Dr. Nicholas Caplanis answers questions about the process he followed buying a periodontal practice in California...

Bridging the Way: 2003 Student Event
BUYING A PRACTICE

Below is an interview with Dr.Nicholas Caplanis.

Nicholas Caplanis D.M.D., M.S., is a private practitioner in Mission Viejo, CA; an assistant professor at Loma Linda University; and has been a member of the American Academy of Periodontology for 6 years.  He is a member of the Committee on the New Practitioner and a committee liaison for the Membership and Awards Committee.  He received both his periodontal certificate and Masters of Science degree from Loma Linda University in 1997.

What was your ideal plan after graduation?

My ideal plan after graduation involved finding a practice with a periodontist who would be retiring in 1-3 years. I would have liked to have associated during that time and bought the practice once the retiring periodontist decided to leave.

What factors affected your plans and decisions about your career and future?

Factors included living in an area that my family and I had selected, as well as an area closest to a university so that I could continue my academic and research career.

What appealed to you in terms of buying a practice?

The appeal of buying a practice involves being able to control my own destiny.

How did you begin the process of buying your own practice?

The process of finding or buying my practice began while I was still in residency. I had already selected the areas of the country where I was licensed, and wanted to live and raise my family. So, I began searching those areas for an older periodontist near retirement age.

Did location influence any of your decisions?

Location obviously influenced the decision, but was not the main decision-maker.

Did you meet with an attorney, practice consultant or accountant before pursuing a loan? Why or why not? What did they do for you and why was it beneficial?

I met with many individuals. I had hired a business attorney as well as an accountant. I had also consulted with another attorney as well as another accountant for a 2nd independent review of each individual's evaluation and recommendations. I did not use a practice consultant, but in retrospect, had I known that these individuals existed, I would have used one. I had selected an attorney as well as an accountant who was familiar with dental issues and had practices that tailored to the dental community. My accountant, in fact, exclusively works with dentists and the dental profession. These professionals were extremely beneficial to the negotiation process of buying my practice and helping me understand the numbers involved and what would be a reasonable offering price for the practice.

How did you determine the financial requirements for buying a practice?

The financial requirements for buying a practice are relatively simple. The price of a practice is irrelevant as long as the bottom line net profit is able to sustain the type of living expenses that you require. These issues take into account the average gross production of the practice minus all of the expenses as well as taxes.

How did you obtain financing?

The broker who helped broker the practice purchase arranged financing. I had selected MATSCO financing. The rates obviously are a little higher than what can be obtained from the bank. However, they do not require personal guarantees and obviously coming directly out of school, there are no personal assets that you can offer as collateral. My only disappointment with this financing arrangement was the method of amortization over the 7-year financing agreement. I was not aware that the amortization calculated all of the interest during the first half of the payment agreement. After practicing 3-4 years, I was actually financially able to pay down the note in an accelerated fashion. However, given that the interest was already paid completely, there was no benefit for me at that time. Therefore, I recommend that if possible, financing arrangements should be made in a way that there is no pre-payment penalty and that the amortization is a straight amortization over the term of the loan.

What risks were involved in starting your practice?

As with everything in life, there were multiple risks starting the practice including bankruptcy. There were obviously no guarantees that I would be able to produce or generate the type of income that the practice had been generating with the retiring periodontist. Therefore, it could have been possible that I would not have been able to fulfill all of my financial obligations.

How did you assess and manage those risks?

I had certainly assessed all of the risks and understood what they all were, but they are obviously difficult to manage because much is unknown. I was confident in my skills and abilities as a periodontist. I had felt that I had brought something to the practice (implant experience) that would help the practice grow in addition to what the retiring periodontist had performed. I felt that I could work slightly harder than the retiring periodontist in order to be able to meet my financial obligations.

Did the original owner work in the practice in the beginning or retire?

The original owner worked in the practice for approximately 6 months before he completely retired. He remained as my associate with the guarantee that I could retain his services helping for 2 years with the transition in the sale of the practice. I did not require 2 years and therefore, we mutually agreed that our relationship could end at the 6-month mark.

If the original owner remained in the practice, do you have any suggestions for making this a win-win for the past owner and the present owner?

The original owner of a practice has a very difficult situation to deal with from a psychological standpoint. This is a turning point in this individual's life, not only career wise, but also the selling of his practice. The new owner needs to be aware of these issues and respect them. When I bought my practice, I decided that I was not going to make any major changes to the office, its staff or policies until I was comfortable that the transition was successful. Even at that time, change came slowly so as not to disturb patient care as well as my employees. A mutual respect is paramount between the new and previous owner in order to make the transition successful. If the selling doctor does not respect the new doctor, then it would be difficult for him to support a new doctor to his patients and his referral base. The present owner truly has to respect the integrity and clinical skills of the buying doctor in order to help “sell” the new doctor to the patients as well as to the referral base.

What is your situation now?

Since buying my practice approximately 6 years ago, we have enjoyed 10-20% growth over each year. I am currently a solo practitioner, but have recently brought in an associate who does have a buy-in opportunity. The practice is thriving and is considered one of the top periodontal practices in my community.

Did you restructure the practice's finances in the beginning to pay the bills, yourself, staff and/or buy new equipment, etc.?

When purchasing the practice, I had made an error not purchasing the accounts receivables, which made paying the bills the first 3 months of buying the practice rather difficult. I believe that in these situations, the new periodontist should buy the accounts receivables which will allow him a cushion to pay all of the bills and salaries during these first 3 difficult months when transitioning.

What financial issues or considerations came into play when planning for the future?

This is a rather general question and difficult to answer. Future planning should involve estate planning, retirement plans for the doctor as well as his staff, educational funds for the children and many other issues.

Using real or fictitious numbers, how did the realities of your finances compare to the plan you originally outlined?

My expectations with respect to finances were congruent with my 1st year assessment and exceeded my 2nd, 3rd and 4th year assessment with respect to practice growth. Given the recent economic downturn, we certainly have felt the affects of this country's recession.

What resources (i.e., people, publications, groups) did you find the most helpful?

The most helpful resources were mostly people. I had tapped into professionals including accountants and attorneys. I had also tapped into a number of periodontists and general dentists alike and took whatever input they could give me as part of the education process of buying a practice.

Given what you know now, what might you do differently?

There is not much that I would have done differently except that I probably would not have negotiated as hard regarding the practice purchase price. In my personal situation, the original asking price for the practice was approximately $400,000. The final negotiated purchase price was in the mid $300,000 range. In retrospect, given how successful I have been in this practice, I do not feel that the $50,000 that we were negotiating back and forth is as important today as it was back then. That amount of money could have been the deal breaker and I could have lost this practice to another buyer who was willing to pay it. In retrospect, an extra $50,000 for the price of the practice would have not really changed my financial situation that much. My advice, therefore, is “don't be penny wise and dollar foolish”!!

What suggestions do you have for individuals buying a practice?

My suggestion for those who are trying to buy a practice is to buy it as soon as possible. We have all spent many years pursuing our education and training and we have lost some very important income-producing years that is difficult to catch up. Therefore, I feel it is important upon graduation that each young periodontist find a practice to purchase as soon as possible. Becoming an independent contractor or itinerant periodontist delays the process of buying a practice and also compromises private practice periodontics as we know it today. Remember - nothing ventured, nothing gained.

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