Dental Practice Planning

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Questions and Answers

What are the three major groups of information that must be evaluated when assigning a dollar value to an existing dental practice?

Actual value of the facility, goodwill, and internal management factors (correct)

Supplies, furnishings, and leasehold improvements

Inventory, equipment, and furnishings

Facility, equipment, and leasehold improvements

Who determines the fair market value of equipment and furnishings?

An objective representative from a reputable supply house (correct)

A builder

A dentist

A CPA

Why is it challenging to evaluate supplies?

Because they are difficult to count

Because they are expensive

Because they are hard to categorize

Because they are often obsolete and of insignificant value (correct)

What is the purpose of consulting with a CPA or builder?

To place a dollar value on leasehold improvements Signup and view all the answers

Why is the age and condition of equipment important to consider?

Because it affects the overall value of the facility Signup and view all the answers

What happens to obsolete items and miscellaneous materials in an office?

They become liabilities to the successor Signup and view all the answers

What happens to the records of the practice when it changes hands?

They remain with Doctor de Gomez Signup and view all the answers

Why might the value of goodwill be lower if the seller is deceased?

The seller's death reduces the value of their reputation Signup and view all the answers

What factor rates prime importance in evaluating a practice?

Competence of the seller Signup and view all the answers

Why is the receptionist crucial to retain in a practice transition?

They are acquainted with the clientele and familiar with practice functions Signup and view all the answers

What is a common observation when a practice changes hands?

Employees usually leave Signup and view all the answers

What is essential to evaluate in a viable practice?

A variety of factors, including production, receipts, and overhead Signup and view all the answers

What is the primary reason for having a written contract in a practice transfer?

To specify the terms of personal protection for the buyer Signup and view all the answers

What is the possible advantage to the buyer in a practice transfer arrangement?

Increased retention of clientele Signup and view all the answers

What is the role of the seller's legal counsel in a practice transfer?

To protect the seller's interests Signup and view all the answers

What is the importance of having a well-developed plan when negotiating a loan?

To establish goals and a program tailored towards achieving them Signup and view all the answers

Why is it necessary to consult with a CPA when negotiating a loan?

To identify the sources of loans Signup and view all the answers

What is the typical outcome for the seller's activities in the office after a practice transfer?

The seller terminates their activities in the office in a relatively brief span of time Signup and view all the answers

What is the primary purpose of a lease?

To establish a temporary agreement for the use of property Signup and view all the answers

Why is it essential to insist on a lease for your own protection?

To protect yourself if you make improvements to the property Signup and view all the answers

What is the typical basis for calculating the annual rent?

Total footage x foot divided by twelve (12) months Signup and view all the answers

What should you avoid when negotiating a lease?

Committing to a long period of time without options for renewal Signup and view all the answers

Why is it recommended to have a lease reviewed by an attorney?

To ensure the lease is fair and protects the lessee's rights Signup and view all the answers

What is an essential factor to consider when negotiating a lease?

The description of the premises Signup and view all the answers

What is the purpose of an escalator clause in a lease agreement?

To schedule automatic increases in rental fees Signup and view all the answers

What is one of the advantages of leasing equipment?

The leasing cost is tax deductible Signup and view all the answers

What is one of the responsibilities of the lessor?

Painting and performing major repairs Signup and view all the answers

What is one of the disadvantages of leasing equipment?

Leasing is more costly than purchasing unless in a high tax bracket Signup and view all the answers

What is the purpose of a security deposit in a lease agreement?

To provide a guarantee for the lessee's obligations Signup and view all the answers

What is one of the services provided by the lessor?

Concierge services, including janitorial services Signup and view all the answers

Study Notes

Buying a Dental Practice

When buying a dental practice, Doctor de Gomez will retain the present personnel.
The goodwill of the practice may be affected if the seller is deceased.
The seller's attitude towards the buyer is crucial, as they will need to recommend the buyer to their patients.
Factors to evaluate when buying a practice:
- Age, reputation, and competence of the seller
- Average monthly or annual gross production
- Average monthly or annual receipts
- Amount of accounts receivable
- Fixed overhead
- Average monthly or annual overhead
- Monthly, quarterly or annual reports
- Fee schedule
- Present personnel
- Types of genre or services performed
- Recall system (quality)

Employee Retention

Retaining employees, especially the receptionist, is crucial as they are acquainted with the clientele and practice functions.
Employees usually leave when the practice changes hands.

Leasing

A lease is a contract providing for temporary occupancy and/or use of property.
Leases can be tricky, drawn in favor of the lessor (renter), so it's essential to have the lease reviewed by your own lawyer.
Factors to consider when negotiating a lease:
- Description of the premises
- Length and duration of lease
- Amount of rent, usually calculated on an annual amount per square foot
- Date and place of payment
- Options for renewal of lease
- Insist on a lease for your own protection if you pay for improvements to the property leased.

Evaluating a Practice

Three major groups of information to evaluate when valuing an existing practice:
- Actual value of the facility
- Goodwill
- Internal management factors
Actual value of the facility includes:
- Inventory stock of equipment, furnishings, and supplies
- Leasehold improvements
Evaluating supplies can be challenging, but a reasonable estimate of their value should be made.

Written Contract

Written agreements on practice transfer require legal services of an attorney.
The contract should specify terms for personal protection.
Practice transfer can be advantageous to the buyer, allowing the seller to reduce their patient load while the buyer assumes the practice.

Negotiating a Loan

It's essential to be prepared with a well-developed business plan when negotiating a loan with a lender.
A CPA can help identify sources of loans and develop a plan tailored toward achieving goals.

Leasing Equipment and Furnishings

Factors to consider when leasing equipment and furnishings:
- Length and duration of lease
- Amount of rent
- Options for renewal of lease
- Escalator clause (automatic increase in rental fees)
- Provisions for resolution of disputes

Advantages and Disadvantages of Leasing

Advantages of leasing:
- No capital outlay (no need to borrow)
- Leasing cost is tax-deductible
- Leasing cost may be lower than purchasing
- No investment in equipment that depreciates
- Protects lines of credit
- Easier to update equipment as it becomes obsolete
- Frees capital for more profitable investments
Disadvantages of leasing:
- Unless in a high tax bracket, leasing is more costly than purchasing.

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Description

Evaluate the key factors to consider when assigning a dollar value to an existing dental practice, including the facility's value, goodwill, and internal management factors. Discover how to assess the value of inventory, equipment, and leasehold improvements. Test your knowledge of dental practice planning and valuation.