Price is always negotiable. A good negotiation is one where you can avoid simply haggling over one number. Many buyers assume the values assigned to the different categories are predetermined and set in stone. Honest person you are, you are still going to show up to work and work just as hard as if the owner was just paying you as you go. Henry Schein Professional Practice Transitions provides the comprehensive support you need to locate a dental practice for sale that fits your needs, budget and career goals. What becomes clear is that the objective of buyer and seller regarding taxes can work in contrast to each other. Alternatively, Dr. Dr. Stacey Gividen presents two oral pathology cases that are representative of what she’s seen in her practice numerous times lately. Depreciation is easy to understand with a quick example. See How Long the Major Steps in a Transition Take. The seller doesn’t care about depreciation, so why not try and just load everything into the categories most helpful to you as the buyer? In the simplest terms, a dental practice valuation is a determination of value. Both buyer and seller should consult with their accountants and/or attorneys before agreeing to the terms of the sale. Know someone about to buy a practice? Keith White has been a CPA licensed in Texas for 17 years. How to minimize taxes when selling your practice. Sign Up and you’ll receive your toolkit in your inbox! Comprehensive Practice Purchase Checklist – This method typically looks at historical practice collections times a collections multiplier … Wonderful read! In the sale of a medical or dental practice, much time is spent on negotiating the total purchase price… With this structure, the seller typically achieves long-term capital gain treatment (currently 15%) on the goodwill sale, but typically pays ordinary income rates (up to 35%) on the asset sale. 4-5-19 Legal Intelligencer article by Lamb McErlane PC attorneys Vasilios (“Bill”) J. Kalogredis, Esq. Asset allocation is an accounting term. For example, Dr. Pearls for Your Practice: Radii Xpert curing light. This arrangement can be detrimental to sellers as they are paying ordinary income tax rates on the funds received; however, the greatest risk with these arrangements is they are subject to IRS scrutiny because they do not represent the essence of the transaction. If you’re savvy, you’ll look at the asset allocation as an opportunity to negotiate a win/win for you and the seller. Share this article with them! Dr. Gordon Christensen discusses the challenges of composites and outlines techniques that can help reduce or eliminate clinical problems. Seller is going to be on the golf course a lot with her dentist friends and wants to be able to say she got a full price offer for her practice. This is not so wonderful for buyers as they don't get any tax benefit until they sell the practice at some point in the future. He is currently a partner with Radman, White & Associates, which is the endodontic transition representative for ADS. A great third option with real dollars behind it is the asset allocation. Buying a new dental practice? Know someone about to buy a practice? Asset sale… ... and Receive a Free Weekly Message with. Flipping the digital switch with your dental laboratory. In this scenario, the dollars allocated to goodwill benefit the seller, but alter the tax deduction timing to the buyer because it takes 15 years to amortize the goodwill purchase. The difference between the two is substantial, anywhere from 0% for low-income taxpayers to 20% for those in the top tax bracket. I have it—you want it! Your email address will not be published. You bought that couch in the waiting room for $1,000, depreciated it over the last five years on your tax returns, and then valued it at $200 on your list of assets when you sold the practice. One transaction structure is to sell the corporate stock, LLC membership units, or partnership units to the buyer. This simple prerinse will go a long way toward easing your COVID woes. It’s an attempt by the IRS to match the, The IRS has two ways to tax sales of assets where the seller makes money – ordinary income and long-term capital gains. Practice … Dr. Gordon Christensen explains the importance of patient education and outlines protocols to ensure that patients fully understand treatment prior to their procedures. The two most common methods for valuing a dental practice dental practice for sale are to use a multiple of collections or a formula relying on your earnings before interest, tax, depreciation, … A good negotiation is one where you can avoid simply haggling over one number. Posted on December 21, 2009 Sometimes we come across uninformed buyers that want the majority of their purchase price … One area where significant dollars can change hands when buying a dental practice is the asset allocation, or tax treatment, of the total purchase price. So basically, Right of first refusal on the purchase of the building. The IRS has two ways to tax sales of assets where the seller makes money – ordinary income and long-term capital gains. Purchase price, accounts receivable and asset allocation are not the only items you can negotiate when buying a dental practice. If you're in the market for a fiber post system, read on to find out why iLumi gets his recommendation. How technology can help patients understand the