How Much Will I Get for the Sale of My Practice?
By Rod Johnston, MBA, CMA
Whether you’re selling a car, a house, or your veterinary practice the ultimate question
that everyone wants to know is…. How much do I get? After all the years of blood,
sweat, and tears you have put into your practice and you come to the point of
retirement, or just selling to take a break from ownership, you want to know, after all the
fees and expenses, how much money will you be putting in your pocket. Or, hopefully,
bank account. 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 $20,000. 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 and could cost you hundreds of thousands of dollars.
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 veterinary practice sales. Attorney fees can
range from $4,000 up to $15,000 with the average being around $6,500. 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. It also depends on if its’ a
corporate sale, or selling your practice to an individual. Corporate sales are more
complex.
Broker Fee – If you are using a broker, you will pay between 6% and 12% of the sale of
your practice. The range is due to a number of factors such as how much service you
will get from the broker, what documents and expertise the broker has and other factors
around service. Discount brokers charge a lower fee because they don’t come out and
see your practice, they don’t show your practice and all they do is advertise it and send
the buyer to you. Full service brokers will meet with you in person, value your practice,
show your practice numerous times and do all of the marketing for you. A discount
broker will put in about 20 hours worth of work. A full service broker will spend between
200 and 400 hours, or whatever it takes to complete the sale of your practice.
Other factors on the fee may include the size and complexity of your practice. Smaller
practices that produce 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 8% to 10% range depending on a number of other factors. You can decide not to
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% by the IRS. The tangible assets make up 10% to 15% of the purchase price.
These are taxed at your ordinary income tax rate by the IRS. Most veterinarians 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.
Depending on the state you are selling your practice, there may also be a state capital
gains tax. California for example also has a state capital gains tax. Consult your
accountant to find out what the tax will be for your practice sale.
Equipment Valuation – This is typically not required, but occasionally requested by a
buyer. This is commonly around $400 for the equipment valuation.
Escrow – We like to complete a transition by using an escrow service. Escrow will
make sure all liens are paid off, everyone involved is license, state payroll taxes and
other taxes have been paid, and will prorate any items the seller has paid in advance
such as personal property taxes or an annual software maintenance contract. Escrow
fees range are typically split evenly between the seller and buyer and range from
$1,000 per side, up to $2,500 per side depending on complexity and whether real estate
is also involved.
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. Keep in mind these are just estimates to give you a ballpark figure of the
cost of selling a practice. As with most things in life, the fees will vary depending on the
variables mentioned above. Be sure and consult your team of experts to help you
better understand what the cost will be for your transition. Contact Omni Practice Group
at info@omni-pg.com and we can help you get started.
Meet Everyone for Veterans: Connecting You to Those Who Have Served
Meet Everyone for Veterans: Connecting You to Those Who Have Served
By: Dr. Theresa Cheng, DDS, Founder and President, Everyone for Veterans
Founded in 2017 by Dr. Theresa Cheng, a dedicated periodontist from Issaquah, WA, Everyone for Veterans started as a small grassroots initiative. Today, E4V is an award-winning national organization, committed to serving veterans and their families. Our mission is simple: to provide goods, services, and comprehensive dental care, free of charge, to those who have bravely served our country.
Did you know that less than 15% of veterans receive dental benefits from the Veterans Administration? For many veterans, this means living each day with chronic pain and infection, impacting systemic health, mental well-being, and self-esteem. Through E4V’s no-cost relational and comprehensive dental care program, we aim to alleviate these burdens. Our volunteer dentists and partnering dental schools deliver essential dental health services to veterans who would otherwise struggle to afford them.
But our care model goes beyond addressing immediate dental concerns; it sets veterans on a trajectory toward long-term oral and overall health. Our partnering dentists not only eliminate pain but also restore smiles, rebuild confidence, and improve self-esteem.
To illustrate the impact of our mission, we’d like to share the story of one of our recent veterans. Lin, a Vietnam veteran who served in the U.S. Navy, faced numerous challenges that prevented him from accessing dental care for several years. Chronic pain and infection severely affected his quality of life and kept him from doing the things he used to enjoy. Through our program, Lin was matched with Dr. Michael Yeh, a prosthodontist from Federal Way, WA. Dr. Yeh’s comprehensive approach, including extractions, bone grafts, and dental implants, transformed Lin’s life. Following his dental care, Lin shared, “I’m more comfortable all the way around and the infections in my mouth are gone. I can’t thank E4V enough for connecting me with Dr. Yeh and his team. Everyone involved was wonderful.”
Volunteer dentists like Dr. Yeh play an essential role in forging meaningful connections with the veterans in our program. Their dedication serves as a reminder that veterans are not forgotten and that their sacrifices endure in our collective consciousness. With each act of kindness, our volunteer dentists contribute to building a society characterized by compassion and resilience.
Today, we invite you to make a profound impact on the lives of our nation’s heroes by partnering with Everyone for Veterans. By dedicating your skills to providing dental care to a veteran in need in your community, you can help them regain their oral health and improve their overall quality of life.
