Spring 2014T R A N S I T I O N S

Shauna Lenius

604.669.7558 TEL 604.669.7445 FAX

SUITE 1700-570 GRANVILLE ST. VANCOUVER BC V6C 3P1

250.754.1951 TEL 250.754.1577 FAX

SUITE 2-92 ROBARTS ST. NANAIMO BC V9R 2S5

1.888.668.0629 TOLL FREE www.purtzkigroup.com

Why 2014 Is The Year You Should

When you get up in the morning and you look in the mirror, ask yourself: "If today is my last day on this earth, would I go

keep asking yourself the same question for a whole week and you arrive at the same answer, you passed the test of being transition ready. You don't have to quit cold turkey; you can opt to work as a locum for fun and earn extra cash. You may even be asked to stay on as a part-time associate after the sale.

the practice than now. Why you ask? Despite a continued strong demand, values have peaked in most parts of B.C. The reason is that the purchase price cannot support the income from the acquired practice. In many instances, the

-more, banks are scrutinizing each deal more closely than

... Continued on page 2

SQUAMISH4 ops, state-of-the-art family practice.

VICTORIA4 ops, high gross, 50% overhead.

MILL BAYIn town centre, 4 ops, good investment.

VANCOUVER (downtown)

ABBOTSFORD Well-established family practice, 750k gross.

VANCOUVERSpace ideal for oral surgery practice, 2 ORs, great location.

VANCOUVER (Kitsilano)-5 ops, well-established family practice, 50% buy-in.

VICTORIA3 op practice in professional building, very reasonably priced.

VANCOUVER (downtown)50% buy-in , located in AAA building, 12-year-old family prac-tice, great investment.

VICTORIAOrthodontist, 6 ops, strong referrals.

VICTORIA5 ops, strong hygiene program, real estate available.

COQUITLAM High gross solo practice, 40% overhead, ample parking

VANCOUVER ( CoalHarbour) New practice, street-level, huge growth potential.

ASSOCIATE POSITIONS AVAILABLE

Vancouver

Duncan

Surrey

Campbell River

Chilliwack

Please contact Shauna Lenius :

Tel : 778-328-7607

Fax:

TOLL FREE : 1-866-227-0070

shauna@purtzki.com

Problem: No Growth, Shrinking Cash Flow

When a business loses market share and experiences a

the business to a working partner in exchange for much needed capital and complementary business expertise to help the business grow. The same rationale applies to

willing to inject funds, share the overhead, and help to bring in new patients are strategies that could make a

The partial or fractional sale, or buy-in strategy, has long been associated with large practices, practices with lots of growth, or as the initial phase of a retirement sale, but it has also been proven instrumental in getting a stagnant practice growing again. Because of the sharing of owner-ship and control, it takes two committed dentists to make the relationship work. However, the shared ownership model has a reputation of failing too often, mostly due to incompatibility and lack of planning. Thus, the key to a successful group practice is the sharing of the practice philosophies, a written plan that expresses the expectation of the dentists in terms of sharing revenues and costs, and the legal obligations regarding the management of the practice and exit options.

Below are the components of a successful fractional sale plan.

1.Consulting with the dentist about the decision to proceed with sale plan.2.Establishing the fractional value of the practice.3.Preparing the clinic for the addition of new dentist.4. Searching for the ideal candidate.

... Continued on page 2

604.669.7558TEL 604.669.7445FAX

SUITE1700-570GRANVILLEST.VANCOUVER BC V6C 3P1

250.754.1951TEL250.754.1577FAX

SUITE 2-92 ROBARTS ST. NANAIMO BC V9R 2S5

1.888.668.0629TOLL FREE www.purtzkigroup.com

Associate placementBuyer RepresentationValuationsHourly ConsultingPractice Sales

Scratch Start Made Easy.

2 PURTZKI TRANSITIONS PURTZKI TRANSITIONS 3

... continued from page 1

Dentists often talk about practice value in terms of gross

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) matters. EBITDA determines the price of the practice. Here are a few examples explaining why this is the case:

If you purchase a rental property, why would you care about the gross rents? The gross does not matter, as EBITDA deter-mines the value of the property. In addition, what has EBITDA got to do with the decision to sell sooner rather than later? The most likely reason is that practice incomes have been slipping and are expected to continue to slide. You may have read about this trend in the R.K. House reports, heard it from colleagues, and/or noticed an eroding

reduce the practice value. For instance, if your net practice income drops by $100,000, the goodwill value will likely be reduced by $150,000.

