Practice Negotiations and

Contracts: Financial Decisions

for Future Success
Charles Loretto


Disclosure
Cain, Watters and Associates P.L.L.C. is an Investment Advisor
registered with the Securities and Exchange Commission. No client or
prospective client should assume that any information presented or
made available during this presentation is a receipt of, or a substitute
for, personalized financial planning consulting advice. Financial
planning consulting advice can only be rendered after the following
conditions are met: 1. Delivery of our form ADV Part 2A to you; 2.
Execution of an Investment Advisory and/or Financial Planning
Engagement Letter between us.

For additional disclosure, please refer to the Cain Watters &
Associates P.L.L.C. FORM ADV Part 2A. You may obtain a copy by
contacting Cain Watters & Associates P.L.L.C. at 972-233-3323 ext.
6015, or send a written request to Gary V. Moore, Chief Compliance
Officer.

Loretto Kids

Why am I here?
Build a relationship with you
Develop trust with you so that you will eventually
let us review any business deal you are
considering
Motivate you to own a practice sooner than later
Educate you on important life decisions that are in
front of you

Loretto Keys to Success
Know somebody
Have an unique skill set
Have an outgoing personality
Toast masters, Dale Carnegie courses
Work Hard
Be Nice

Do You Have a Plan?
Most dentists think they have a plan
Are you protected with adequate coverage?
Life Changes
Have you set retirement goals?
Timeline
Future Income
Savings Goals
Investment Returns
Have you set business goals?
Buying an Existing Practice
Becoming a Partner
Starting a New Practice

Ideal One Doctor Practice
Bringing in an Associate
You LOVE the established doctor
Gross Production $1,000,000
Overhead 55%
New Patients 40 monthly
Partnership 2 year period
Guaranteed Salary $90,000
Detailed Plan of Attack

Marketing Plan
Marquee
Business Plan
Business Cards
Open House
Announcement to the Community
Direct Mail Campaign
Introduced as Partner on Day 1

Space
5 to 7 Chairs
Over 2000 square feet of space is
ideal
New consult room

Why Are We in a
Sellers Market?
The S&P 500 as of January 3
rd
, 2000 was 1455 and the quarter end as
of September 30
th
, 2012 was 1441. No stock market growth for a very
long time.
Assuming the selling doctor is 60, has $1MM saved, plans to sell the
dental practice and building for a total of another $1MM, pay taxes and
be left with $1.75MM of liquid assets.
Now the doctor needs to get a yield on his/her money. Current CDs
are yielding between 0-1% or in this example $17,500.
All news is negative, so selling a business that one built and managed
over 35 years, living off of ones money is a scary thought.

Walk-Away Practice Considerations
What does the practice gross
What does the practice net
Can you do the dentistry
How much would you net after debt-service
Can you live on that income
Is the established doctor staying on and for how long
Is the non-compete a greater distance than the furthest
active patient

What amount of production does the established doctor
need to produce that you cannot
Is the employment agreement for the established doctor
one year or less
What is the asset allocation of the sale(60% Goodwill and
40% FFE) The greater the allocation to Furniture, Fixture
and Equipment for the buyer the better for tax purposes
Get a second opinion before you buy the corporation
Consider shutting down the pension plan in the office
before becoming the owner

Walk-Away Practice Considerations
Practice Scenario
Walk-Away Sale Example 1:
Buyer has been in the practice for 2 years
Practice is outdated and needs new equipment
Established doctor is willing to stay on in the practice as an associate
Buyer is producing $60,000 doctor production in 4 days
Practice was doing 800k two years ago, now doing 1.2M
Price was set at 600k prior to associate joining the practice

Gross Revenue $1,200,000
Number of Ops 6
Net Revenues $650,000
Price $600,000
Practice Scenario
Example 2:

Resident is completing program this year
The practice is in California
Seller presents first option to buyer, but the buyer is not happy with the
starting pay because he has 450K in dental school debt and has 2 kids
Collections $1,700,00
Overhead is 55% or $765,000
Valuation in 2008 1.1M on 1.4M collections, overhead was same at
55%

Example 2 Continued:
Scenario 2A:
Offer: 35% of collections for any new starts that the candidate
brings to practice
Years 1-4 - Associate agreement working for 3 days/week
Year 5 Buy-in half of the practice
Year 7 Buy-in the other half of the practice
Scenario 2B:
$700 per day for 2 days a week
$1,300 per day for 2 days a week at a corporate job
50% buy-in at 18 months
50% buy-in at 36 months
Example 2 Continued:
Scenario A:

Year: Salary:
1 ?
2 ?
3 ?
4 ?
5 Buy 50% $382,000
6 Buy 50% $382,000
7 $765,000


$1,530,000


Scenario B:

Year: Salary:
1 $70,000
2 Salary $35,000
Partnership $191,000
$226,000
3 $382,000
4 $765,000
5 $765,000
6 $765,000
7 $765,000

$3,737,000
Proposed Sale-Example 3A:

