Price When Purchasing a Dental Practice
PRICE WHEN PURCHASING A DENTAL PRACTICE
While meeting with a long-term client/dentist, he shared the following story with me:
Dr. White was excited that he had obtained over 325 New Patients in the few months prior to my visit with him. It was making a huge difference in his practice!
An older friend of his had decided several months earlier to sell his practice. It was located just across the street from Dr. White’s office. His friend had a purchaser and was a week away from turning possession over to the new dentist. Then, out of the blue, the purchaser informed him that he would not finalize the sale unless he dropped the price by $20,000! That infuriated the seller! He already had plans for post sale since everything had been agreed upon a month in advance.
The seller found out the young purchaser had received “advice” from a trusted source that he should lower the price before closing. Finding himself in a bind, the seller reduced the price by $20,000 in order to close as planned. The purchaser and the “trusted source” were elated at the supposed savings.
When selling a dental practice, similar to many businesses, the primary item purchased is goodwill. Goodwill is defined as the relationship between the dentist and his patients. Patients trust their dentist to perform dental care on them in return for compensation of such services.
The most important aspect of purchasing a practice is to insure that the goodwill is transferred to the purchaser. If that does not happen, the purchaser is buying thin air. The purchaser must avoid destroying the goodwill when they purchase the business.
Purchasing a dental practice is not at all like purchasing a house! Many purchasers treat it as such and think they are good business people by doing things that destroy goodwill.
In the above story, the selling dentist would meet patients in the community after the transition. He lived up to the full letter of the sales agreement. But if he or his wife met a former patient in their circle of influence questions would always come up about the new dentist taking over the practice. They were polite in their response and said nice things.
The zinger was that they told these patients that they were seeing Dr. White across the street. “He is the best dentist in the area. He is right across the street in that two-story building. He’s a great guy and an excellent dentist.”
As time progressed and word got around, many of the patients ended up with the dentist across the street. The purchaser and his “trusted source” exclaimed that it was a good thing they had reduced the price by $20 grand. Based on the loss of patients they surmised that they should have insisted in dropping the price by $50 grand!
They are responsible for the destruction of the goodwill!
325 patients that spend about $600 per year in the practice are gone. That amounts to $195,000 in a given year! It was absolutely terrible advice from the “trusted source”.
Price cannot be a major factor in purchasing a practice! In this case the $20,000 reduction in purchase price equates to about $5 per day on monthly payments. That equals to the price of a cheap lunch. It does not make sense! Hundreds of thousands of dollars are lost in the first few years.
The priority in purchasing a practice is to maintain the goodwill during that purchase. About 85% of the value of a practice when purchasing is goodwill. If done right, both parties can shake hands and be friends indefinitely. The goal should always be in the best interests of keeping 100% of the goodwill in the transition.
To learn how to sell or purchase a practice, talk to the experts at DBA (Dental Business Advisors). In the last 30+ years we have been involved in over 500 dental practice transitions.
There are over 150 ways to transfer a dental practice to a new owner. Which way is best for you as the seller, the purchaser, or both?
Strategist, Dental Business Advisors-DBA