May 3, 2021
by Lisa Philp; Dr. Sean Robertson; Dion Farentino
The “post-COVID” dental practice marketplace continues to demonstrate a steady rebuild of productivity, adaptation to the return of health-conscious patients, while being deemed an essential health service. The profession’s ability to overcome a pandemic climate is commendable.
The pandemic has definitely not impacted the high value of dental practices, the shortage of practices for sale and mass volume of anxious buyers. Dentistry is flooded with buyers, increasing by 1200+ new solo dentists a year, corporate groups and mid-level investors all wanting the same thing: A dental practice for sale!
When a practice is listed for sale, buyers inquire, prepare letters of intent (LOIs) with a dollar amount (often above appraised value) that frequently compete with many other buyers to be chosen by the seller. This involves a number of time-consuming inquiries and a review by the brokerage to verify lending qualification of the prospective buyers. This should be done before any offer can be presented to the seller to choose the right amount, right fit and right terms to transfer their legacy.
The most appealing financial offer is not always about the dollar amount, but whether the offer can be funded if a lender is involved in the purchase.
The best offer from a buyer includes an established working relationship with a lender/funder that can be verified. A lender who advises the buyer should be involved at the offer stage. They should be informed of the business plan of the buyer to take over the practice and maintain/increase cash flow and productivity to reduce lender risk.
“A lender can be a strong partner for those looking to purchase a practice,” says Dion Farentino, Vice President, Commercial Financial Services – Healthcare Professionals, RBC. “We work with buyers to ensure their business plan is well thought out for both the short- and long-term success of the practice. A Healthcare Professional Specialist can help prospective practice owners get a full picture of their financial situation, what they can realistically afford and how the purchase of a practice fits within their longer-term plans.”
Lenders will consider each DDS borrower’s collateral/capital assets combined with their experience and history as a clinician. This is reviewed in combination with the practice performance and the buyer’s plan to operationally take over ownership and maintain historical cash flow. That business plan should be simple, concise, and clear. It should provide lenders enough information to comprehensively assess if a buyer can afford the practice at the proposed purchase price with a margin of safety.
The following is a summary of the inclusions and content a buyer should have in their business plan when they approach their lender for support in a practice purchase.
Buyer Lender Business Plan Outline
The five areas of focus in every purchase to maintain historical and grow organically as a buyer.
The modern era of practice lending combined with the competition for practices requires an understanding by the seller’s agent of the validity of an offer to purchase submitted by each buyer. A buyer’s offer to purchase is only as strong as their ability to follow through on the offer. In today’s climate of increased lender scrutiny and the number of practicing dentists, it is more important than ever to be well prepared with a solid plan when that perfect practice comes along.
About the Authors
Lisa Philp of Transitions Group and Dr. Sean Robertson DDS of The Dental Broker Team, have joined forces to elevate the process of ownership transfer. Their combined 40+ years of dental expertise will ensure fair and mutually beneficial outcomes for seller, buyer, and lender. Their model supports buyers to maximize their opportunity, lenders to lend with confidence, and sellers to transition their way, while maintaining their legacy.
Dion Farentino, Vice President Commercial, Healthcare Professionals, RBC Healthcare. RBC Healthcare was created to address the needs of healthcare professionals throughout each of their life stages. RBC Healthcare’s network of over 500 Healthcare specialists are trained to understand the unique needs of Healthcare Professionals. To learn more, visit rbc.com/healthcare.
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