Negotiating Your Offer

So you made it through the interviews and reference checks and finally landed a concrete offer. Not quite what you were hoping for? Take a deep breath. It is time to negotiate.

In my experience, dentists are not generally the best negotiators. Negotiating makes many of us uncomfortable. Most would prefer to just “take it or leave it” rather than stumbling into an awkward battle of wills. I am here to tell you that it doesn’t have to be like that. What is awkward personally is an integral part of the business world. Most practice owners understand this and expect you to work with them to structure a win-win situation.

So how do you do that? Here are a few tips:

First, be sure to keep your discourse upbeat but professional. It is important to let them know that you are enthusiastic about the offer. You do not want your hesitation to accept to come across as a rejection of them or their practice. Keep in mind that they aren’t professional negotiators either. Though cliché, it’s not personal, it’s just business.

Second, do your research. How much should you expect to earn? Here are some resources through our blog, the Annual Dental Economics/LevinGroup Study, or the ADA site.  Also, be familiar with the terminology and common negotiable points of the contact. Click here to read a good summary of common terms and conditions.

Third, know your absolutes before you start. This is different than setting your goals. You need to make a personal decision about what you absolutely need. If the final contract doesn’t reach this standard, you must commit to yourself that you will walk away. It may be tempting to change your absolutes, but how realistic is it that you could be happy working under a contract that you resented from the start?

Fourth, make it clear that you want to achieve a “Win-Win” situation. Just as you don’t want to settle for less, you need to hear out the other side. Allow them to justify their approach. Ask for details to support their argument. The more they talk, the easier it will be to uncover their real objections. Are they worried that you are being paid too much or are they really just worried that you won’t be able to handle the load? Is that reasonable or do they just not have the patients?

Fifth, hold firm to what is important but don’t be immovable. If they didn’t think you were worth it, you wouldn’t have an offer in hand. There is nothing wrong with drawing a hard line and letting them propose alternatives. Just be sure to make it clear that you would consider concessions. Then, if they are willing to make a concession, you need to be prepared to concede as well.

Sixth, be prepared to walk away. Some things just weren’t meant to be. If there is absolute deadlock and you were not able to achieve your absolutes, it may be time to step out of the process.  Be sure to be gracious. Don’t burn any bridges. The dental community is too small for that.

Finally, get it in writing. Once you have agreed to terms, be sure that those terms are clearly spelled out in the final contract.

I hope that these tips will help you form a solid foundation on which to build the next stage of your career. Please feel free to contact the recruiters at ETS Dental if you have any questions or for more tips on lining up your dream job.

Morgan Pace is a Senior Regional Dental Recruiter with ETS Dental. He covers the South-East U.S. territories. Morgan can be reached at mpace@etsdental.com.

Real Life Dental Practice Purchase Case Studies – Dental CPAs

 

This is an article from our good friends at Dental CPAs. 

www.dentalcpas.com | www.dentalcpas.blogspot.com

These are my top five examples of how proper due diligence can avoid the overpayment for a practice, or worse, a buyer having to claim bankruptcy!

1. Missing dental supplies – Normalization, good intentions, bad results

I gathered the information from the seller’s advisors and prepared my analysis worksheets. I noticed there wasn’t a specific category called dental supplies. That may not be an issue as they may have been thrown in with office supplies and expenses which were around 7-8% or revenue - right ? However, since office supplies and expenses run around 1-1.5% the person who did the valuation eliminated around 6% of the office supplies and expenses, adding profit of approximately $50,000 to the bottom line. So I ask two questions: the first: “why did you reduce office supplies and expenses from 7-8% down to 1-1.5%?” The reply was “because office supplies and expense are usually in that range and when we asked the seller why they were that high they said that’s the category that they run their perks through”. Fair enough, however, my next question was “so where are the dental supplies? Don’t they typically run 4-7%?” ….silence… so then I ask “isn’t it likely that the dental supplies were included in the office supplies and expenses and that’s why they’re 7-8%?” I was right and the price dropped by over $150,000 because of this one oversight!

