Goodwill, depreciation, amortization, fixed assets and intangible assets and other tax & financial terms are not generally something that doctors tend to think about day-to-day. However once an individual understands how much these figures can impact their taxes, it tends to garner some more consideration in the purchase or sale of a dental practice.
Understanding goodwill is particularly important because as a buyer, this is what you are really buying and hoping to preserve in your ownership of a practice. For both the buyer & seller, the allocation of the purchase price to goodwill vs. fixed assets has tax impacts. The value of dental practices is typically 70%-85% made up of Goodwill & Intangible Assets.
Frankly, sellers have more to lose than the buyer with an unfavorable purchase price allocation. Buyers should be sensitive to because given how much of the practice’s value is goodwill. It is so important to preserve as much goodwill in the practice as possible and some of that lies in how smooth a practice sale goes. The structure of what is and is not included in the deal is also crucial. Is this asset sale (usually the case) or stock sale, is the AR excluded?
As part of our work with the Shared Practice Ownership Accelerator course, we pulled a few slides from our lectures that cover some of these topics. A short presentation, Tax & Purchase Considerations for Dental Practices can be downloaded along with many other free content pieces on our Resources page. Let us know what you think as we continue to build out our reference and information materials, we hope you are finding them useful.
If you are a dentist, I encourage you to checkout Shared Practices, join their Facebook Group, and sign up for their Ownership Accelerator Course waiting list. Let me know if you are interested in learning more, 585-260-7566 or firstname.lastname@example.org.