If you’re a young dentist whose parent is also a dentist, listen up. If you’re not, perhaps you know someone who is. Forward this post to them, because it’s important
I’ve worked with quite a few parent/child dentist families, where the parent is retiring and the child is coming up in the industry and ready to buy the parent’s practice. Seems easy! No adversarial relationships here, right?
I certainly hope so! While some aspects of this type of transition are easier, it also comes with less obvious landmines to avoid.
I recently got an email from someone who came to one of my talks, asking for advice on how to handle a potential practice purchase from their parent. I loved this email because it was so frank. The parent is thinking of phasing out and retiring within a few years, which lines up well with the child, who will finish up residency next year. And while the timing makes sense, the young dentist isn’t necessarily set on buying that practice, and is also looking at other options.
Both the parent and the child seem to be going into this process with their eyes—and possibilities—open, and wanted to know what their next steps should be. Here is my reply to both of them.
On the buying side, some next steps I’d recommend at this point would be:
- Keep your options open and continue having discussions with other potential acquisition opportunities. Not for leverage, but because life happens and it’s not fair to put pressure on a parent who may or may not be ready to sell.
- Make geography and quality of life the determining factor on which option you lean towards, not money. Residents at the tail end of school with the accompanying pile of student loans often lean towards the option that will put the student loans in the rear-view the quickest. That’s understandable. In candid tax and financial planning conversations with buyers who purchase practices, there is little difference in quality of life after $300k/year in revenue for the average specialist.
- Patient attrition isn’t a reason to make a transition decision. Many sellers and buyers assume a parent/child transition will be easier because the patients will appreciate the last name. That’s true for a handful of them. (And there will be roughly 10-12 patients who will be LOUD that the child isn’t as good as the parent. Just plan on it.) The patient attrition rates in the most adversarial of dental transitions is less than 5%. The average patient attrition rate on ALL dental transitions is actually a negative number – meaning the buyer adds net patients to the practice in year one very consistently.
- Get a valuation done for parent’s practice, if you go that route. Pay market value. If a parent offers a discount, be super grateful but don’t expect or feel you are owed one.
On the selling side, some next steps I’d recommend would be:
- Get hard numbers from a CPA or CFP on your ability to retire and walk away from the practice, if you haven’t already.
- Sit down with a therapist, mentor, or friend that calls you on your B.S. about your emotional readiness to sell. This is MUCH HARDER than most sellers anticipate.
- Be really honest about both of the above with your child.
- If you’re good with the first two bullets, get your practice valued sometime within 12 months of an anticipated transition timeline. Your average valuation will cost $5k.
- If you both trust the valuator, you can plan to split the cost. You can absolutely save 10% of the purchase price and do this without a broker.
- You cannot save money on attorneys. You each need to pay your own. Full stop.
- As long as the practice is collecting north of $1.2M there is enough profit juice to support you fading out as an associate (and introducing your child to all the referring docs to build those relationships) for 6-18 months. If you’re looking for 2+ years of sticking around the practice, you’re not ready to sell.
These are mostly theoretical- or advice-based ideas. The actual logistics of pulling off the transition including costs and timeline are much easier and more straightforward, but come after alignment and answers to the above.
If you or someone you know is in this boat, I hope this advice helps! If there’s something about your particular situation that you want my take on, just reply to this email or head here to schedule an intro call.
