Unique Dental Practice Purchase Offer

Senior Doc opening a new practice 7 miles away from the old office and offers to go 50/50 on the cost of the startup and the net profits at the end of every year + 55/hr (goes up if production gets pumped) + no management responsibility – the senior doc will NOT work at the practice and will continue working in the old office.

What do you say?

1. What if the total cost is $300k, will he LEND you $150k & you can borrow the other $150k from a dental lender & simply pay him interest as you would the dental lender? The senior doc may have to stand in line behind the other lender which they may not like unless you can get the other lender to take the same position on the assets.

2. If you MUST be EQUITY partners, I suggest you work out the specifics as to how you get compensated for your dental services (I guess that’s the $55/hour) although I’d suggest at least 35% of collections and for your management services, maybe an annual salary of $50k per year and the remaining profits are split based on equity.

3. The other thing you could to is work it so YOU get paid for your dental & management services and the remaining profits have two tiers, the first being that each EQUITY partner gets a 10-15% return on their INVESTMENT first, then the 2nd tier goes to you as the PROFIT partner.

Just be sure you’re clear on the difference between a return on equity (partner profits) vs. being compensated for services.

An example: if the CEO of Disney and I own the same # of shares of stock, we get the same dividend as “owners”.

However, because he’s the CEO, he gets a trillion in compensation BEFORE those dividends are paid.

Point being, if he’s managing (which I’m still confused about since he’s not working there), pay him a fair compensation for those services, you get a fair compensation for your services & any remaining “profits” are the dividends. In your case (the dentist generating the revenue) you might want certain levels of compensation based upon certain revenue thresholds.

Good luck.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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