Author: omniadmin

Most business owners are so busy running the day-to-day operations of their business that they do not give ample consideration to a future sale of their business. Before selling a business, there are many factors to address and adequate preparation can maximize the return to the owner.

In a perfect world, the best time to sell a business is when the business is performing well with future projections looking even better, the national economy is strong and the industry is getting a lot of attention from Wall Street investors. However, regardless of the state of the economy or the industry, there are certain things owners can do to make their business sellable and as attractive as possible to potential purchasers.

To build market value, address the following items:

• Standardize and document all company procedures
• Eliminate liabilities or liens and resolve any outstanding litigation
• Investigate transferability of leases and sales & supplier contracts
• Perform maintenance on company equipment to ensure good operating condition
• Secure key employees with employment contracts
• Eliminate non-performing or non-contributing employees from the payroll
• Establish a management team that can operate without the current owner
• Reduce reliance on one or two large customers for the majority of sales
• Spruce up the physical aspects of the business facility
• Have clean, verifiable financial statements for the past three years

To improve cash flow, take the following action:

• Reduce unnecessary inventory
• Collect any outstanding receivables
• Re-negotiate favorable key supply contracts
• Reduce personal adjustments on Income Statements
• Ensure financial controls are established

Owners should be aware that there is an inherent conflict that arises with running a business and preparing it for sale. Many businesses are run with the objective to minimize tax liabilities. Unfortunately, the same techniques and accounting practices that minimize taxes also minimize the value of a business. Ideally, plans to sell a business should be made three to five years in advance of the anticipated sale. This will allow adequate time to make changes and demonstrate a track record of maximum profits.

In addition to setting a future target date to sell their business, a business owner should ask themselves what they want to get out of the sale of their business. Do they just want to finance their retirement? Is it important that their son or daughter remains with the business? Can they gain tax benefits by financing part of the sales price? Do they want to ensure the new owner will treat their customers with the same level of service? Make a list of priorities and seek the advice of business professionals to ensure there are no surprises during the process of selling a business.

Once a decision has been made to sell a business, the owner should be conscious of the need for confidentiality. Any leaks about the sale of a business can cause panic and fear for the employees, suppliers, landlords, and banks. Great care must also be taken to assure that competitors and customers do not learn of the planned business sale. Competitors may sabotage a business by leaking information to employees and customers. Key employees may start looking for other employment. Customers could be concerned about how the business will perform under new management and may seek alternative sources for the product or service. If any one of these were to happen, the value of a business could be significantly decreased. Working with an experienced Merger and Acquisition Advisor or Business Intermediary can minimize the risk. The name of the business and any detailed information should be disclosed only after it is determined that a potential buyer has the skills, experiences, financial capability, and leadership required to run the business being considered. In addition, all potential buyers should be required to sign non-disclosure agreements stating they will maintain confidentiality on all of the disclosed information.

By now it should be clear that early planning of the sale of a business will generate the most value and will likely expedite the sale of a business. To summarize, focus on building market value and improving cash flow, carefully plan the terms of the sale of the business, seek the help of business professionals and maintain confidentiality.

Whether you are approaching retirement age or just thinking about a transition, there are several things you can do to prepare your practice for sale.  Doing these things may help eliminate headaches, increase your sales price, or reduce your costs.  Here are a few tips:

1. Assess your equipment.  Upgraded practices sell faster.  If you are more than five years away from retirement, I recommend a few upgrades such as digital x-rays, recovering your chairs if needed, and freshening up the paint.  If you’re closer than five years, you will not get the tax benefit of major upgrades, so stick to the paint and carpet.
2. Clean up your accounts receivable.  Reimburse patient credits, collect old accounts and keep the A/R current.
3. If you have an associate, make sure you have an associate agreement with a non-compete.
4. If you have an employment agreement with your corporation and you are a C-Corporation, you may need to terminate yourself a few years before retiring.  Consult your tax accountant.
5. Consult your financial advisor and tax accountant.  How much do you need to retire?  How much do you have?  What are the tax consequences?
6. Get a practice valuation to see what proceeds you will get from the sale.
7. Be realistic about the time it takes to sell.  In remote areas, it can take a year or two.  Metro areas, much less.
8. Keep your production up as you near retirement.  I see dentists slow down all the time in their last few years.  Work the same number of days.
9. Assess your staff.  Do you have too many staff?  Do you have one that should have been let go seven years ago?
10. Have a practice assessment performed by a qualified consultant.  Many will do it for free or for a small fee.  This may help show you some areas to improve over the next few years.