treatment they need and buy in to the solution, Pearls for Your Practice: Estelite Universal Flow, Pearls for Your Practice: KeySplint Soft resin, Pearls for Your Practice: Scotchbond Universal Plus adhesive by 3M. There are different accounting and tax rules around those different types of assets. Save my name, email, and website in this browser for the next time I comment. Joshua Austin, DDS, MAGD, reviews SprintRay’s Pro Cure postprocessing unit for 3-D printing. Dr. Statistically speaking I would agree that with the “typical” dental practice sale, 75-80% of the allocated purchase price is usually goodwill, but it’s just a statistic, that’s it. When you buy a business, however, you’re paying for multiple different, The primary reason the asset allocation matters is the IRS allows different, (Ignore for a minute your stunningly inept ability to think of, Depreciation is the rule that allocates value to a tangible asset over its useful life. For example, when you buy a computer, you’re probably going to use it for more than 1 year, and as such there are rules about how much of the computer’s price you get to expense on each year’s tax return. © 2021 Endeavor Business Media, LLC. Drs. The buyer in turn gets some tax benefit through the ability to immediately expense items such as supplies and certain assets up to a limit, and can depreciate/amortize the remaining asset purchase over varying periods from five to 15 years. Advisory Team Guide – Annual net receipts 4. Buyer could ask if she would be willing come down in the percentage of the sale in the goodwill category and increase the amount allocated to equipment to allow her to depreciate the total cost of the sale more quickly. American Dental Sales has a data bank of about 1,500 dental practice sales. Joshua Austin, DDS, MAGD, reviews 3M’s next generation adhesive, Scotchbond Universal Plus, which takes what he loves about the original and makes it even better. Financial Tips & Advice for Dental Professionals. What may come as a surprise is that the amount of taxes due can vary widely depending on how the sale is structured. Goodwill is quantifiable, both in the purchase price of the practice and in tax considerations. “No problem,” says Dr. Typically, the depreciation rules break the assets of a dental practice into the three main buckets seen in the images below. This obviously has tax ramifications for both buyer and seller. This is a simple asset purchase agreement elegantly constructed by (Brian Rogers), then modified for the sale of a Dental Practice. • Practice collected an average of just over $860,000 for the last 2 years in well-equipped 5-operatory practice • Price Reduced to Sell – Seller Relocating • Primarily FFS and PPO patient-base • Seller to remain post sale … One other item that can … If you are a seller, the obvious takeaway from this difference is that you want as much of your income to fall in an asset category where the IRS will tax it as capital gains, and not ordinary income. However, the definition of “Fair Market Value” is the price an independent buyer and seller can agree upon. What is the Asset Allocation on a Dental Practice Transition? They want to be rewarded for all the hard work they’ve done to that point – the seller with a gigantic check and the buyer with a steady income stream from a healthy business. Do your patients understand what you are doing? Other common areas of negotiation include: If there’s one eternal truth I’ve seen when helping buyers purchase a dental practice, it’s this: The more knowledge and more options there are, the higher the chance of pulling together a deal. Everything you need to know about indoor air quality in a dental setting. When trying to negotiate buying a dental practice, it’s important to find ways to negotiate beyond just the price. For more on this topic, go to www.dentaleconomics.com and search using the following key words: consider the taxes, personal goodwill sale, practice transition, Keith White, CPA. Simple Dental Practice A is a typical practice, where I used average data and simple round numbers to show a practice that collects $1 Million, has expenses totaling $600,000 and profit left over for the doctor of $400,000. Our reports identify key opportunities for growth and potential areas for improvement to help take your future practice to the next level. Huge savings! The basic theory behind capital gains is the IRS wants to reward people who invested in resources productive for society, like a business, with a lower overall tax rate on any gains from those investments. After all, the gigantic paid-in-advance check is for your next 5 year’s work. While important to understand the trends, dental practices … When you buy or sell any kind of business, you have to take into account all of the assets that go into a practice … How does this affect the seller? Joshua Austin, DDS, MAGD, reviews SDI’s Radii Xpert, which supports a wide spectrum of cure, a high power output and light intensity, and built-in radiometer, among other features. A subsidiary of Henry Schein, Inc. the nationwide leader in dental practice … A Letter of Intent Should Include This When Buying a Dental Practice “But I’m only buying one thing,” you may say, “a dental practice!”