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Corporate Purchase: What You Need to Know to Make the Right Decision for You

Several times a week we are approached by either a doctor who has been contacted by a corporation that says it is interested in acquiring their practice or by an investor group that is looking to purchase practices in Florida. Corporate dentistry is growing here and throughout most of the country and will continue to do so unless the dental community resists – especially since the growth of many of these corporations is through practice purchase, not start-up. Considering how these deals “work” (or don’t work) though, perhaps resisting should be a bit easier.

The Role of Corporate Dentistry
Let’s be clear, there is a place for corporate dentistry or clinic type operations. They provide a training ground for new dentists and they may be a good fit for dentists with no interest in owning a practice of their own. They also provide vital care to many patients who may not have insurance plans that are conducive to private practice (many PPOs are a detriment to the private practice simply because the economies of the plans are dependent on extreme efficiencies that can only be found in larger corporate storefronts).

Private vs. Corporate
The corporate dental purchase, though, is an entirely different situation. Simply put, in nearly every case, there is no reason for a private practitioner to sell to a corporation or dental management service organization (DMSO). Why? For several reasons:

  1. Corporations want desirable practices – meaning those practices that are 6-8+ operatories and collecting in the one million dollar (plus) range. Further, they are not interested in non (or barely) profitable businesses – they require overhead to be in line with range norms, if not lower. There may be a feeling, or you may be told that your practice is “too large” to transition. Essentially, this is what a majority of corporation purchasers want but…
  2. Corporations generally will not pay “full” price. They generally look to take some discount and require a management fee of up to 20% that is added on to the practice overhead before any “profit sharing” is calculated. Additionally, as a Seller, you will nearly never receive the entire purchase price at time of closing. Most often 15-20% (or more) is held back to ensure that you comply with this…
  3. Corporations nearly always require the Seller to stay and work. Usually, if the Seller doesn’t stay for at least two years the offered price will be severely discounted or there will be no offer at all. Should the Seller leave early, the money held back will not be paid. Further, expect to only make somewhere around 25% of the Seller’s collections (not production and not including hygiene collections) and know that corporation required continuing education as well as other expenses will be deducted from your pay.

Guidance
If you have been approached by a corporation or are considering this as a transition route, contact your local ADS Florida representative before taking the next step. We are a resource regarding this option and have developed models to give doctors a good idea of how a potential sale may work out. Find your local representative here or give us a call at 800.262.4119.

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