performance assessment (or someone looking out for you) to determine that your offering price is "reasonable", right? 

The accountant will do that. I was provided with a proforma by the broker and the accountant will look it over along with the tax returns

Great, so you do have advisors. Follow their counsel and one suggestion, if the broker wants you to incur a penalty to break your existing contract it may be something to consider as long as you factor that into your offer for the practice. When you offer a lower number than expected and the broker wants to know why, simply tell them that you're going to take their advice and incur that additional cost and therefore, you view it as part of the purchase price. Tell them that it's not coming out of your pocket; it's either coming from the seller or the broker.

Remember...it's a negotiation!

This first appeared on Dentaltown.

For more information, please contact info@dentalcpas.com

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Should Dentist Purchase this Practice?

The dentist is willing to take $335,000 down and lease equipment for $50,000. The practice broker is not very happy and he demands the seller to pay commission on total $385,000. The seller is backing out.

The office has 5 ops, paperless, digital, gross production of $515,000, equipment is 5-7 years old. The dentist had this practice for 12 years. It is an FFS/PPO office.

If the doctor has had the practice for 12 years, how is it the equipment is only 5-7 years old.

The dentist says he was out of the office for 2^1/2 months last year due to health issues.

What does that mean? Was office closed for 2 months? What has production been over the past three years?

The practice has approx 1,100 patients 

Not with $515k in revenue; maybe two-thirds of 1,100.

The practice generates 12-15 new patients every month. 

That's weak.

The dentist works 3 days only. The fourth day is booked when it is really busy. I currently work at a busier office and would like to work five days initially to pay all the debt.

Find out the breakdown between dentistry and hygiene.

What would be a good price range to place an offer? 

Not enough information to know.

The dentist is expecting $385,000. Does this sound reasonable?

Not enough information to know.

Does the allocation of the practice price play a role in any way ?

Yes, though it's way too early to even worry about that now.

You need to gather all the necessary information to do a proper assessment of the asking price and the performance of the practice. THEN you can get into structure of the deal, allocation, and all the other finer details of a practice transition.

This first appeared on Dentaltown.

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Which Loan is Best for this Dentist?

Need some advice on which to pick. Might come down to a personal preference?

OPTION 1

Amortization Period: 120 Months
Fixed Rate: 6.40%
No Prepay penalty after 1st year

4 Payments of $0.00
8 Payments of $1,412.58
12 Payments of $2,825.17
12 Payments of $4,237.75 12
84 Payments of $5,650.34 

 OPTION 2

Amortization Period: 120 Months
Fixed Rate: 6.10%
Prepay penalty of 1% of original balance if paid off before the 5 year mark

4 Payments of $0.00 4
8 Payments of $1,390.12
12 Payments of $2,780.24
12 Payments of $4,170.36
84 Payments of $5,560.48

In my opinion, you should go with Option 1 – the 5 year pre-payment penalty outweighs 3/10ths of a point. 

This first appeared on Dentaltown. 

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Exit Interviews Are Crucial for Departing Employees

Here is another guest blog from our friends at Bowie and Jensen Law Firm.

Handling employee departures like a pro takes practice, but the difference to your company can be significant.

Each employee departure is unique and provides an opportunity to learn about your organization’s strengths and weakness. This is especially true in the case of resignations.

As such, requiring all departing employees participate in an exit interview is a good investment of time. During an exit interview, an employee can be questioned about the reasons for the departure, including problems in the workplace such as lack of innovation, poor opportunity for advancement as well as perceived discrimination, harassment, bullying or other inappropriate conduct.

Collecting this information allows an employer to assess the risk of potential employment litigation involving the departing employee and others. If an employer learns that a departing employee is considering filing a legal complaint, the employer should address the employee's concerns immediately, to the extent possible. Prompt action may help avoid litigation or help protect against liability if a complaint is filed.

Exit interviews are also an excellent time to remind employees of any post-employment covenant obligations such as confidentiality, non-competition, non-solicitation of customers and no raiding of company employees. These interviews also provide an opportunity to discover risks relating to confidential and trade secret information. This can be done by asking about the employee's future plans. If the employee is joining a competitor, an assessment can be made about the likelihood the employee will violate any applicable non-compete or non-solicitation agreements, or misappropriate confidential and trade secret information.

Based on the information collected (and taking into consideration the company’s treatment past employees) consider whether a severance agreement and release is appropriate. Employers buy a measure of certainty when they secure a full release in exchange for the payment of severance or other benefits to which an employee is not otherwise entitled. While employees cannot release their right to file an Equal Employment Opportunity Commission complaint, they can release their right to any individualized relief. This means, among other things, they cannot seek money damages for any released claim. Releases generally cover anything relating to the employee’s employment or termination from employment.

Finally, exit interviews provide an opportunity to manage the employee's expectations. A smooth transition is more likely when employees have basic information such as the date to expect a final paycheck, and the status of any bonus, commission or incentive pay. Employers should also notify employees as to any payment for accrued and unused paid time off. Finally employers should notify employees when their benefits coverage will terminate and whether they are eligible for COBRA and when to expect to receive a COBRA notice. 

For more information please contact Nicole Windsor at 410-583-2400.

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Neither Dentist or Landlord can 'Double Dip' on Tenant Improvement Deduction

I am in the process of a start up and have made arrangements to have a cost segregation study done so I can take accelerated depreciation on my taxes within the first 5-10 years.

I have agreed to pay extra on my rent in exchange for increase TI's with the understanding that I will then be adding this to my cost segregation for accelerated depreciation. Now the landlord is going back on agreeing to the above saying that HE wants to take the accelerated depreciation.

My question is: If the landlord is recouping his TI by an increase in my rent in the first 10 yrs, can he then 'double dip' so to speak and claim that in accelerated depreciation form as well? (I think he called it bonus accelerated depreciation)

Based on how you've described the situation, yes, the landlord owns the TI, and is receiving additional rental income for them so they can take depreciation on them.

Either way, you're paying for the TI and you've chosen to pay for them as rent and you're deducting rent as you pay it. So YOU can't double dip and also show them as an asset and take depreciation.

Now, if what you're saying is the additional payment on top of rent is a loan payment where you're paying P&I to the landlord for lending you the money to "own" the TIs, then you can depreciate them.

What approach did your CPA was better for you in your particular case?

Thank you for your reply. Yes the agreement is essentially me 'owning' the TI's: I would not be expensing the additional amount above base rent that I have agreed to in exchange for TI's, it is interesting that CPAs seem to be divided on this issue, my CPA is essentially in the camp of 'landlord cannot double dip' but a couple other I have consulted with think that it is landlord's TI regardless, of course including the landlord's CPA. 

For now it seems like the landlord is backing down and agreeing to what he had originally agreed: allowing me to take the accelerated depreciation. We'll see if he actually signs off on it in the actual lease.

Clearly no one can double dip – every CPA will agree to that. That's not really the issue though. The issue is how this part of your lease is negotiated and ultimately worded/structured.

Good luck

This first appeared on Dentaltown.

For more information, please contact info@dentalcpas.com

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