— Originally published in the July 2010 issue of Dental Town Magazine.
So, again, how much do you pay? Really, you should pay as much as you feel you and the practice can afford. Essentially, while not specifically a practice expense, the practice should “pay for itself ” and leave you with ample residual personal net income. A good financial proforma should consider the true practice overhead (removing any owner’s buried compensation). From there, the practice’s net income can be determined by subtracting the amount of overhead (in dollars) from the gross collections (collections minus refunds). Subtracting out the cost of the debt service payment from there, leaves your personal take home for the given year. Evaluate that personal take home income (most often pre-tax) and determine if, after paying taxes, you will have enough to live on.
There are times where you may have to pay the asking price to get a great practice; especially in very desirable and competitive areas. Ultimately, no matter what the price to gross or other metric indicates, what is important is that the price of the practice fits into the overall expenses of the office leaving you with a reasonably acceptable net income.
The area of the covenant is jurisdictional and can be different for each practice and practice location. The distance for the restrictive covenant is usually correlated to the service area of the practice, which is where most of the patients live and/or work taking into account many local and regional factors. In all states but Alabama (others does not allow them for employees), covenant not to compete/restrictive covenant contracts are enforceable and care should be exercised when drafting them.
This is a sample of the frequently asked questions concerning practice transition. Do you have other questions? Contact us and we will answer the question for you in an upcoming issue of Dentaltown Magazine.