. So don’t get sucked … The average sale price, plus or minus one standard … Composite restorations do not have to be difficult procedures or short-lived. Required fields are marked *. Four Things Your Attorney Should Do for You When Buying a Dental Practice, A Letter of Intent Should Include This When Buying a Dental Practice, Why You Should Buy a Dental Practice BEFORE Your Student Loans are Paid Off, Value Investing: What Does this Mean and How does it Impact You? Both have a direct correlation to COVID-19. I have it—you want it! Asset value 3. This is great for sellers as they will usually accomplish long-term capital gain treatment. Many lenders will lend more than 100% when a working capital loan is included in the picture. You don’t need to become a tax expert, but a little knowledge here can go a long way toward coming together with a seller on a deal. Intraoral scanners for the pediatric patient. In last week’s post, we discussed how a buyer can get real dollars in their pocket by negotiating the purchase of the accounts receivable. ), Value Investing: What Does this Mean and How does it Impact You? Goodwill typically accounts for 60% to 80% of the practice's … (Part 2 – Webinar! Ultimately, most buyers and sellers want the same thing. Practice Buyers. Or, have them reach out directly to me via email: Read more below about dental transitions because you want to negotiate a great deal! Let’s say you are looking at this dental practice below. See Who You Need on Your Advisory Team, and Who You Don’t The most well-known "rough rule of thumb" valuation calculation is to apply a percentage (e.g., 70%-85%) … On the other side of the transaction, the IRS has different rules for the seller for the tax treatment of different assets sold. It’s an attempt by the IRS to match the expense of an item to the revenue that the asset helps you earn. Before buying or selling a dental practice, great care and planning should be taken to consider thetax consequences regarding the allocation of the sale price to the various assets involved in the transaction. Goodwill refers to the intangible assets that either restrict or enhance the future earnings of the practice, and includes patient charts, recall systems, staff longevity, noncompete covenants, and the owner's reputation within the community. Pretend you stumbled upon a genie right after graduating dental school. Are there proven preventive restorative materials? Every viable dental practice has goodwill. Sample Practice Purchase Timeline – Goodwill seems to be hovering in the 75-80% range of total transaction price with the obvious exception of orthodontics where buyers are effectively paying for contracts receivable … They want to successfully transition the business into new, responsible hands that will take great care of the staff and patients. Ideally, there are lots of different areas where your interests overlap or, at least, aren’t directly opposed to one another. Goodwill is the positive reputation of the dental practice. (Ignore for a minute your stunningly inept ability to think of better wishes and go with this example…). There have been cases where the seller's compensation has been modified to essentially include part of the purchase price. Most calculations of value utilize multiple valuation formulas averaged together to arrive at a final estimate. Dr. Glazer reviews IoRinse by IoTech—the only product that was completely effective in deactivating SARS-CoV-2 in a recent study. I’ve saved your site and I’m including your RSS feeds to my Google account. Obviously, this varies depending on the amount, age, and type of equipment in the practice. When trying to negotiate buying a dental practice, it’s important to find ways to negotiate beyond just the price. Dental Practice Purchase Price Allocation: Is Goodwill the Devil? According to the IRS, the technical way to allocate the purchase price among the different assets is to allocate the Fair Market Value to the identifiable assets (patient records, equipment, supplies, etc. All rights reserved. What becomes critical in these transactions is the allocation of the purchase price between tangible assets and goodwill. The more common approach to dental practice sales is to structure the transaction as an asset and personal goodwill sale. In most practice sales today, the buyer borrows the money from a lender and pays the seller in cash at closing; however, there are still some transactions that are handled with a "deferred sale," whereby the seller is paid out over time. Obtain an independent, objective dental practice valuation to ensure the purchase price of your potential acquisition is consistent with its true market value. (Part 1), The Role of International Investments in Your Portfolio, Click here to read our latest updates about COVID-19. Dr. Glazer reviews the iLumi Super Fiber Post—a product that does what others only promise: delivers photocuring light all the way to the apex. See Every Step You’ll Need to Take before Day 1 as the Boss! The ordinary income tax rates start at 10% and go up to a whopping 39.6%! The market-based dental practice valuation method relies on market data of other dental practice sales in your area. Dr. Adrien Theriot says most dentists use an intraoral scanner for milling crowns, bridges, implant abutments, and Invisalign, but it can be used for so much more. In most dental practice sales, a majority of the purchase price is allocated to goodwill. Conversely, the more dollars allocated to assets speeds the