Thanks to our friends over at Dental CPAs we bring you this great thread from Dentaltown regarding Associate transitions.

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I’m going to begin a 1-2 year associateship with the opportunity to buy 50% of the practice after that period. I’ve hired a practice sales broker/CPA to provide me with a second opinion on the appraised value of the practice.

Jason Wood, Dental Attorney:

Is he representing you as a CPA or as a broker? There is a big difference in fees I would imagine.

I’m trying to arrange it so everything about the associateship, transition, and purchase of the practice will be arranged in a contract prior to beginning.

Jason Wood, Dental Attorney:

This is extremely expensive to do. My recommendation would not be to do this but to have everything addressed in the associate agreement with the particulars of the deal (ie purchase price, ability to acquire 50% of the building, etc.) being built into the contract. Otherwise to properly do this now will cost you around $15,000. Wait until you know you can work together before spending this kind of money.

However, I’d like to receive an appraisal of the building/real estate, but the CPA has informed me that it can become very expensive to have the building appraised. Although the CPA does not appraise office buildings himself he has recommended an agent he has used in the past. He has also told me that the building appraisal could cost several thousands of dollars and may not even matter since any bank/lender will want another appraisal to loan me the money.

Jason Wood, Dental Attorney:

Agree that you can buy in to the building at the appraised value of the building when you acquire the practice, that way you push the appraisal out and the bank that will lend you to money for the acquisition would be happy to lend you more on the real estate since it strengthens their position.

Is there any benefit to having the building appraised this early into the associateship? With the real estate market as bad as it is I would like to capitalize on the depressed market values. 

Tim Lott, Dental CPA

You should keep in mind having it appraised now won’t guarantee you that this value will be the price in the future. Put yourself in the seller’s shoes. Historically, after real estate has declined substantially, would you be willing to lock in a price on an asset that’s likely to go up in the future?

What you can do is consult with a commercial real estate agent and see what the comps are for similar space so you can get a range of what to expect in terms of real estate value. See if that range matches what the seller is thinking. I don’t see any benefit in paying for the appraisal now.

With respect to the practice, I do see the benefit in trying to establish the price now; however, just know that you can appraise the practice as of say 12/31/2011 in 2013 very easily.

Good luck.

Jason Wood, Dental Attorney:

Sure. Creating the partnership agreement, the purchase agreement, the lease review, etc. would be very expensive to do right now. You can:

1. Agree to the purchase price now
2. Agree to the closing date
3. Agree to when the parties need to back out before it becomes binding
4. Agree on stop gap measures to insure compliance after the back out date
5. Agree on the structure of the partnership
6. Agree on the building acquisition

All in the associate agreement without having to draft all of the other documents right now. That way if the deal doesn’t go forward, you don’t spend the extra money on the details contained in all of those other documents.

Went ahead and attained an appraisal. I’m meeting with the sales broker/CPA to discuss the appraisal. What are some questions to ask him?

Tim Lott, Dental CPA
It seems to me your questions will be driven by how that meeting goes and the information that gets presented. I don’t know what questions I’m going to ask of a sellerroker re: their valuation or asking price until I’ve seen what they’ve done, how they did it, the information they used generate their report.

Once you see this you’ll be in a better position to know what questions to ask I would think.

Good luck!

This first appeared on Dentaltown.

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