2. Income, now you see it, now you don’t  – Poof post settlement

After gathering all the information to prepare my assessment I was comparing the annual practice management reports of production, adjustments, collections by provider and everything looked normal. Then, I compared the practice management collections to the collections reported on the tax returns and the tax return collections for the past three years were higher by at least $85,000 and $110,000 at the most. Generally the collections between the practice management reports, tax returns and profit and loss reports are different, however, they should be close and most of the times the practice management report collections are HIGHER than the tax returns, so this was strange. After asking the question to the broker, who had to ask the seller, we learn that the seller was working a day a week in another office about an hour away from his office to earn extra money. The seller did nothing wrong as they were reporting the income for income tax purposes as they should. However, the broker only used the income tax returns for their valuation (apparently) and failed to compare them to the practice management reports. Therefore, the practice price was inflated by more than $75,000 because that income would have disappeared right after settlement…at least for the buyer!

3. Prostho practice in sheep's clothing – Do the referrals even know you?
I was hired by a doctor to assess a GP practice that was doing just over $1 million per year in revenue, with overhead lower than 50% at a price of $765,000. On the surface nothing seems out of place so far. So we ask for the information necessary to assess the price and the practice performance and I begin my analysis. Right away I notice staff wages are hovering around 15-18%, strange, but great if that’s what the seller has been able to achieve in a GP practice. Then, as I’m going through the production\adjustments\collections by provider I notice hygiene production is only $90,000 on average. I then compare the staff wages and sure enough, hygiene wages are only around $35,000 annually. So I do some quick math and determine the dentistry should be around $270,000 for a GP practice of maybe $400,000 at best…so where’s the $1 million in revenue coming from? The seller does a ton of full mouth restoration work and we ask where these cases come from. The reply is through seminars and referrals from other professionals. Apparently this doctor had made a name for himself doing these full mouth cases and was getting referrals from other local GPs, plastic surgeons and ER docs that saw broken teeth accidents. Unfortunately the broker had valued the practice as though it was a GP practice without doing any analysis on the make-up of the revenue. My client really wanted this practice and against my advice they agreed to a $600k offer with $50k contingent on future revenue. I had suggested a base offer of $350k (the premium price for a GP practice doing $400k) plus $150k contingent on future revenue because I suspected the buyer would NOT see much, if any referrals from these other professionals. I was right, revenue in the first 12 months dropped to just over $750k only because part of the deal was that the seller would remain for two years to finish up some cases and help with the goodwill transfer. Revenues in the next 12 months barely topped $700k. On the upside my client didn’t get sucked into paying $765k, the downside is they overpaid at $600k and they are feeling it now. 

4. Invisible perks – No double-dipping allowed!
I had gathered much of the information needed to assess the asking price for a practice before getting the valuation that was performed by the broker. After receiving their valuation report I saw that their asking price was more than $300,000 higher than the top end of my price range…which is quite unusual. So as I review their valuation report I noticed that the broker had added back to profit exactly $100,000 each year and labeled it “owner perks”. This was in addition to the correct add backs of pension, automobile, travel, ce, meals & entertainment, and other expense category normalizations. So we asked for a breakdown of the $100,000 of additional “perks” and the reply was “we asked the owner how much in perks they run thru the office and he replied well over $100,000, so we just stopped at $100,000”. Then I asked “did you ask the seller what made up the figure he gave to you? We need to see the details”. They hadn’t, however, they did after we brought it to their attention and the owner was including many of the adjustments they broker had already correctly made so in essence, they were adding back many of these expenses twice. They took the practice off the market shortly after that, we suspect because the seller realized he wasn’t going to get 95% of revenue for his practice!

