Assembling an All Star Transition Team

Your Transition Advisor/Broker

A good advisor or Broker can fulfill so many roles on your team, they’re somewhat synonymous with a business swiss army knife. Typically, they’ll consult a prospective buyer or seller on all aspects of the transition and should have a comprehensive understanding of appraisal methods, as well as knowledge of legal and tax implications of various structures.

Business transitions generally fall into one of a few models, and your broker or transition advisor will guide you through the various options regarding each one. Are you buying or selling the assets of the practice, including patient files, supply inventory, dental equipment, etc.? This would be an asset sale. Conversely, the transition may only be a sale of the interest in the business and its assets which is a stock sale. The difference in the structure can have a big impact to both the buyer and seller and a good transition advisor or broker will consult you on the differences so you can determine which is a better fit for you and your buyer or seller. This is one example of the value a transition advisor or broker can add! 

The transition advisor or broker should be able to explain the transition process from start to finish while liaising with the other members of both your team and your counterpart’s team. Bear in mind, some advisors promote dual representation in a transition. While not necessarily a bad thing, as it can preemptively mitigate concerns of hardball negotiations that risk wrecking a deal or facilitate streamlined administrative tasks, dual representation is something that should only be done when BOTH parties want it. This means that both the buyer and seller should be on the same page about the goals and overall terms of a transition. It should not be something that a transition advisor or broker requires you to do!

Another important aspect to consider when choosing a transition advisor or broker is whether they carry cross qualifications or certifications of other members on your team. NDP, for example, employs professional CPAs (Certified Public Accountant) and CVAs (Certified Valuation Analyst) to deliver effective and personalized solutions for each dental practice transition. This can encourage stronger collaboration with your accountant or financial planner and provide a better understanding of how the team should function to support the buyer or seller during a transition. With the right qualifications, your transition advisor can help you price or value your practice, understand the cash flows of the opportunity you are exploring and show you estimates of what the potential cash flows look like in the future based on the historical financials of the practice you are looking to own. As a buyer, an advisor should be able to help you understand your cash flows after debt service and what a sellers post close compensation might look like if they are working back in the practice after the sale.  The transition advisor can wear many hats so finding one with these various abilities can be a big plus!

Your Attorney

Your attorney drafts, negotiates, and exchanges the legal documents defining the terms of your transition. Dental practice transitions are a rather extensive process and naturally, the legal documentation can prove equally extensive with highly verbose language. How terms are defined will undoubtedly impact the transition and what happens after close should issues arise.

Buyers and sellers will likely maintain their own legal representation before, during, and after the transition. Remember that the attorney’s primary responsibility is to protect their client’s interests. NDP’s primary advice is to be cognizant of the relationship between you and your counterpart during the legal negotiation process. While a good attorney should ensure they don’t mess up a deal in negotiations, an attorney playing “hardball” can easily sabotage the relationship you have with your buyer/seller and bring what was an agreeable situation to a screeching halt.

Ideally when building your team, you’ll connect with an attorney who specializes in dental transitions. Dental practices are their own specialized niche within the healthcare industry and have unique aspects that should be understood. As such, ask your prospective attorney their experience in your type of transition to ensure they are a good fit.  It’s also important to understand that often an attorney doesn’t need to get involved until the buyer and seller have reached a set of terms via their transition advisor or broker. Sometimes getting attorneys involved to early can cost the buyer and seller financially and cause the deal to take longer than necessary.

Your Accountant

As a seller, aside from being the go-to numbers aficionado for the financials of your practice, an accountant (typically a CPA) should greatly assist you in determining the overall financial health of a practice as you prepare to transition. This might mean gaining an understanding of your overhead or discretionary cash flows so you can begin to understand how a sale would impact you. If the numbers are less than favorable, the seller will still gain valuable insight regarding how to improve the practice’s financial health to prepare for a future sale. This could also be performed by a financial planner or a transition advisor assuming they have similar qualifications and access to your overall financial picture.

For buyers, having a strong accountant post-close will be critical in devising systems for maintaining the books of your practice during your ownership. Without a strong command of your numbers, it’s near impossible to maximize the value of your practice or fully understand what the business is worth. A good accountant will provide monthly financials and understand dentistry to ensure you are tracking the right information to provide you the data you need to make your practice as efficient as possible!

We can’t forget that accountants will also serve as a lifeline when it comes to everyone’s favorite time of year…tax time. A good accountant can (and should) advise their client as to what tax implications follow certain business decisions. For example, your company’s legal structure will dictate its taxation. It’s important to understand not only the operational differences, but the financial distinctions between the varying business entities like partnerships, Limited Liability Corporations (LLCs), C Corps, and S Corps. Most utilize the same accountant for their financial reporting and taxes, but you don’t have to. If using two different individuals or firms, it’s important to ensure they are communicating and on the same page about your practice.  A financial planner (discussed below) can also help provide the right communications to ensure all the members of your financial team are on the same page!

Your Financial Planner

You may already have a personal financial planner but if not, this individual can play a critical role ensuring the cash flows from your greatest financial asset (your practice!) are used wisely and your tax and retirement planning are efficient! Throughout your transition and ownership, it’s critical to bear in mind what future plans might look like, entry and exit strategies, and retirement intentions. These matters frequently go overlooked, so, regardless of what side of the transition you are on, keep in mind that financial planning often has its own position on your team and can be separate from your accountant. Think of your financial planner as your personal CFO! Cain Watters & Associates (CWA), an affiliate of NDP, is a prime example of a financial planner that focuses on the dental industry and can be an incredible asset to your team!

Nobody said dental practice transitions are easy, they’re not. They require extensive communication and the coordination of a team of professionals.  We believe strongly that ownership is vital to your future success as a dentist and that a smooth transition is key to closing out the professional chapter of your life. Much like life, how successful your transition goes, as a buyer or seller, is directly linked with who you surround yourself with – so choose wisely!

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