tax deductions to the buyers. We all know that death and taxes are the only two certainties in life. Does she get to say she had a gigantic expense in year 1 and avoid taxes that year? Doing this could save you as much as 20% on whatever money you can move from an ordinary income category to a capital gains category. Get your FREE. I’ve seen this happen frequently. Your email address will not be published. Wrap Up. Why You Should Buy a Dental Practice BEFORE Your Student Loans are Paid Off. The transaction structure can also have varying tax effects for the buyer. After the asset sale, the seller and buyer may choose to create a new legal entity to continue the practice together. The same principle applies to any asset you purchase as a business owner that has a value of more than $600 and a useful life of more than a year. Depreciation is Why Asset Allocation Matters. The result is that taxes can have a dramatic effect on both the net purchase price paid by the buyer and net purchase price received by the seller. What does the law say? I have it—you want it! Typically, the group of assets that would be sold between the selling party and buying party would include dental supplies, furniture, fixtures, and equipment used in the practice… Capitalized excess earnings 2. Seller might be very sensitive about the large tax bill coming when he sells his practice. Obviously, this varies depending on the amount, age, and type of equipment in the practice. The second way the IRS taxes gains on asset sales is called capital gains. California Practice Sales, Inc., provides nine-page written appraisals of dental practices for such purposes as insurance, fire, theft, divorce, sale, and partnership for the reasonable base fee of $2,000.00. If two dentists (Dr.Smith & Dr.Jones) want to conduct a practice … But it is often the case that not nearly enough time is spent on the … One of the wishes the genie offered you is for your first job as a dentist to pay you for the next 5 years of work all in advance. How to Negotiate Asset Allocation when Buying a Dental Practice. As the buyer, you’re looking for opportunities to negotiate with the seller on more than just the asking price. Average annual earnings Typically, historical financial information of the practice is utilized to produce the calculated value under these scenarios. They can depreciate them over shorter periods (five to seven years), and this is detrimental to the sellers as they typically have to pay a higher tax rate. A good negotiation is one where you can avoid simply haggling over one … Asset allocation is a fancy way to say how much value the accountants in the deal are assigning to the different items being purchased. Dental Practice Sales & Transitions The act of selling your dental practice is a complicated transaction, far more than just assigning a single value. The IRS would apply depreciation rules to my completely ridiculous example and only allow the owner to count 1/5 of that gigantic check of yours for each of the next five years. You can read more about How the Asset Allocation Works in a dental transition at the link provided. Asset … You’ve got a pile of money and haven’t had to work for it yet. It concludes that the potential for viral transmission in a dental office is low, and here's why. ), then the remainder, if any, is allocated to Goodwill. Brian Hanks October 27, 2016 Practice Transitions 1 Comment. H… Read more below about dental transitions because you want to negotiate a great deal! iLumi Super Fiber Post by iLumi Sciences. Other Things to Negotiate When Buying a Dental Practice. But what about the owner? Or, have them reach out directly to me via email: brian@practicefinancialgroup.com to help them through the process. Dr. Therefore, when negotiating a dental practice purchase or sale, the purchase price allocation should be discussed along with the price and should be included in the "Intent to Purchase" document that outlines the offer and acceptance. This contract circumvents the current Dental-Practice-Broker model. In most dental practice sales, a majority of the purchase price is allocated to goodwill. We now have three categories with significant dollars behind them where the buyer and seller can move levers to find the option that works best for everyone and leaves everyone happy – price, accounts receivable, and asset allocation. If the seller thinks the practice is worth $500,000 but an official dental practice appraisal suggests it is really worth $350,000, the seller is going to be more inclined to engage the broker who tells him the practice is worth $500,000, even if the transition specialist knows the practice … To match the expense of an item to the buyers 's why come as a surprise that. 988-5674... the sale is structured, however, the more common approach to practice! Their needs are addressed and ultimately more satisfied with the practice website in this browser for the practice working it! Questionnaire – See how long the Major Steps in a dental practice latest. When he sells his practice ’ s seen in her practice numerous times lately Vasilios “. The market for a minute your stunningly inept ability to think of better and! Her practice numerous times lately 2016 practice Transitions 1 Comment the objective of buyer and seller should consult with accountants... 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