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There are numerous methods of dental practice transitions: complete sale; associateship leading to complete sale; associateship leading to partnership and eventual buy-out; seller becomes the associate; delayed buy-out; sale of a portion of a practice; merger; sale of charts. There are pros and cons for each of these types of dental practice transitions. The starting point is for the dental practice sale is to decide how much longer he plans on working and whether he intends to cut back during that time frame. If the time frame is less than two years, then in most cases the complete sale is the method of choice.

The tax consequences of selling a dental practice differ between buyer and seller. For someone buying a dental practice, in most cases there are no taxes to be paid. The buyer is looking for write offs. Generally, the entire dental practice purchase price can be written off. Supplies are an immediate expense, equipment can be written off over five to seven years, or expensed via IRS 179 in the year of purchase. The intangible assets (the goodwill can be subdivided into restrictive covenant and patient records as well) are a fifteen year write off. Therefore, the objective of most buyers is to classify as much of the price as possible into tangible assets. The seller will pay taxes on any of the profit from the price. For equipment, there is no tax up to the basis, ordinary income up to the original cost and capital gain over the original cost. For the intangible, goodwill and patient records are taxed at capital gain rates and the restrictive covenant is taxed at ordinary rates. C corporations have the additional tax complication of a tax at the corporate level and then the personal level. In these situations, goodwill should be classified as personal to get it out of the corporation. As with any tax issues, check with your tax advisor before proceeding with any transaction.

There are a number of key ingredients in negotiating a successful dental practice partnership. Of course, the first assumption is that the doctors have been working together for a while and are compatible. The ingredients include: the percentage of the practice being sold, the price, the terms, how the income will be split, management of the practice and a method to value the practice for an eventual buy-out. A common issue is the determination of a fair price for an associate to pay for a buy-in. Generally, they want a discount for the revenue they generate. Oftentimes, a price reduction is done in order to complete a buy-in. The most important issue, however, is not the price but the income splitting. There are numerous methods of splitting the income. In many cases, the more successful methods have two elements; production and percent ownership. Dental practice owners have dual roles: they are providers and should be compensated for their efforts at chair side; they are also owners of a business and should share with any other owners some of the residual profit in the practice. Approximately 50% to 80% of the profit can be split by productivity and the balance by percent ownership. Of course, during the buy-in period, the cost to the new partner will need to be deducted from his share of the profit (assuming the entire price was not paid up front).

There are many costs associated with buying a dental practice. There is the cost of the practice itself, which is determined by a number of factors including the location, size, cash flow, profit and if it is a general or specialty practice. The practice cost can also vary by region. In the New Jersey and eastern Pennsylvania market most practices will sell in the range of 50-80% of collections, taking all of the previous factors into consideration. There are additional costs to consider as well, which include advisors (attorneys, accountants etc..), real estate if it is being purchased, and any other lender costs, such as borrowing money for working capital. Even with interest rates rising, the dental industry is one of the few where lenders will in almost all cases lend 100% of the purchase price plus provide working capital.

Considerations when selling a dental practice include determining the type of sale, preparing the practice for sale, setting a realistic price, understanding the potential tax consequences, deciding on financing options, and identifying potential buyers. It is also important to work with a dental practice broker or advisor, prepare all necessary legal documents, and address any lease or real estate issues related to the sale.