Considerations for Buying and Selling a Dental Practice During the Pandemic

by Ken Arding, BDO Canada

It goes without saying that the COVID-19 pandemic has been an unexpected and unprecedented period in Canada and beyond. And while you might think that would hinder dental professionals from buying or selling a practice, think again.

Over the last few years, the healthcare industry has undergone an unrivaled rate of change but particularly during the pandemic. Larger consolidators or platform companies are buying or buying into multiple practices, aggressively targeting growth through acquisitions.

This trend is even more prominent in the dental industry. Take Altima Dental for example. The brand was founded in 1993 by Dr. Sven Grail and Dr. George Christodoulou, who were both driven to pursue growth. And they did just that. In 2019 alone, Altima Dental celebrated a record-breaking year by increasing its total number of dental clinics by 60% and adding over $160 million in partnership value. They now service clients at over 100 clinics in six different provinces, offering a variety of services.

These types of transactions can be mutually beneficial for both parties involved. For those investing in a dental practice, there are some certainties. Canadians will always have teeth, and there will always be a need for dentists to care for them. Cash flow is strong as a result. And for sellers, selling a practice can result in a once in a lifetime windfall. But particularly amidst the uncertainty of the pandemic, it’s important for buyers and sellers to understand all the variables at play before making a decision.

Here are some considerations for buyers and sellers to take into account before jumping into a deal.

Determine Priorities

Buying or selling a practice can be overwhelming, and the pandemic hasn’t made things any easier. But don’t panic! Take a moment to consider some of the things that matter most to you. Understanding what you want to achieve out of a transaction is the first step to reaching a deal that works best for you personally and professionally.

One example of this is the pandemic-driven trend of dental professionals accelerating their retirement. Some dentists that may have been 3-5 years away from selling their practice are choosing to sell now and stay on as an associate until they are ready to start that next stage of their lives. If you want to sell, but don’t want to retire right away, that’s a stipulation that you should consider before signing off on a deal.

There are also unique stipulations for deals conducted with consolidators. Some consolidators offer “earnouts”, which is compensation earned over time rather than earned upfront. Often times a consolidator will also want the seller to stay on as an associate for a time to ensure a seamless transition. And while these stipulations may work for some, they may not work for others.

With that said, there’s no right or wrong answer when it comes to buying and selling a practice. What matters is what works best for you. If you’re ready to buy or sell, don’t settle on just any deal. Make sure it fits your needs and preferences.

Know your worth

Not all appraisals are created equal and should be evaluated by a financial professional to ensure that buyers are not overpaying, and sellers are not underselling. For buyers, this means critically evaluating all aspects of a given practice, particularly the pandemic-driven trends that may have emerged during the pandemic. Has the practice weathered the storm? Has it been able to recover?

There are other factors to an appraisal that need to be considered as well, particularly for those buying a practice. For example, it is one thing to buy a practice, but will the infrastructure provide you with the option to grow? And if the current lease is set to expire, will you be faced with an unexpected increase in costs? There is so much more to consider than simply the financials on a balance sheet.

At the end of the day, ensuring a transaction is fair and equitable for both sides is the right way to conduct business, especially given the difficult economic climate we find ourselves in.

Be efficient

When it comes to large transactions like these, taxes play a big role and so it is also important for buyers and sellers to consider tax efficiencies. These efficiencies can vary based on a number of different variables, such as the type of deal and the province the deal is being completed in.

Sellers, for example, may qualify for the Lifetime Capital Gains Exemption (LCGE). The LCGE helps minimize the amount the seller is taxed on the capital gain of the sale, or the proceeds from the sale less the original purchase price of the practice. Half of the capital gain is taxed at a marginal rate, which can be as high as 53% in Ontario.

This is just one of many ways a financial professional can save you money. But there are many other tax rules and considerations that are involved in the sale of a dental practice that will not only alter the financials of a sale but also the timing of it. That’s why planning ahead is so important.

Buying a dental practice can be one of the most significant purchases in the career of many dental professionals, and the sale of a dental practice is often the biggest windfall a dental practitioner will fall into. With that said, these types of transactions cannot be taken lightly, especially given the circumstances created by the pandemic.

About the Author

Ken is a Partner at BDO Canada with over 27 years of experience providing Assurance and Accounting services to businesses and professionals. Ken graduated from Confederation College in 1989 with the President’s Medal in Accounting and Finance Administration. Ken obtained his Certified General Accountants designation in 1991 while practicing with a mid-size firm in Thunder Bay, Ontario. Ken’s primary focus is to provide the highest level of accounting, tax and advisory services to owner-managed businesses and healthcare professionals. His varied range of clients includes those from the retail and service industries, as well as healthcare professionals.

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