Over the years we’ve had clients approach us about purchasing the goodwill of a nearby practice. Typically, it is a small 1 chair practice with the dentist approaching retirement. The lease may be ending and the fitout and equipment old with little value in selling the practice as a whole on the open market.
How this plays out usually is that this dentist would approach nearby practices. They would offer to bring their patient base to this nearby practice and either work for a higher % or ask for a nominal sale price of say ~50-100K. They’d work for a certain time period, often part-time and eventually retire. The nearby practice would then hopefully retain the majority of these patients. It’s a win-win situation. The retiring dentist can keep working on their own patients and at their own pace without the headaches of ownership. The nearby practice will also likely keep this goodwill once the dentist retires.
However, recently we came across a deal that really concerned us. The vendor wanted 500K for billings or goodwill of 400K with an earnout of 40K (only paid if the 400K billings is achieved). He would work 2 days at 40% and be free to work elsewhere without limitations on the other days.
We had several issues with this. The main one being the large sale price of 500K but also that the vendor could sell the goodwill but just work elsewhere on the other days with their patients free to go to where he works on the other days. The vendor had little motivation to do the 400K of billings. We will say, for a general practice this additional 400K of billings can be profitable if there is a spare chair available. Although, the sale price needs to be significantly lower given the risks.
We implore anyone faced with a similar situation to carefully assess the scenario and risks involved.
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