Transitioning a dental practice after death

After a death, the transition from the dental practice seller’s side is a very emotional, disheartening and financially upsetting circumstance.

The spouse of the deceased dentist was probably used to a very solid financial perspective and many times did not know what was occurring in the dental practice. He or she typically would know that the lifestyle being led was a good one at least concerning dining, travel and the neighborhood in which one lived. If no associate or partner was in place at the time of the passing away of the dentist, the surviving spouse in most cases, would not know what to do or to whom to turn.

If an advisor was available with whom the spouse had some acquaintance, things could be much easier. If not, a family attorney, who probably knows nothing of the dental world, may be retained. This could create a horrible situation for the spouse in the sense that the guiding force is not an expert in the field but is attempting to lead the spouse in the right direction. Hopefully that person would have the intelligence to know what he or she does not know and would take the first corrective step in ordering an evaluation of the dental practice.

The valuation and the evaluator will create the ability of the spouse to be realistic about the amount of money the dental practice is worth at the point of death. The valuation prepared by an evaluator who understands what the death means to the worth of the practice will at least create the knowledge for the surviving spouse and the advisor to be realistic about what to expect. 

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The value at death

As time passes, an evaluator who understands the situation will explain that the dental practice is not worth anywhere near what is was while the dentist was living. The preparation of a valuation by someone with the experience of this nature is critical for a reasonably quick sale with a price that would be the highest available in the shortest time frame. In these situations, the value drops substantially and continues to drop as time passes. If the spouse has any luck, he or she can find someone on a temporary basis who wants to acquire the practice and who has the ability to finance the acquisition.

One of the problems with this situation is that the temporary dentist is really working against his or her own best interests by keeping the practice in a “going concern,“ mode. The more stable the practice after the passing away of the owner, the more the value will be established and firmly remain. Once the realization is in place with the estate of the dentist and they understand the consequences of not taking a reasonable offer, the next offer is going to be much lower than the previous one.

The temporary dentist will also realize that he or she is keeping the value stable and if interested in an acquisition is really hurting himself or herself regarding the value and the potential for allowing another dentist to acquire the practice from his or her efforts.

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When does the offer occur and how much time is there to negotiate? 

Once the temporary dentist has spent no more than about four months meeting patients, referring dentists if a specialist and developing a marketing plan, it is time to make an offer after the review of the valuation from an evaluator with experience in working with a situation such as this. Retaining someone without experience to evaluate this situation, will most likely cause an offer to be made that will insult the estate or to open the bidding by some other dentist.

A search should occur where an advisor with contacts in the dental world assists in finding the right evaluator for this practice. Representatives from dental supply houses, dental CPAs and lenders are good sources of information where to find such a person. Reading dental publications, looking at dental web sites and talking to colleagues who can refer people are also excellent sources.

More from Bruce Bryen: Dental practice transitions and real estate conveyances

How to finance the acquisition

One of the biggest problems in an acquisition is borrowing too little. The evaluator should be able to refer a good dental CPA who can help with the financing. The most important point that is typically omitted is the amount of working capital needed while the patient base is stabilized. The retention of the dental CPA is a critical step in insuring the success of a practice acquired after the death of the dentist.