5. Created profits – The tale of two offices
A buyer wanted us to evaluate an opportunity where he was offered to purchase the satellite office from a doctor who had a primary office about 30 minutes away. Our first question was if the seller kept these locations in two separate entities and the answer was yes. Great, that’s usually good news since having two locations in ONE entity can be a very complicated assessment as you have to try to separate the two locations just to evaluate one of them. initially we only got the tax returns and we saw a practice doing about $600k in revenue with expenses of $300,000, 50% overhead… that’s pretty good. They had established a price of $475,000 for this practice which seemed reasonable based on everything we saw, especially the low overhead. So as the asset purchase agreement was being drafted and negotiated we continued to ask for the practices production reports and w-2s for the staff. We finally get the information just about when the asset purchase agreement was getting finalized (coincidence you think?) so we compared the w-2’s with the wages deductions on the tax returns and the w-2 totals were higher… that’s not right. We then compared the PM collection reports with the collections per tax returns and the tax returns were higher… that’s not right. Here’s what we determined even though the seller would not admit it: 1. They were reporting some collections from the primary location into the satellite location to inflate the income. And 2. They were paying\reporting some of the satellite expenses from the primary location to deflate expenses. the result was the appearance of a highly profitable practice worth nearly 80% of revenue when it was a practice probably doing between $500k-$550k in revenue with expenses closer to $350k, 67% overhead worth maybe $300k, a price difference of $175k. 

Buyers Beware! You really need to make sure you perform a thorough due diligence and if you don’t know how to do that or what to look for you could be setting yourself up for failure at worse, a very difficult road for the term of your loan at best.

For more information, please contact info@dentalcpas.com

Original article found at http://dentalcpas.blogspot.com/2013/05/real-life-dental-practice-purchase-case.html

Job Opening: Only Superstars Need Apply

When you Google, “How to hire great employees,” one of the first answers offered is to only hire superstars. It's great advice. If everyone in a company is the best in their field, the company will be unstoppable. Unfortunately it is a hiring strategy that most companies use—and it clearly doesn’t always result in superstar-only companies.

Organizations take great pains to find these impact players. They cast a wide net, eliminate people because of the slightest flaw, and put candidates through rigorous tests and interviews. Yet, no matter how logical these methods seem, they often skip over exactly the type of candidates they are meant to find. And these searches always seem to start with a resume.

In addition to helicopters, armored tanks, and scuba gear, Leonardo da Vinci is also recognized to have written the first known resume. In 1482, while trying to get a job with the Duke of Milan, da Vinci submitted a nine point summary of his skills and experience. By the early 1900’s resumes had become common place, though often consisted of little more than a handwritten career summary. In the middle of the century though, they had come into their own as resumes began to resemble what we know today; a single page typewritten summary of a life and career.

In today’s market, a wide net can quickly bring in hundreds if not thousands of resumes from the most active candidates. With that sea to wade through, resume screening quickly becomes perfunctory. Each resume at first pass can really only get seconds of attention and minor—non-superstar related attributes—become reasons to exclude people from consideration.

“The more dismissive you are of candidates, the less likely you are to actually find who you are looking for,” says Rob Romaine, president of MRINetwork. “As recruiters we obviously look at resumes, but that is just the first step. The evaluation doesn’t even start until we actually have conversations with potentially qualified candidates.”

To make the process simpler, employers and HR departments are frequently turning to technological solutions to parse resumes and automatically cull the herd. These solutions, though, are still constrained by the narrow manicured view provided by resumes. And people who advertise themselves as superstars, rarely are.

“It’s through a very inaccurate picture that most candidates are rejected. With limited information, the screening process isn’t about finding top candidates, but simply focuses on eliminating as many as possible,” says Romaine. “Impact players get skipped over every day because a critical skill wasn’t highlighted, the wrong word was used, or because of nothing more than unusual formatting.”

Most every attempt to shorten the screening process seems to do little more than handicap it. So how do you find a hay shaped needle in a haystack?

“Talking. Talk to the candidates, use video if possible or meet in person. Turn interviews into business conversations. Bring a candidate into a problem you are trying to solve and ask for their advice. You’ve got to dig for not just how they work, but how they think and approach problems. If you don’t have time to talk to every candidate who matches the basic requirements, look for reinforcements or use a recruiter,” says Romaine. “The hardest thing of all is to not eliminate candidates for reasons which don’t matter. At the end of a long search, the best candidate is often one that didn’t stand out on paper and if you’d been just a little more selective, you might have never considered them at all.”