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Articles

The Professional Advisory

  1. Is it Time to Move?
  2. Staging A Dental Practice
  3. The High Cost of Dying
  4. Deal-Busters
  5. Patients - Attract and Retain
  6. Should I Stay or Should I Go?
  7. Is There a Buyer for Every Practice?
  8. Good, Better, Best - The Market has Spoken
  9. Smooth-Sale-ing
  10. Buying Time
  11. Patients, Patience, Patients
  12. A Real Patient
  13. Why Do a Practice Valuation? I'm not Selling
  14. Irrational Exuberance or The New Normal?
  15. Do dental equipment and dental technology affect a practice value?
  16. Finding and Being a Mentor
  17. Bigger is Better
  18. Daves Top Ten List for Buyers (Vendors should read this too!)
  19. How Well Do You Know Your Practice?
  20. Dave
  21. What will happen to dental practice Values in the next 10 years?
  22. Your Premises Lease is an Important Asset
  23. What are Associates Thinking?
  24. There is Life Outside the GTA
  25. When Is the Right Time to Sell My Dental Practice?
  26. Mergers are a Viable Option
  27. Is Your Associate an Asset or a Liability?
  28. Has your Practice Facility Kept Up With Your Billings?
  29. The 100 per cent of Gross Myth
  30. The Past, The Present and The Future
  31. Caveat Emptor
  32. Overpaid Long Term Staff
  33. Selling your Practice in Stages
  34. A Potential Pitfall of Selling Shares
  35. Value in Your Practice Through Balance
  36. Only Trusted Staff Can Defraud You
  37. To Own or Not to Own Practice Real Estate? That is the Question.
  38. Coping With A Large Patient Base
  39. Successful Dental Practice Transitions
  40. Taking Care of Business
  41. The Investing Dentist Phenomenon
  42. Two areas to focus upon that could negatively impact the value of your practice
  43. Organize your Debt in Order to Sell your Practice
  44. Having a Better Team
  45. How Do I Prepare My Practice For Sale
  46. How Do I Prepare My Practice For Sale? Part 3
  47. How Do I Prepare My Practice For Sale? Part 2
  48. How Do I Prepare My Practice For Sale? Part 1
  49. Advice to My Son or Daughter Graduating from Dental School
  50. Transition - What to Expect
  51. Discussion on Digital X-Rays
  52. Partnerships and Shotguns
  53. Strategic Planning - How to Get Started
  54. Calling All Vendors - Practices have Gone Up in Value
  55. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
  56. Matrimonial Practice Valuations
  57. Purchaser's Guide to Affording a Practice
  58. Location Improvements Throughout Your Career
  59. Small Practice Valuations
  60. Partnerships – The Best and The Worst
  61. Changing Location When the Opportunity Comes Along
  62. Visual Presentation of Your Practice
  63. Presentation of Charts
  64. Your Premises Lease Can Be Your Worst Enemy
  65. How to Select an Appraiser for Your Practice
  66. How Are Your Billing Ratios?
  67. It Pays to Invest in Your Tangible Assets
  68. The Importance of Separate Financial Statements
  69. Five Time Frame Levels to Sell a Practice
  70. 12 Suggestions to Safeguard Computer Data
  71. How to Buy a Visible Practice
  72. Why is there a shortage of good practices today?
  73. The Importance of Equipment in the Purchase of a Practice
  74. The Balanced Practice
  75. Will My Practice Be Saleable in The Future?
  76. Buyer Be Aware
  77. Excess Profit - The Second Key
  78. Patients and Profits are the Keys
  79. Plan Ahead

Volume 16: Your Premises Lease Can Be Your Worst Enemy

Download the PDF version now!

The lease of your premises can be a positive or negative factor in the sale of your practice. The banks will want to assure themselves that you will have possession of the premises well into the future if you intend to stay at that location. If so, it is appropriate to have your lease contain multiple options to renew to ensure possession into the future. If you want to ensure your occupation for 20 years, you could obtain a ten year lease with a ten year option to renew. However, this scenario will restrict how quickly you can write off the leasehold improvements for income tax purposes. The Income Tax Act permits you to write off your leaseholds improvements over the term of your lease plus the first renewal period, with a minimum of 5 years. Therefore, the 10 + 10 lease would permit the write-offs over 20 years or 5% per year on a straight line basis. This is a slow rate. A better alternative would be a three year lease with a two year option followed by three additional 5 year options. This also provides you with up to 20 years of occupation but you can write off the leaseholds in 5 years at the rate of 20% per year. Save your taxes now not in 20 years.

If the intention of the purchaser is to move the practice then you will want to have a short commitment to the lease. A three to four month commitment is ideal as it would give you time to organize the transfer of the patients to another location.

The worst possible combination is a low billing practice with poor visibility, high rent and a long term lease. This is typical of many new practices that have started from scratch. I recently reviewed a mature practice billing $150,000 annually, with three years remaining on the lease. The patient base was 250 active recall patients with virtually no new patients in the past year, and gross rent was $35,000 per year. In my mind this practice is unsalable because the rent is continuing for three years and as such the practice cannot be moved to an existing practice.

If your rent is over 10%, this is a negative factor in the value of the practice and the desirability of your practice. If the rent (occupancy cost) is under 5% in a larger urban community in Southern Ontario, this is a positive for the value of the practice.

My recommendation is that if you are near the end of your lease and you are anticipating selling within the next few years, and your landlord likes having a dentist in that location, I generally would recommend shorter leases with multiple shorter options to renew. If you are having some concerns about the renewal of your lease there are professionals who can step in and handle your negotiations with your landlord.

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