In today’s ECONOMIC CLIMATE, and with a substantially diminished retirement portfolio, it’s no wonder that sellers are working longer and that many potential partnerships are on hold. The delayed sale or buy-out can be the vehicle to making a viable transition instead of an outright sale or partnership.
First, let me offer a definition: A delayed buy-out is a contract to purchase a dental practice, with the closing to take place at a definite time in the future. The closing usually occurs no later than two years after the agreement. The price is established at the time of contract. The seller may stay on for some time after closing without the headache of management and still continue to earn an income.
Substantial contract money is held in escrow by the seller’s attorney and additional money is payable on closing of the contract. The closing should occur after the transition period. The buyer is not an owner yet, nor is he or she a partner. The seller maintains control until the closing and the buyer’s status is in transition, just as the practice is in transition.
The delayed buy-out gives both the buyer and seller the advantage of a more solid deal with fewer unknowns than with a direct sale or partnership agreement. Furthermore, there is a maximum transfer of patients to the purchaser. Because of the well-structured and organized nature of the transfer agreement, this near guarantee of maximum patient transfer is discernable at the onset.
Naturally, structuring a deal this way through a delayed buy-out improves the terms of sale for the seller while protecting the future interest of the buyer. There is also greater opportunity for the practice to grow and generate additional profit without changing the purchase price.
So far this sounds like a win-win situation for all parties involved. In many ways it is, but some serious pitfalls could present themselves, and potential problems must be considered. If any pose a real threat to either the buyer or seller, a way to deal with them must be included in the agreement. Many of these pitfalls are unique to the delayed buy-out and are relatively new problems in the arena of dental practice transitions.
An amateur should not structure a delayed buy-out. It will be successful if the people involved come together to form an effective team. The most important goal in this process is the successful orchestration of the efforts of buyer, seller, broker, and various other professionals (dental consultant, accountants, and attorneys) who will be involved in the transaction. Such cooperation and mutual support will maximize the advantages to both buyer and seller.
A straightforward approach on the part of all those involved may be one of the greatest advantages of the delayed buy-out. It eliminates many of the causes of uncertainty and antagonisms that almost always develop during traditional buy/sell negotiations, maximizes the sale price, and provides protection from the unknown.
The result is that the seller gets an opportunity to protect and rebuild his or her assets, maintain control, and provide a definitive profitable transition. The buyer gets an opportunity to learn and grow the practice without the risk. As a result, he or she is in a better position to have a more lucrative practice.
Alan Clemens, MBA, president of the Clemens Group, services the states of New York, New Jersey, and Connecticut. He can be reached at (800) 300-2939, or visit the company’s Web site at www.theclemensgroup.com. Clemens is also a member of ADS, Practice Valuation Study Group and has lectured notionally and locally on practice transitions for more than 35 years. Send him an e-mail at firstname.lastname@example.org.