Seller is proposing a stock sale
Buyer would work for 2 years as an associate
Buy-in starts at year 3 and is complete at year 10
Salary for doctors is $175,000 or 30% of collections
-Gross 1.6 million
-Net $650,000
-Price Valued at year 3 & revalued at year 10
*Higher price assuming that the practice grew
Year:
1. Associate Salary 8. 50%
2. Associate Salary 9.
3. 5% 10. 100%
4. 5%
5. 5% 25%
6. 5%
7. 5%

Agreed-Upon Sale-Example 3B:

Seller agreed to an asset sale
Purchasing the practice as an asset sale vs. a stock sale will save the buyer over
$100,000
Buyer would still work for 2 years as an associate
Buy-In
Year 3 25%
Year 5 50%
Year 7 100%

-Gross 1.6 million
-Net $650,000
-Price Valued at 18 months & fixed for life
Estimated Cash for the Buyer
Example 3C:

Before:

Year: Profit Pool:
1. $175,000
2. $175,000
3. $175,000 $15,000
4. $175,000 $30,000
5. $175,000 $45,000
6. $175,000 $60,000
7. $175,000 $75,000
8. $175,000 $150,000
9. $175,000 $150,000
10. $175,000 $300,000

$1,750,000 $825,000

$2,575,000
After:

Year: Profit Pool:
1. $175,000
2. $175,000
3. $175,000 $75,000
4. $175,000 $75,000
5. $175,000 $150,000
6. $175,000 $150,000
7. $175,000 $300,000
8. $350,000 $300,000
9. $350,000 $300,000
10. $350,000 $300,000

$2,275, 000 $1,650,000

$3,925,000
Example 4:

Associate is from the area
No valuation of the practice has been completed
Associate wants seller to stay in the practice and help
Seller wants to hold onto the building


Gross Revenue in 2011 $600K
Net Revenue in 2011 $240K
Valuation is 70% of Collections $430K
Net After Debt Service $180K
Building Valued $300K
Proposed 10-Year Lease $3,700 per month
Estimated Financing Building $2,600 per month (w/ ins. & taxes)

Senior Doc Stays on
as Employee
Have a separate short-term employment agreement
Non-compete issues with radius and at least 5 years
Know exactly what seller needs to net for their personal
financial planning needs
Figure out the most you can produce then subtract from total doctor
production and use this a base for the established doctor.

Please Consider the
Building:
Purchase of Dental Building
20-30 year financing
A bank will lend you the money on the building every time when it
makes sense to the bank

Critical Decisions You Must
Get Right!
Setting up your corporation correctly
Structuring your loan correctly
Are you getting the best deal. Do you understand all terms and options of the loan,
application fees, is this bank easy to work with after they close, what percent of their
business is dentistry, all banks are not the same
Asset allocation on the practice
Stock vs. Asset saledifference in cash-flow could be over $100,000
Who is selling you what insurance? Agents make commission so
please know what and why you are getting the policy.
Shutting down the pension plan
Rehiring all the new employees
Starting a new pension plan
Placing your spouse on the payroll if appropriate, placing children on the payroll if
appropriate

Critical Decisions You Must
Get Right Continued!
Setting up your corporate salary is huge, this ties to
your payroll taxes and your pension plan
How much of the working capital do you use to pay bills
or reinvest back into the business
Setting up your payroll correctly
Understanding how to do your accounting. It is not as
simple as it seems. When you manage a million dollar
business, you dont just lump all supply bills into one
category and pay it. You dont just put all employees in
one column and pay their salaries.
Understanding the break-even in your practice and
setting goals for you personally and your team

When and whom to hire as a consultant. Timing and
cash-flow is critical here
Purchasing the building. Once you are committed to
buying the practice the building needs to be considered
as well. Banks will lend here too, if the deal makes
sense.
Having a financial plan at home. Understand that if you
are 30, married, 2 kids, business debt of 600k, lease
obligations of 400k, dental school debt of 250k, new
home debt of 300k, we are now in 1.5MM of debt. You
need a plan!! You and your spouse!!
You must fully understand your finances because
1.5MM of debt is emotional.


Critical Decisions You Must
Get Right Continued!
Critical Decisions You Must
Get Right Continued!
You need to pick the right place to live and practice.
You also need to make a good financial decision when
you are 250k+ in dental school debt.
You must understand that cash is king. Saving money
can bail you out of problems. Paying down debt and
having no money will leave you with little options.
Managing good debt is key here.
Consider hiring specialist to surround you personally
and professionally. Do you want a heart surgeon that
has never performed heart surgery working on your
family member or do you want someone that has
performed thousands of surgeries. Note to
dentistDont perform your own financial surgery.

THANK YOU!
Cain, Watters & Associates
New Client Services-Charles Loretto
charles@cainwatters.com
www.cainwatters.com
info@cainwatters.com
972-233-3323
National Dental Placements
President-Charles Loretto
www.nationaldentalplacements.com
Office 972-239-0971