By focusing on these items in the coming years as you near retirement, you will avoid having your practice production and thus the price of your practice go down in your later years.  Call me for a  free consultation.  I would be happy to take a look at your practice and give you my thoughts.  Or, if you are thinking about transition right now, I have a database of buyers looking in your area.

So you want to sell or transition out of your office.  What can you expect?  There’s a big difference out there between expectations and reality.  When I do dentist office transitions or sales in Washington or Oregon, the selling dentist sometimes likes to work back.  That’s a great thought and I’ve seen it work.  But, more often than not, I’ve seen a disgruntled buyer, disgruntled seller, or both.

What often happens in a dentist office transition where the seller works back, is that the staff still views the selling dentist as the boss.  What he says still goes.  The selling dentist oftentimes still views himself as the managing dentist or at least the expert in running a practice.  That may or may not be the case.   The buying dentist is left as the outsider looking in.

So, what do you do to have a successful dental office sale or transition?  Communication is the key.  The sooner and more often the two sides get together the better.  If the buyer is envisioning the practice being run one way and the seller thinks things will continue as usual, there’s going to be a problem.  Everyone needs to be on the same page as to how staff management is going to happen, how marketing will happen, who gets the new patients, etc.,  After that’s done, get the attorneys together and put it in writing.  If everyone communicates upfront and everything’s in writing and agreed to, you’ll have a better chance of having a happy ending.

Call us for a free consultation on how to make sure your dental office transition or sale is a happy one. 877-866-6053

Your Brand is showing! No, not your underwear brand, your practice brand.

A brand is everything about your practice. From the look, feel, sound, smell, texture, color, to your voice, answering the phone, etc. You go to your office every day and probably get complacent about your brand. Spring is a great time to clean up your brand. You can start outside.  Is your parking lot clean and freshly striped? Is your landscaping clean and professional? Enter your office.  What are the sounds, smells, colors, paintings – everything you sense? How does the front desk answer the phone? Is it cold in the office? Are there cracks in the paint? Are your paintings from 1972? Are your windows clean? Continue through the practice as if you are the patient. Are the bathrooms kept cleaned and monitored throughout the day?

Put together a checklist and have your staff do the same exercise. Your brand gives out a perception of your dentistry. A dated practice = perceived dated/tired dentistry.

Time for spring cleaning!

When buying a practice one of the most critical numbers to look at is the number of active patients.  Active patients are typically defined as the number of patients seen in the past 12 to 24 months.  Most brokers use 24 months, but I like to use 18 months in my definition.  When I ask a selling doctor how many active patients they have, I typically get either an “I don’t know”, or a number that is astronomically high.  I’ve had dentists producing $300,000 per year tell me they have 5,000 active patients.

So, how do you get the real number of active patients?There are a couple of ways to get close to the number of active patients.
1.      You can take a day and go through each chart or the patient files on the computer to see when they were in last.  If they have been in the last 18 months, that counts as an active patient.  This would take you a long time.
2.       You can also do an estimation. For a medium-size practice ($400,000 to $500,000 in annual production), you can pull a hundred charts.  You can go through the charts to see which have been in the past 18 months.  You can then divide that number by the percentage of charts you pulled.  If you pulled 10% of the charts, divide by 10%.
3.       A third method and much quicker is to look at the number of recall appointments for the year.   Divide that number by two and that will give you the number of active patients.
4.       The fourth method is to take take the average number of hygiene patients seen per day.  Multiply that by the number of hygiene days per month and then multiply that by six months.

The number of active patients makes or breaks your practice.  Be sure and have confidence in that number.  If you think you are buying a practice with 2,000 active charts when there are only 500, you will have overpaid for your practice.  Spend the time to figure out the active patient number in your due diligence.