We have met with hundreds of dentists over the years and have assisted them in selling their practices.  While meeting with these dentists, we often hear myths or urban legends from some of them who take these myths as fact.  The wrong or incorrect myth can cost you time and hard-earned money.  By dispelling some of these myths, you can make good decisions about your transition.

MYTH:  The practice will lose 30% of the patients after the sale.
FACT:  Practices will typically lose “some” patients from the practice after a transition has been completed.  The percentage of lost patients is far less than 30%.   I would estimate the reduction in patients at between 5% and 10%.  The percentage will rise if the seller and buyer do not match in philosophy, and ability to be a good business operator.  

MYTH:  Seller needs to stay and work back for at least 1 year.
FACT:  Each practice sale is different.  We have sold practices where the seller left the practice immediately after the closing, and many sales where the seller stayed for 1 year or more.  It is true that the seller staying with the practice after the closing does help with patient and staff retention.   A typical transition would have the seller stay around 1 to 3 months.

MYTH:  I can have my associate buy my practice.
FACT:  This sounds like a great idea in theory.  However, the ADA estimates that 75% of associate buy-ins fail before they get to close.  The reasons they fail range from the seller and buyer not getting along to the buyer getting disgruntled with the procedures he or she is doing, or disagreeing with the philosophy of the seller, or just poor timing.  

MYTH:  My landlord will release me from all liability in the lease after I sell my practice.
FACT:  The majority of the time, the landlord will require that you stay on the lease as a guarantor, and be liable for the lease should the buyer default.  This may be for the remainder of the term of the lease, or you can negotiate it down to 2 or 3 years.  On occasion, you may get a landlord who will release you from liability, but the majority of the time, you will remain responsible for the lease. 

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The wrong or incorrect myth can cost you time and hard-earned money.  By dispelling some of these myths, you can make good decisions about your transition.

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MYTH:  Seller will need to finance all or part of the purchase price.
FACT:  This is also false most of the time.  Bank financing with zero down is readily available.  Unless the buyer has to take on a Small Business Administration (SBA) loan.  This occurs when the buyer has bad credit, or the practice may not have cash flow.  If that is the case, you may have to finance 10% or 20% of the purchase price.  But, the majority of the time, you should not have to finance the practice loan.

MYTH:  It’s best to keep and collect my accounts receivable rather than sell the A/R to a buyer.
FACT:  This is true sometimes, but we often recommend that a seller sell his accounts receivable to the buyer.  The A/R is discounted with a common purchase price formula of 85% of the value of the “collectible” A/R after insurance adjustments and before credits on accounts.  You then subtract credits after the formula has been calculated.  Collectible accounts are those accounts under 90 days aged.  The reason you want to sell the A/R is that it makes for a cleaner transition.  Therefore, there will be no disputes over whose dollar was paid first, yours or the buyers.  Attorneys tell me that A/R disputes are one of the biggest dispute items in a transition.

MYTH:  One way to transition is to simply slow down the practice and work fewer days.
FACT:  This is not a great idea.  This is a great way to lose equity in your practice.  Unfortunately, this is all too common.  I often see practices that formerly collected over $1 million and they are now down to $600,000 costing the seller hundreds of thousands of dollars in equity.  If you feel like slowing down, hire an associate to work one of your days, or sell and work back in the practice for someone else.  

MYTH:  Practices are valued and sold for 100% of collections.
FACT:  The practice transition market is currently a sellers’ market.  There are not a lot of practices for sale while there are a lot of buyers for good practices.  Valuations on practices can range from 50% and go up to 100%.  When a practice is properly valued, you would pay closer attention to the net income of the practice than the gross collections of the practice.  Rule of thumb valuations using gross is just that, a rule of thumb.  A formal and accurate valuation takes in all aspects of a practice – net income, book value of the assets, location of the practice, goodwill, the local market, etc.  Occasionally, a practice will sell for 100%, but all of the factors must be very positive – excellent net income, great location, low overhead, updated technology, etc.  

Our experience in assisting dentists with their transition has given us the insight to debunk these myths.  I’m hoping that by busting these myths, a seller who may be holding off on transitioning out of their practice may use facts to make his or her decision instead of myths.