Of course, the answer varies from sale to sale, but there are some general expenses and fees that you can be sure will be part of your transaction.
Valuation Fee – To calculate what your practice is worth, you will need a valuation. If you are using a broker, they will charge anywhere from $1,500 to $4,000. Many will waive the fee if you are going to list your practice for sale with them. Others will back the fee out of the commission when your practice is sold. If you do not use a broker, you will still want a valuation. I suggest using a broker that has some type of certification in valuing a business. Rule-of-thumb-valuations are back of the envelope estimates at best.
Attorney Fee – You will need an attorney to draft up the purchase and sale and other agreements necessary to close the sale of your practice. Be sure and use an attorney that specializes in, or has completed a lot of dental practice sales. Attorney fees can range from $4,000 up to $10,000 with the average being around $5,500. Of course, this depends on the complexity of the transaction, who is representing the buyer and how many changes are requested during the review phase.
Broker Fee – If you are using a broker, you pay between 6% and 12% of the sale of your practice. The range is typically due to the size of the practice. Smaller practices that are producing less than $400,000 per year are harder to sell, require a lot of money spent on marketing and require many more hours to get to the closing finish line; therefore, those are typically in the 10% to 12% range. Larger practices typically are in the 6% to 10% range depending on a number of other factors. You can decide to not use a broker if you choose. Bankers and attorneys estimate that 50% of the practices sold without a broker fall apart before the sale is closed. Buyers lose interest in the practice, another opportunity pops up, or a disagreement occurs - and without an intermediary, sellers and buyers clash and the sale falls apart. A typical transition from beginning to end can take 200 to 400 hours to complete. Be sure you have that extra time in your life if you decide to sell without a broker.
Taxes – Here’s the biggie. When you sell a practice, the purchase price is allocated between goodwill and tangible assets, such as equipment. Goodwill typically makes up 80% to 90% of the purchase price. It is taxed at the capital gains rate of from 18% to 24%. The tangible assets make up 10% to 15% of the purchase price. These are taxed at your ordinary income tax rate. Most dentists fall between 28% and 35% ordinary income tax rates. The average is 33%. So, you can see, you want as much allocated to goodwill as your accountant and the IRS will allow.
Equipment valuation – This is typically not required, but occasionally requested by a buyer. This is commonly around $400 for the equipment valuation.
Letter to Patients – This is the letter that is sent to your active patients to inform them you have sold your practice and to introduce them to the new doctor, who is a wonderful person. This is split between the seller and buyer. An average practice may have 1,000 or more active patients. You can typically get the letters printed and mailed for $1.50 to $2.00 including paper, postage, stuffing envelopes, etc.
When the dust has settled and the ink has dried on the agreements, you should walk away with approximately 70% of the proceeds in your bank account after all fees have been paid. As always, we advise you seek advice from your team experts before making the decision to sell your practice.