The Pathway to Selling a Practice by Dr. Tom Snyder

Dentaltown Magazine

Your step-by-step guide to covering all the bases before making a large transition


by Dr. Tom Snyder


For most practice owners, their practice is their most valuable income- generating asset. So when it comes time to sell, “doing it right” is essential to maximize the return on a career’s worth of effort. 

Experts place a premium on proper transition and financial planning, which become even more important when, as part of your long-term financial plan, you’ll supplement your retirement income with the practice’s sale proceeds.

This fact is supported by the statistic that the average retirement age of dentists, according to the ADA Healthy Policy, has increased to 68.9 years! The longer the timeline between now and your intended date to sell, the better the chance you have to achieve a more successful financial outcome. 

According to the ADA Retirement Survey, more than 55% of respondents who sold their dental practice said they found it somewhat or very difficult to sell. This is no small surprise; there are a multitude of tasks and steps that must be undertaken to increase the odds for a successful outcome. Selling your practice on your own can be a daunting and potentially overwhelming process!

To help prepare you, here’s a comprehensive pathway and timeline for you to consider. Hopefully, this information will enlighten and guide you to a successful practice transition.

5–10 years before the sale

  • Meet with a transition specialist for a session to discuss and map out your perfect plan.
  • Determine how much longer you want to remain a dental practice owner.
  • How long would you ideally like to continue treating patients?
  • Do you want to continue to work at the practice after the sale? If so, for how long?
  • Consider the different types of transition options:
    1. Outright sale into retirement.
    2. Role-reversal sale, where you sell to your associate.
    3. Sale of partial interest, bringing you into a partnership on an interim basis until you sell the complete interest to that partner or a third party (must be willing to engage a partner).
    4. Sale to a DSO or group practice network. Not “one size fits all,” but be prepared to remain in practice at the location for a specified time after the deal closes.
  • Compile all associate employment agreements and confirm that your restrictive covenants are sufficient to protect your business interests.
  • Meet with your financial adviser to determine the required asset goal so you can retire.
  • Retain a company experienced in dental practice valuations to confirm value, and work with your advisers to estimate your tax liability from the sale.
  • Prepare a letter of instruction with key information relative to the practice to include with your will in the event of the unexpected.
  • Get a professional practice management practice analysis to show how you may increase the value of your practice and improve your profits, as well as streamline office procedures and operations.
  • Determine whether it makes sense to upgrade to new, updated equipment and technology.
  • Spruce up the office—new paint, wallpaper, carpet, etc.
  • Confirm your fees and compensation structure are in line with the local market and industry standards. (Inflated employee compensation rates will dictate a reduced sale price, and buyers may not want to retain any overpaid employees.)
  • Review your website to ensure you’re using it most effectively.
  • Review your office lease, and possibly renegotiate a longer-term and favorable assignment clause. (Buyer usually gets a better deal by assuming an existing lease.)
  • If you are overstaffed, reduce your staffing level so the percentage of wages falls within the accepted guidelines.
  • Retain a company experienced in dental practice valuations to confirm value, and work with your advisers to estimate your tax liability from the sale.
  • Prepare a letter of instruction with key information relative to the practice to include with your will in the event of the unexpected.
  • Get a professional practice management practice analysis to show how you may increase the value of your practice and improve your profits, as well as streamline office procedures and operations.
  • Determine whether it makes sense to upgrade to new, updated equipment and technology.
  • Spruce up the office—new paint, wallpaper, carpet, etc.
  • Confirm your fees and compensation structure are in line with the local market and industry standards. (Inflated employee compensation rates will dictate a reduced sale price, and buyers may not want to retain any overpaid employees.)
  • Review your website to ensure you’re using it most effectively.
  • Review your office lease, and possibly renegotiate a longer-term and favorable assignment clause. (Buyer usually gets a better deal by assuming an existing lease.)
  • If you are overstaffed, reduce your staffing level so the percentage of wages falls within the accepted guidelines.

3–5 years before the sale

  • Do not pay personal expenses through the practice, particularly as you approach three years before a sale. Although experienced valuators may “add back” seemingly personal expenses to profit, most buyers and lenders become skeptical if there are too many add-backs.
  • Terminate low-profit insurance participation plans, which will increase your bottom line if you have a busy practice.
  • If you own the real estate, do not sell it during this time period.
  • Adding a third party is not suggested. A real estate investor landlord has the potential to negatively affect the sale price for your dental assets.
  • Many buyers will want to acquire the real estate with the practice assets. If you do not sell to the buyer of the practice assets, hold the real estate for an additional three to five years after the practice sale to generate some additional revenue or to spread out the tax burden.
  • Similar to before:
    • Confirm your fees and compensation structure are in line with the local market and industry standards.
    • Review your website and SEO protocols to ensure you’re using them most effectively.
    • Review your office lease and possibly renegotiate a longer-term and favorable assignment clause.

Within 2 years before the sale

  • When preparing to list your practice for sale, hire a dental transition consultant who will take the time to help determine the true value of your practice.
  • The average practice sale takes nine to 12 months, but depending on a number of factors, your practice might sell in two to three months.
  • Be prepared both financially and mentally.

Within a year before the sale

  • Clean up your patient credit balances in compliance with the legal requirements.
  • Pay attention to renewal dates for inventory, advertising, etc., and avoid entering into agreements that cannot be terminated.
  • Review your work in progress, if you can, and do not start any new large cases that cannot be completed before close, especially if you will not be retained after the sale.
  • Try not to prepay any expenses to avoid accrual or cancellation issues at closing.
  • Review accounts receivable to make sure that noncollectible accounts are written off or adjusted. Remember, accounts receivable is typically not included in the sale price, so you will need to arrange to collect.
  • Do not exhaust your dental inventory. Maintain a customary supply (approximately 30 days) for the purchaser.
  • Do not reduce your schedule or take excessive time off, which could affect your final sale price or bank loan underwriting.
  • Continue to schedule patients in the ordinary course.

60–90 days before the sale

  • Arrange for any transfers of office equipment.
  • Update licenses and insurances.
  • Prepare transition letter for patients
Author Bio
Author Dr. Tom Snyder, DMD, MBA, the senior director of transition services at Henry Schein Professional Practice Transitions, is a nationally recognized speaker, author and consultant who has been advising dentists for more than 30 years in dental practice strategic planning, practice valuations and dental partnership formation. Snyder is a faculty member at the University of Pennsylvania School of Dental Medicine and a former department chair at the University of Maryland School of Dentistry. He also serves on the editorial boards of several national publications. He is a graduate of the University of Pennsylvania School of Dental Medicine and earned an MBA from the University of Pennsylvania Wharton School of Business.
 

Sponsors

Townie Perks

Townie® Poll

Are you currently using teledentistry in your practice?
  

Site Help

Sally Gross, Member Services Specialist
Phone: +1-480-445-9710
Email: sally@farranmedia.com
©2020 Dentaltown, L.L.C., a division of Farran Media, L.L.C. • All Rights Reserved
9633 S. 48th Street Suite 200 • Phoenix, AZ 85044 • Phone:+1-480-598-0001 • Fax:+1-480-598-3450