Transition Period in Dental Transitions Explained By Dental Transitions Lawyers
Transition period in dental transitions refers to the length of time that the selling dentist agrees to stay onboard and be employed by the buyer of dental practice after the Closing. The transition period may be a very important part of the negotiations and the purchase agreement including the length of transition period and the compensation paid to the selling dentist.
The importance of the transition period stems from the fact that the buyer does not want to meet the patients of the seller without any introduction by the seller that normally comforts the patients and is a conduit for the patient to return to the office after a nice introduction.
Many patients may not have the incentive to return to the same dental office once a new dentist has taken over. Having the selling dentist who is well familiar with the patients and is willing to give proper introduction to the buying dentist goes a long way to increase the chances of the patients returning to the same office.
The rate of reduction in patients is called the “attrition rate” and the buying dentist naturally should try to minimize it to keep up and even build on the dental practice’s revenues. For the same reason, the transition period could play a big factor in determining the purchase price. A selling dentist who has no intention of returning to the office immediately or shortly after the Closing could lose a great deal of leverage in setting the purchase price.
As previously mentioned, a factor in determining the purchase price is the predictability that the buying dentist will have the benefits of certain amount of revenues and/or profits which could be substantially affected if the selling party is not willing to return to the office for a specified amount of time, the transition period.
The transition period is subject to negotiation and there are two (2) main factors that a buying dentist should weigh and balance in negotiating with the selling dentist. In DSO deals, the transition period usually lasts 3-5 years. However, in dental transitions that do not involve DSOs, the transition period could be as short as a month or as long as a year.
Again, the buying dentist should weight and balance two (2) factors, namely, the attrition rate and loss of revenues versus the cost of employing the selling dentist. There are situations when an associate dentist within the same dental practice buys out the owner(s), however, the associate dentist is probably well-familiar with the patients and has an already established rapport with them. In such cases, the cost employing the selling dentist(s) may not make sense unless the selling dentists provides specialty dental services that the buyer does not or the volume of patients requires to employ additional dentists anyway. The transition period could provide some time so the buying dentist can search and find another dentist for long term employment.
Kamkari Healthcare Law
Dental Transitions Lawyers
10411 Motor City Drive, Suite 750, Bethesda, MD, 20817