Join us in making a significant difference in the lives of veterans. Together, we can create healthier smiles and brighter futures for veterans and their families.
For more information, please visit www.everyoneforveterans.or or email info@everyoneforveterans.org.
Practice Transition Market Trends
By: Rod Johnston, MBA, CMA, Owner and Founder
Over the years, the market for practice transitions has changed. Sellers sell for different reasons than they did ten years ago. Buyers make their buying decisions much differently than they did ten years ago. And, the veterinary industry has changed in a number of ways over the years as well.
When we first started selling practices approximately 20 years ago, the primary reason veterinarians told us they were selling was because they were ready to retire. The average age of retirement back then for a veterinarian was 64 years old. The most recent survey by the American Veterinary Medical Association has the average retirement age for a veterinarian of 70. Veterinarians are selling for reasons besides the fact that it’s time to retire. More and more, we see veterinarians retiring for three primary reasons:
- Staffing challenges – Sellers are having to deal with a revolving door of staff. With the staffing shortage because of the covid shutdowns, staff members are being recruited by other offices. Staff members leave for a little more money to go to work at an office nearby.
- Stress – Veterinary practice owners are complaining that they are working longer hours and more days than they were five or ten years ago. This is due to shortage of not only staff, but also a shortage of veterinarians. Some practices have closed. Corporates are paying associates bonuses and higher salaries. This is causing associates to leave the mom and pop veterinary clinics to go work for more money at a corporate office. Owners are having to work six days per week to keep up with the demand for veterinary care. Pet ownership and consumer spending on pet care is also increasing.
- Compassion Fatigue – This is the psychological, physical and emotional impact of constantly caring for others, often through stress and trauma. Veterinarians are constantly caring for animals and their owners. Veterinarians often work long hours and 5 or 6 days per week. This gives them little to no time to take care of themselves. The result is the stress with no release takes its’ toll and causes compassion fatigue.
Practice Buyers have also evolved. Fifteen years ago, a potential buyer would sign a non-disclosure agreement, take a look at the practice numbers, and then visit the practice. They would typically then decide to move forward or not. It was pretty quick and simple. The buyers would be an associate who had been out of school for from 2 to 5 years. They would focus on the numbers and the location and might bring in an accountant to review the tax returns.
Buyers nowadays are not only those who have been out of school for a few years, there are also corporate’s looking at larger practices. There are more veterinarians moving from other states to buy practices as well. A potential buyer quite often has someone representing them. It may be a buyer’s representative or an accountant who does more than just look at the profit and loss of the practice. Buyers scrutinize not only the numbers, but the technology in the practice as well. Corporate’s do a complete physical on the practice.
Good practices in good locations still sell reasonably fast. Good practices are those that collect $700,000 or more with overhead below 70% and the practice technology and décor is up to date. Good locations are in populated areas that are desirable to the public in general. Metropolitan cities and practices within 30 minutes of these areas are good locations. Locations in other urban areas will also sell quicker than rural areas. Practices in rural locations do sell. They just take a little longer than normal.
Whether you’re thinking about selling, or thinking about buying a practice, we’re here to help. Contact one of Omni’s Transition Consultants to steer you in the right direction.
Read MoreSelling to an Individual Buyer or a Corporate Buyer is Going to Take Time! Start Planning NOW!
By: Steve Kikikis, Vice President, Broker
Retirement…. Ah, that sounds nice! Right? But the process requires careful planning, especially when it comes to selling your veterinary practice. While the idea of selling may seem straightforward, the reality often proves to be far more complex. Selling a veterinary office isn’t putting up a “For Sale” sign and waiting for buyers to come knocking. Whether it’s finding the “right” individual buyer or selling to a corporation with a complex work agreement, veterinarians should start planning to sell their practice at least three years before they’re ready to retire. Omni Practice Group can help you determine your timing now.
Lack of Buyers for Individual Sales and Extensive Due Diligence.
Selling a veterinary practice to an individual buyer is a lengthy process. Depending on your location and type of practice, it can take anywhere from twelve months and up to thirty-six months for remote locations or “unique” practices. The greatest time factor in this scenario is the shortage of buyers across the nation. Potential purchasers are scarce, particularly those who meet the criteria and financial requirements necessary to acquire a veterinary practice. Fewer and fewer individuals are signing up to become practice owners and are willing to work the five days a week that may be required for a successful practice; instead many are opting to remain associates. That being said, good practices in good locations that are well managed do sell reasonably quick.
Omni Practice Group and I work hard to market your practice to potential individuals in as many ways as possible. We place classified ads with state and local veterinary associations, national publications, and veterinary school alumni websites and newsletters. We put on buyers’ seminars, attend conferences, speak at schools, and we work diligently to maintain an extensive database of potential buyers; ensuring if there is a doctor considering buying, they will see your practice (confidentially of course). We leave no stone unturned. Once we have found a buyer, they will need time to thoroughly evaluate the practice’s financials, client base, operational procedures, secure financing, negotiate terms, and other critical aspects. This thorough due diligence helps ensure that the buyer understands the investment they’re making and helps them assess the practice’s viability and potential for future success. But it takes time!
