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ADS South Newsletters
May, 2008 "Just who are we, anyway?" and "What if something happens to your partner?"
 
Other Articles of interest.
For Sale by Owner ... or by Broker
I saw an advertisement in a state journal for the sale of a practice. The ad contained the capital letters "NO BROKERS", which was to me an irresistible invitation to reply.
Price and Value - A Lesson for the New Practice Buyer
I remember sitting in class in dental school back when the earth was cooling, thinking, "If I ever get out of here, I'm never coming back." Well, eventually I did get out of there and realized afterwards the incredible knowledge and skills I had somehow acquired. I also realized how ill-prepared I was to face the many financial decisions that were not based on my extensive knowledge of enamel rods or biochemistry.
How to appraise a dental practice
I am often asked 'How do you appraise a dental practice' and 'What percent do you use to get the price?'. If the process were that simple, we wouldn't need experts in practice appraisals, just a calculator that can multiply two numbers.
How Is Business?
I have been hearing from more and more dentists that things are slowing down in their practice as the economy continues to unravel. Dentists who were booked for four weeks in advance are now only booked for two weeks or less. Patients are seeking more “needs” based treatment than “wants” based treatment. Cosmetic dentistry is waning as more patients are presenting for the most basic treatment.
The Value of Locum Tenens
Locum tenens has been around dentistry for many years, although not always known by its formal Latin name. Locum tenens literally means “hold the place down” and that is what we are doing when a dentist fills in for another dentist who is on vacation, disabled, given “time out” by the dental board, or who has died. Our physician brethren have used this concept for many years, as their practice needs are more acute than in dentistry and keeping a practice open is more critical.
I'm Losing Money On My Associate!
Recently I structured an Equity Development Plan, our safer alternative to partnerships, for a practice owner and an associate dentist. I assumed that they were happy and doing well until I received a call from the owner that the associate was making too much money and that the owner was losing money. Apparently, while still less than six months into the relationship, the associate was producing $50,000 per month and increasing.
Women and Practice Transitions
The emergence of women in dentistry has been a slow but steady phenomenon that has challenged many of us to examine our preconceptions and stereotypes of how women practice. Besides the many effects women are having on the clinical side of the profession, women are also impacting the management and transitioning of dental practices.
The Value of a Practice Appraisal
As I consider the topic of the value of a dental practice appraisal, I think of all of the instances in my twenty four year’s experience of why people have had their practices appraised and what good it has actually done for them.
The real cost of slowing down!
I don't know how many times I have heard a dentist tell me how he plans on cutting back and slowing down and he gets closer to retirement. On one occasion in which I had listed a practice for sale, the seller told me of his plans to cut his schedule back by one day per week to work on his golf game. I had never thoroughly analyzed the effect of a cutback before but decided to take a very close look at what the exact effects of such a cut back would be.
The Importance of Associate Contracts
The best business dealings are when you deal with someone whose word and handshake are all you need ... and then you put it in writing!
A Successful Alternative to Partnerships
My former article discussed the pitfalls of partnerships and buy-ins which include loss of control, loss of marketability, and loss of value. These are consequences of converting a real tangible practice into intangible undivided interests.
Minority Partnership Pitfalls
One of the most popular practice transition strategies is the buy-in. The interests may be any size - 10%, 49%, 50 % or more. Sometimes it involves selling progressive interests and other times it involves selling a remaining interest by a retiring shareholder.
A Story of Three Dentists
In the past year, our firm encountered three dentists who experienced the same event - death.
Measuring Practice Value
The importance of value to the buyer of a dental practice is emphasized, since value is the buyer’s actual take-home income. This article explains how to recognize and measure value in practices.
Value or Price - Choose Wisely
All to frequently buyers zero in on price as the primary practice purchase issue, while ignoring the issue of value. However, buyers stand to benefit much more by receiving high value than by paying a low price, since the primary practice value actually is the net income the buyer takes home from the purchased practice.
The Need for an Appraisal - They're Not Just for Sales

Thomas W. Kauffman, DDS, PC
Restorative & Cosmetic Dentistry

May 5, 2005
Dr. Earl Douglas
PPC, Ltd.
11285 Elkins Road, Suite A-2
Roswell, GA 30076-5834

Dear Earl:

I just returned the updated information request needed for your company to keep my practice appraisal current. As you know the complete listing of my equipment, instruments, and contents necessary has not been completed yet, but is in progress. To update you, I am in the process of building a new office in the Georgia-Pacific Center a short distance from my current location. This decision was reached after considering the problem attendant my current leases. As you may recall, when you reviewed my current lease you discovered a forgotten requirement that required a personal guarantee on the performance of the lease, and we discussed the problems that might pose should you need to sell my practice and provide for a seamless transition.

The purpose of this letter is to express appreciation for your help in my estate planning. Having the goal of protecting and preserving the asset of my practice for my family, and providing security for my patients as well as my long-term staff members, was something I realized was important. The time never seemed to be there, the timing was never right, it never was convenient to do this and I procrastinated. Then something happened last year that drove home the realization of its import. A colleague of mine, Dr. John MacNamara, an oral surgeon in Buckhead, was diagnosed with inoperable and terminal prostate cancer in the fall of 2004. Upon visiting John at his home, I saw him having to spend precious energy and time focusing on coordinating, or tying to coordinate the sale of his practice in the middle of a serious illness. It was apparent that the kindest thing I might ever do for myself, even though it forces one to face his or her own mortality, was the enlist the help of someone like yourself in this process.

Our friendship for the last 25 years made it easy to select you, and I was glad to have your help. You may not know, however, that there was tremendous benefit in your appraisal, apart from the obvious. Your evaluation led to the following:

  1. The examination of my lease led to the discovery of a personal guarantee that was inappropriate and unnecessary. The unwillingness of the landlord to renegotiate this provision led to my locating a different location in a better building that will benefit practice growth.
  2. The examination of my practice in the business models used to determine actual worth was beneficial to improve the current margin of profit.
  3. The evaluation of the existing equipment in service led to the discovery of old equipment that had been fully depreciated, discarded, but had not been removed for the asset category in the corporation. This led to the lowering of my ad valorem tax liability due to Fulton Co.
  4. The goal of keeping the appraisal current requires one to develop the habit of gathering data in a fashion that forces a useful annual reassessment of key business indicators.
  5. Initiating and maintaining a current appraisal has led to a great sense of comfort and peace. Losing both of my parents in the last ten months has been a tough thing to experience, but I saw as a family member how that was made easier by the wise decisions of my mother. Her preparations and considerate planning were a marvelous gift to her family. We as business owners certainly owe the same to our loved ones.

I saw that you recently were going to speak in New Orleans and wanted to get this to you in advance of that meeting. Many times I picked up your well-organized package of information and began to gather all the information you require. And many times after feeling overwhelmed I promptly put it all down. It was only when I put this process in the category "business planning" rather than "pre-death planning" that it got accomplished. There are certainly other benefits of a practice appraisal I have probably forgotten. Having a trusted friend with the benefit of a longer history and more detailed understanding of not only the hard assets but the intangibles of a business certainly would lead to a more rapid sale, which in turn would lead to more profit for the loved ones of the practitioner.

Feel free to share this letter with anyone you think would benefit from my perspective.

Thomas W. Kauffman, DDS
May 2005