In our previous post in this series on Goodwill Value for Dental Practices, we discussed how the dollar value of Goodwill in a dental practice is determined (i.e. the sale price of the practice less the value of the tangible assets).
But what is Goodwill…really?
The Goodwill of a dental practice is the good reputation of the dentist and the staff, the patients’ confidence and comfort with the treatment they receive, and their loyalty to the dentist.
This is by far the most valuable asset of a dental practice, and it usually amounts to about 65-70% of the purchase price; sometimes even more.
That being the case, it is important that a buyer makes every effort to preserve the Goodwill of the dentist and the staff. Using a “pitbull” attorney who argues about all the details and prolongs the process of accepting the legal documents is one way to weaken the Goodwill of the Seller.
Making wholesale changes in staff and office hours, raising fees immediately, and being critical of the Seller’s standard of care can do great damage. Improving the “curb appeal” of the office (painting, carpeting, new equipment) can energize the staff and patients. But major changes in fees, office hours, etc. should be postponed until the patients have seen you a couple of times and you have built some trust with them.
Another way to preserve Goodwill is to provide complimentary dental services to the dentist and his or her spouse (not including lab fees). When patients ask the Seller what the Buyer is like, he or she can tell them that “my spouse and I are still patients in the office.”
Young dentists buying older dentists’ practices usually works very well. The fact that many banks will loan 100% of the purchase price and more for working capital is proof of that.
A well written strong endorsement letter from the Seller at closing is a must and that will be very effective with most patients. After all, they need to find a new dentist, so why wouldn’t they, at least, try the one recommended by the Seller and continue going to the office where they know the staff and are comfortable.
Before the endorsement letter is mailed, you should provide the receptionist and anyone else who might be answering the phone with a written script of what to say to patients calling about the new dentist. Something simple like “Oh, Mrs. Smith, I think you’ll really like our new dentist – we can’t wait for you to meet (him or her).”
Buyers should remember that most Sellers are very proud of their practice – it is their life’s work and regardless of how it looks or how big it is, they are emotionally connected to it and to most of the patients.
Being sensitive to that during and after the sales process will help ensure that the Seller’s goodwill that was built up over 20 or 30 years in practice will be transferred to you. Then you can begin building your own Goodwill in the practice and increasing the value of your investment.