Whether you’re five years away or five months away from selling your practice, there’s no time like the present to not only start thinking but also to start planning for your transition. We are happy to help in any way we can and offer a free transition plan consultation. We’re only a phone call (or e-mail away) Call Steve Kikikis at 425-905-6920 or email at steve@omni-pg.com
Read MoreTypical Concerns of Sellers
Typical Concerns of Sellers
By: Megan Urban
Most dentists may only buy and sell a practice once in their career, so it’s nearly impossible to know what to expect. You may have a few friends that have done it, but like wisdom teeth removal or birthing a baby, you will hear some wild and crazy things that may not be entirely accurate. We’ve helped dentists with hundreds of practice transitions and are happy to share what realistically happens. Below are some of the standard stresses that sellers have shared with us in the past so you can become oriented and keep positively moving forward.
Where do I start?
Talk with your broker or transition specialist so we can learn about your specific situation and discuss how we might help.
Do I sell my building or condo with my practice or later?
In most situations we recommend selling the real estate at the same time that you sell your practice. You will get the most value for your space if sold to a dentist and an empty dental space is difficult to sell unless you own oceanfront property. We also don’t want the new buyer to lease for a few years, then relocate and build a practice in a new, high-tech facility. Depending on the cash flow of your practice the buyer may not need a downpayment on the real estate portion, but if so, typically you as the seller may decide to carry that note.
Should I update my office and get new equipment?
If your office looks like it’s from 1985, let’s discuss if getting new carpet and paint may be worthwhile. If all your chairs, x-ray units, etc. all still work, we may want to wait and let the new dentist purchase what they want or need. Typically, banks will loan additional funds to cover any mandatory equipment the buyer needs to sit down and produce at least what you have been producing.
Do I have to sell to a large dental services organization?
You can sell to any buyer you determine is the right fit for you, your patients and team. Often large groups want you to stay on and work for a few years and meet production goals. They typically pay you a certain percentage of your practice sales price at the time of the sale and pay out the rest over a negotiated term. And for the record, we don’t know any groups paying 5-10% EBITDA. This thought is out there and the only way you may get there is if you count the amount they pay you as a provider for years, not truly the purchase price. Any practice must pay you for your work. I know there is a lot of concern about the large dental services organizations, and they are here to stay, but we still sell to many private practice dentists.
Should I tell my team I plan to sell?
We don’t recommend it because they typically get anxious and look for another job. I have had times where the dentist was not comfortable with waiting, and we figured out a way to present this to the team and retain them.
How do I know how much my practice and building are worth?
We can do a complimentary quick look and give you an idea of what your practice is worth. We can also complete a full valuation of your practice if you would like. If you list your practice with us, a Practice Prospectus will also be completed that we provide to potential buyers. When selling the real estate, we also complete a Brokers Price Opinion. With this information we determine both the price of the practice and the real estate together. You have the opportunity to look at offers provided by any potential buyers.
Can young dentists get money to purchase my practice?
Dental-specific lenders understand dentistry and if the cash flow supports the sales price, they will loan the full practice amount and usually provide around $75,000 for working capital. The banks understand that young buyers have a large amount of student debt.
How do I get sales documents?
Your dental attorney will draft those documents and we can provide you with some recommendations for dental-specific attorneys. Your attorney will provide guidance and ask questions to help complete the appropriate documents for your situation. We always strongly suggest that the buyer work with a dental-specific attorney as well so that everything goes forward in a timely and correct manner.
How long will it take to sell?
On average it may take 6 months to a year. Depending on your profitability and location, it may be faster, or we’ve seen it take up to three years. Young dentists typically like to make at least $250,000 or they may consider staying at their associate position for the same income and little responsibility. Buyers love to be able to add services, so if you are a few years out from selling, consider making your own codes to bill out regarding referrals to each specialist.
Is it mandatory or optional for me to stay on and work?
There are always options. If you provide services the buyer does not, you may need to stay on until the buyer can learn to take over these procedures. If you want to work, it’s something to discuss. The buyer may not want to work as much, and you can negotiate staying on. The Lender may not allow it if the cash flow is too low. The buyer may need all of the production to pay the loan. Sometimes we see sellers stay on for a while or cover vacation or maternity leave. If you are in the office providing services, you need to be paid and the attorney will write an Employment Agreement.
How do I sign sales documents and get paid?
Typically, final documents are signed electronically, and escrow helps facilitate this. Escrow will also look at items such as personal property tax, utilities, etc. and do a proration of those amounts, and the final amount owed to you can be sent by check or electronically deposited into the account of your choice.
Like anything you don’t do on a regular basis, selling a practice can be stressful. Rest assured that all your trusted dental advisors, broker, CPA, and attorney, will proactively guide you through the process. Each transition is truly unique, and we deal with issues that arise and help you to obtain your goals. Give us a call so we can understand your specific situation and what next steps may be best for you and your family.
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