Recent surveys show that 70% of the practices earned less money this year than last year. If you have been experienc-ing declining practice income and are ready to transition out of your dental career, consider selling the practice as soon as possible in order to maximize the selling price.On the other hand, if you love practicing dentistry, you may opt to continue working and not worry about the possible future erosion of the value of your practice. Falling revenues are not subject to the laws of gravity, so you can be proactive in making your practice management systems

higher selling price in the future. However, if you passed the mirror test and are more than ready to sell your practice, contact us for a conversation about your transition options and the best possible outcome for you.

Please contact us for a no charge consultation.

... continued from page 1

5.Preparing letter of Intent: purchase price, ownership arrangement, management, cost/ revenue sharing, and buy-out provisions.6.Getting an acquainted trial period (e.g., 3 months).7.Acquiring the new dentist’s commitment after trial period: signing legal documents and deposit.8.Receiving full payment of the purchase price once the

The trigger point

Before the new dentist can pay the purchase price, he or she

the monthly overhead share, and cover personal and living expenses.

Generally, the trigger point is reached when the income earned as a part owner is equal to income earned as the associate in the previous year. This is illustrated below.

Collections for the year $500,000 Share of clinic expenses $250,000

Debt servicing $50,000 Net income before tax $200,000

Previous associate income $200,000

The trigger point is a gross production of $500,000. Once the new dentist reaches the $500,000 mark, he or she can proceed to complete the purchase.

The income earned by the new dentist prior to triggering the purchase will be in form of an associate compensation, e.g. a percentage of collections. The deposit will only be refundable to the new dentist if the existing dentist cancels the deal prior to the payment of the purchase price. A typical provision in the contract is that the new dentist can trigger the purchase at any time but no later than 2 years. We have helped dentists implement the complex fractional sale model for years. This experience has provided us with the experience to deal with all the issues regarding

-tive partnership of compatible dentists.

-ing a practice. A year ago she took the plunge of setting up a practice in a rapidly growing area of the city. With a gross monthly practice income of $60,000 and 90 new patients each month, her 3 treatment rooms produced $600,000 in

of less than 50%. The premises are designed for 6 operato-ries with enough capacity to hire an associate for the evenings and weekends. The bank provided her with a $500,000 loan for the leaseholds and equipment and $200,000 of working capital to draw on before she broke even after 6 months. The decision to be available to patients most evenings and weekends, Dr. Zahnarzt found it easy to grow her practice.

It is no doubt a risky business venture to spend $700,000 on a practice start-up without any patients. This uncertainty is the reason why young dentists choose to buy even overpriced practices. Yet still, to invest $1,000,000 for an

barely pays the bills is just as risky. By inheriting patients

lacks the control to manage the practice to maximize its

From an investment point of view, it is therefore worthwhile to consider the scratch start vs. the existing practice option. Practice values have peaked and the best the purchaser of an existing practice can hope for when he sells his practice

Why 2014 Is The Year... is to get his investment back. Dr. Zahnarzt, on the other hand, is creating wealth with every new patient. With a goodwill value of about 70% of her revenues of $600,000,

The overhead expense for dentists who started a practice is usually 15-20% lower than dentists who bought an old practice. You may also have more fun as a scratch-start

like, and have increased control over the kind of patients you wish to attract to the practice. As illustrated above,

-start dentist is hard to beat.

The substantial cost, the lack of management skill, and

most young dentists.

We can reduce the risk of starting from scratch by:

2.Negotiating a lease;

4.Setting up complete management systems;

6.Providing marketing support; and

Your practice is one of your most valuable assets. It repre-sents many years of hard work and dedicated service to your patients. When it comes time to sell, you deserve a

of your life-time investment.

A thoughtfully constructed and clearly presented profes-

We prepare valuations for many reasons, such as:

Determining the sale/purchase value of a dental practiceValuating a partial sale to or purchase from a partner dentist

Valuations for tax reorganizationRetirement/estate planningMarital break-up settlement

We pride ourselves in having an impeccable reputation for providing accurate dental practice valuations. Banks are most appreciative of our valuations, particularly, the inclu-

-

Please contact Manfred Purtzki at manfred@purtzki.com or 604-669-7558 about a valuation of your practice.

