When you buy an already established dental practice, you’re not only purchasing the space, the equipment, the technology, etc. You’re also buying the existing goodwill of the practice? What does that mean, let Matt Scherer and Joe Gordon, our dental practice transition experts, explain.
Matt Scherer: Hello, and my name is Matt Scherer with PMA practice transitions. I help dental professionals buy and sell practices in Ohio and Western PA. My colleague here…
Joe Gordon: I’m Joe Gordon, and I do the same in Indiana and Northern Kentucky.
Matt Scherer: Great.
Joe Gordon: What’s our lovely topic today, Matt?
Matt Scherer: Our topic today is don’t fight over petty things and kill good will.
Joe Gordon: We see it happen all the time-
Matt Scherer: All the time.
Joe Gordon: When we get down to the brass tax on some of these transactions, it’s the smallest, littlest thing that can totally-
Matt Scherer: Derail. Absolutely.
Joe Gordon: … destroy the whole deal.
Matt Scherer: Yep.
Joe Gordon: We’ve seen numerous examples of it. One that jumps to mind is I was representing a seller, and the buyer’s CPA wanted to argue with me on the value of the waiting room furniture. I told him I didn’t care. I told him he could take it to the parking lot, set it on fire, that’s not what they were buying.
Matt Scherer: Right.
Joe Gordon: That is not the value of the practice that is what is going to kill good will is arguing over little things like that.
Matt Scherer: Absolutely, and keep in mind that the most important thing, or what you’re buying, not only cash flow, is the good will of the practice, right. I think a lot of times we see a lot rub, if you will, the allocation of good will versus assets in a dental practice. A lot of people, a lot of buyers, CPAS, want that asset allocation to be a lot higher because it benefits them-
Joe Gordon: Right.
Matt Scherer: … but you have to be-
Joe Gordon: Well, let’s explain that.
Matt Scherer: Yeah.
Joe Gordon: Mohai is the asset. I like asian import because if I buy a table, I buy a chair, I get to write that off for taxes over a much shorter period than good will. Good will of a practice you’re typically going to write off over fifteen years, so the more that you can allocate to those short-lived assets, and get the write-off faster. Time, value, and money on paying taxes. It really helps.
Matt Scherer: But you have to be realistic about the value of those assets because most dental practices, or most seller’s dental practices, the chairs are a little older. They’re not going to be worth what a brand new chair is worth, so you gotta be careful about-
Joe Gordon: You gotta be realistic about it. You can go out to Dental Town and look in their classifieds, and see what the value of some of the stuff is on the after-market, and there’s not a whole lot there. I mean, even the lenders understand that their [inaudible 00:02:43] cash flow, there are no physical assets. It’s not like a collateralized transaction. That’s the asset you’re really buying, that good will, so let’s not do little dumb things to ruin that.
Matt Scherer: You need to have a conversation with the selling doctor, and typically what we’ll do is sit down with the buyer and seller, and go through and hash out all those things upfront – talk about ’em. I always say that everything in a deal is negotiable, right? But let’s negotiate all the little items before attorneys and everybody get involved, so that way everybody walks away knowing exactly where there at in the deal.
Matt Scherer: My philosophy is if the buyer can leave a little bit on the table, and the seller can leave a little bit on the table, then we’ve created a win-win for both.[inaudible 00:03:31] should never be one-sided, so don’t let the little things get in the way of a sale of a practice, and more so having that seller pass on the good will of the practice because without the good will, you have nothing.
Joe Gordon: You have nothing. I mean, let’s get your favorite painting that hangs in the lobby. Let’s make sure we exclude that. Let’s not- the buyer come in, and there’s a big, empty spot on the wall-[inaudible 00:04:05]
Matt Scherer: -and nobody’s talked about it.
Joe Gordon: And nobody’s talked about it. You have a desk in your office that you are absolutely in love with for some reason, and you want to take it to your house. Let’s go ahead and get things like that out there.
Matt Scherer: That’s right.
Joe Gordon: It comes down to, if you’re going to stay employed a seller after the fact, we’re not going to pay someone who has been in this profession thirty-plus years usually-
Matt Scherer: -25% of collections.
Joe Gordon: We’re not going to pay them like they just came straight out of dentist school. It’s little things like that that can blow up deals. It’s sellers that become unreasonable on lease terms, if they’re going to lease the facility back to you. Little things like that, let’s get out of the way – let’s get them all up front, so none of us are surprised.
Matt Scherer: I agree.
Matt Scherer: Good segment on the little things that can kill a deal. Please make sure that you’re looking at those things, you’re talking about those things upfront, so that the deal – you don’t get all the way down the road. I always say when a deal falls apart, the only people that get paid in the deal, or win, are the attorneys because they’re going to get paid no matter what.
Matt Scherer: With that, we appreciate your time, and if you like us please give us the thumbs up, and let your colleagues and friends – share it with them. Thank you.
Published by Matthew Scherer on September 13, 2019