Lisa Radman White discusses how to make the purchase process beneficial for the buyer and seller
If you are ready to purchase your own practice, you want to make sure that you get the very best deal. No one wants to get taken advantage of or to pay more than necessary for something.
Purchasing an endodontic practice is most likely different from anything you have ever purchased before. You are not purchasing a car or a house; you are purchasing something unique. You are purchasing someone’s life’s work, someone’s “baby” — a person’s goodwill. Regarding a car or house, you just want to get the best price you can for the item you are purchasing, but when purchasing an endodontic practice, getting the best deal doesn’t always mean getting the lowest price.
I’m not suggesting that you should pay more than the endodontic practice is worth, but I am suggesting that you pay a fair price. How do you know what is fair? The practice should be evaluated by someone who knows what the value of an endodontic practice should be. If the practice has been priced by someone who understands the value in an endodontic office, then the price set should be fair. A brief description of fair is purchasing a practice based off the cash flow to ensure that the dollars you will earn from the practice cover the debt, expenses, and leave you still earning at least 40% of your collections.
Should you decide to negotiate off of a fair price, the message that can be received by the seller is that this person does not value what I have to sell. Negotiating can actually cost you, as the seller is not as motivated to help you. A good transition firm will ensure that an effective transition is in place before moving forward, but it’s human nature that we work harder and do more for those we care about and whom we feel have treated us fairly.
Let me provide two real-world examples, and then you decide which type of transition you would prefer to be a party to. Recently, a purchaser made an offer on a practice that was a full-price offer. The practice was appraised fairly, and the seller was so pleased that after receiving the offer, but prior to closing, the seller purchased a new computer and a new compressor for the practice, just to be nice. The seller was eager to introduce the purchaser to the staff and the referrals to make everything flow as smoothly as possible for transitioning to the purchaser. This seller exceeded every requirement for transition, and he was motivated to go above and beyond what was required of him. On the other end of the spectrum is a seller who was motivated to sell and offered the practice for below market value. In addition to the reduced offering price, the purchaser made an even lower offer. This seller also fulfilled his transition requirements, but he just met the minimum transition requirements and was ready for the entire process to be behind him. I can assure you that these two sellers had a different approach and differing enthusiasm for the transition. In the case of the full price offer, the purchaser received more in goodwill than the small amount they could have negotiated off the price.
If you work with a bank that is accustomed to loaning on an endodontic practice, you should be able to get 100% of the purchase price, plus working capital from the bank if there is an appraisal done on the practice. The bank is protective of purchasers as it wants to be assured that the transaction is priced fairly for the purchaser, and thus, the bank will get paid back. Banks are currently lending money at 4%, and the loan term is typically 10 years for an endodontic practice transition. Under these terms, a $50,000 decrease in purchase price is equal to a difference of $6,075 in the first year. So for about the cost of one root canal every other month, you save $50,000 upfront. However, you take a chance at destroying goodwill.
Our motto is basic and well-known: Treat others as you would want to be treated. If you proceed in this manner, the goodwill you receive when purchasing a practice should surpass and benefit you in many ways that exceed getting a slight reduction in price and thus result in the best deal.
Lisa Radman White is the president of Radman, White & Associates, Inc., a transition firm solely focused on transitioning endodontic practices. She has lectured at the AAE and most of the endodontic residency programs. She can be reached at lisa.white@endotransitions.com or 972-386-7222.