Scratch Start Made Easy.

2 PURTZKI TRANSITIONS PURTZKI TRANSITIONS 3

... continued from page 1

Dentists often talk about practice value in terms of gross

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) matters. EBITDA determines the price of the practice. Here are a few examples explaining why this is the case:

If you purchase a rental property, why would you care about the gross rents? The gross does not matter, as EBITDA deter-mines the value of the property. In addition, what has EBITDA got to do with the decision to sell sooner rather than later? The most likely reason is that practice incomes have been slipping and are expected to continue to slide. You may have read about this trend in the R.K. House reports, heard it from colleagues, and/or noticed an eroding

reduce the practice value. For instance, if your net practice income drops by $100,000, the goodwill value will likely be reduced by $150,000.

Recent surveys show that 70% of the practices earned less money this year than last year. If you have been experienc-ing declining practice income and are ready to transition out of your dental career, consider selling the practice as soon as possible in order to maximize the selling price.On the other hand, if you love practicing dentistry, you may opt to continue working and not worry about the possible future erosion of the value of your practice. Falling revenues are not subject to the laws of gravity, so you can be proactive in making your practice management systems

higher selling price in the future. However, if you passed the mirror test and are more than ready to sell your practice, contact us for a conversation about your transition options and the best possible outcome for you.

Please contact us for a no charge consultation.

... continued from page 1

5.Preparing letter of Intent: purchase price, ownership arrangement, management, cost/ revenue sharing, and buy-out provisions.6.Getting an acquainted trial period (e.g., 3 months).7.Acquiring the new dentist’s commitment after trial period: signing legal documents and deposit.8.Receiving full payment of the purchase price once the

The trigger point

Before the new dentist can pay the purchase price, he or she

the monthly overhead share, and cover personal and living expenses.

Generally, the trigger point is reached when the income earned as a part owner is equal to income earned as the associate in the previous year. This is illustrated below.

Collections for the year $500,000 Share of clinic expenses $250,000

Debt servicing $50,000 Net income before tax $200,000

Previous associate income $200,000

The trigger point is a gross production of $500,000. Once the new dentist reaches the $500,000 mark, he or she can proceed to complete the purchase.

The income earned by the new dentist prior to triggering the purchase will be in form of an associate compensation, e.g. a percentage of collections. The deposit will only be refundable to the new dentist if the existing dentist cancels the deal prior to the payment of the purchase price. A typical provision in the contract is that the new dentist can trigger the purchase at any time but no later than 2 years. We have helped dentists implement the complex fractional sale model for years. This experience has provided us with the experience to deal with all the issues regarding

-tive partnership of compatible dentists.

-ing a practice. A year ago she took the plunge of setting up a practice in a rapidly growing area of the city. With a gross monthly practice income of $60,000 and 90 new patients each month, her 3 treatment rooms produced $600,000 in

of less than 50%. The premises are designed for 6 operato-ries with enough capacity to hire an associate for the evenings and weekends. The bank provided her with a $500,000 loan for the leaseholds and equipment and $200,000 of working capital to draw on before she broke even after 6 months. The decision to be available to patients most evenings and weekends, Dr. Zahnarzt found it easy to grow her practice.

It is no doubt a risky business venture to spend $700,000 on a practice start-up without any patients. This uncertainty is the reason why young dentists choose to buy even overpriced practices. Yet still, to invest $1,000,000 for an

barely pays the bills is just as risky. By inheriting patients

lacks the control to manage the practice to maximize its

From an investment point of view, it is therefore worthwhile to consider the scratch start vs. the existing practice option. Practice values have peaked and the best the purchaser of an existing practice can hope for when he sells his practice

Why 2014 Is The Year... is to get his investment back. Dr. Zahnarzt, on the other hand, is creating wealth with every new patient. With a goodwill value of about 70% of her revenues of $600,000,

The overhead expense for dentists who started a practice is usually 15-20% lower than dentists who bought an old practice. You may also have more fun as a scratch-start

like, and have increased control over the kind of patients you wish to attract to the practice. As illustrated above,

-start dentist is hard to beat.

The substantial cost, the lack of management skill, and

most young dentists.

We can reduce the risk of starting from scratch by:

2.Negotiating a lease;

4.Setting up complete management systems;

6.Providing marketing support; and

Your practice is one of your most valuable assets. It repre-sents many years of hard work and dedicated service to your patients. When it comes time to sell, you deserve a

of your life-time investment.

A thoughtfully constructed and clearly presented profes-

We prepare valuations for many reasons, such as:

Determining the sale/purchase value of a dental practiceValuating a partial sale to or purchase from a partner dentist

Valuations for tax reorganizationRetirement/estate planningMarital break-up settlement

We pride ourselves in having an impeccable reputation for providing accurate dental practice valuations. Banks are most appreciative of our valuations, particularly, the inclu-

-

Please contact Manfred Purtzki at manfred@purtzki.com or 604-669-7558 about a valuation of your practice.

Spring 2014T R A N S I T I O N S

Shauna Lenius

604.669.7558 TEL 604.669.7445 FAX

SUITE 1700-570 GRANVILLE ST. VANCOUVER BC V6C 3P1

250.754.1951 TEL 250.754.1577 FAX

SUITE 2-92 ROBARTS ST. NANAIMO BC V9R 2S5

1.888.668.0629 TOLL FREE www.purtzkigroup.com

Why 2014 Is The Year You Should

When you get up in the morning and you look in the mirror, ask yourself: "If today is my last day on this earth, would I go

keep asking yourself the same question for a whole week and you arrive at the same answer, you passed the test of being transition ready. You don't have to quit cold turkey; you can opt to work as a locum for fun and earn extra cash. You may even be asked to stay on as a part-time associate after the sale.

the practice than now. Why you ask? Despite a continued strong demand, values have peaked in most parts of B.C. The reason is that the purchase price cannot support the income from the acquired practice. In many instances, the

-more, banks are scrutinizing each deal more closely than

... Continued on page 2

SQUAMISH4 ops, state-of-the-art family practice.

VICTORIA4 ops, high gross, 50% overhead.

MILL BAYIn town centre, 4 ops, good investment.

VANCOUVER (downtown)

ABBOTSFORD Well-established family practice, 750k gross.

VANCOUVERSpace ideal for oral surgery practice, 2 ORs, great location.

VANCOUVER (Kitsilano)-5 ops, well-established family practice, 50% buy-in.

VICTORIA3 op practice in professional building, very reasonably priced.

VANCOUVER (downtown)50% buy-in , located in AAA building, 12-year-old family prac-tice, great investment.

VICTORIAOrthodontist, 6 ops, strong referrals.

VICTORIA5 ops, strong hygiene program, real estate available.

COQUITLAM High gross solo practice, 40% overhead, ample parking

VANCOUVER ( CoalHarbour) New practice, street-level, huge growth potential.

ASSOCIATE POSITIONS AVAILABLE

Vancouver

Duncan

Surrey

Campbell River

Chilliwack

Please contact Shauna Lenius :

Tel : 778-328-7607

Fax:

TOLL FREE : 1-866-227-0070

shauna@purtzki.com

Problem: No Growth, Shrinking Cash Flow

When a business loses market share and experiences a

the business to a working partner in exchange for much needed capital and complementary business expertise to help the business grow. The same rationale applies to

willing to inject funds, share the overhead, and help to bring in new patients are strategies that could make a

The partial or fractional sale, or buy-in strategy, has long been associated with large practices, practices with lots of growth, or as the initial phase of a retirement sale, but it has also been proven instrumental in getting a stagnant practice growing again. Because of the sharing of owner-ship and control, it takes two committed dentists to make the relationship work. However, the shared ownership model has a reputation of failing too often, mostly due to incompatibility and lack of planning. Thus, the key to a successful group practice is the sharing of the practice philosophies, a written plan that expresses the expectation of the dentists in terms of sharing revenues and costs, and the legal obligations regarding the management of the practice and exit options.

Below are the components of a successful fractional sale plan.

1.Consulting with the dentist about the decision to proceed with sale plan.2.Establishing the fractional value of the practice.3.Preparing the clinic for the addition of new dentist.4. Searching for the ideal candidate.

... Continued on page 2

604.669.7558TEL 604.669.7445FAX

SUITE1700-570GRANVILLEST.VANCOUVER BC V6C 3P1

250.754.1951TEL250.754.1577FAX

SUITE 2-92 ROBARTS ST. NANAIMO BC V9R 2S5

1.888.668.0629TOLL FREE www.purtzkigroup.com

Associate placementBuyer RepresentationValuationsHourly ConsultingPractice Sales