Practice Sales

Selling a dental practice is a complicated process.  Don’t go at it alone.

Selling a dental practice is a complicated process that involves numerous steps including determining the market value of your practice, finding the right buyer, negotiating the purchase price, purchase agreement and lease assignment, and facilitating the transition of ownership (just to name a few).  Employing the services of a trusted professional can make a tremendous difference in the success of your transition.  Here are the top 5 reasons to hire a practice broker when selling a dental practice:

1. To formulate a transition strategy to meet your individual needs
Not all practices and all doctors are the same.  A good dental practice broker will listen to your specific needs and goals to develop an individually tailored transition strategy that fits your situation.  There are many ways to structure a practice transition, including a walk away sale, associate to purchase, phased sale, and partnership arrangement.  When selling a dental practice, choosing the right transition strategy for you and your practice is the first step towards a successful transition.

2. To confidentially market your practice to find a buyer who is the right fit 
Utilizing the services of a practice broker will provide you with the opportunity to market your practice to a broader range of potential buyers, thereby increasing the likelihood of finding a doctor who is an ideal fit for your office as well as shortening the time frame required to complete the sale.  The broker will oversee all communication with potential buyers and their advisers, which can take a significant amount of time and effort.  Delegating this responsibility to a seasoned professional will allow you to focus on the operation of your practice and enjoy your personal time rather than spinning your wheels talking to countless potential buyers.  To protect the value of your practice during the marketing process, the broker should require each potential buyer to complete a confidentiality agreement prior to receiving any information regarding your practice and show your office only after business hours.

3. To maximize the value you receive for your practice
Your dental practice is one of your most valuable assets and the proceeds of the sale will likely be used to fund a significant portion of your retirement.  Therefore, it’s crucial that you maximize the value of your office at the time of sale.  Determining the market value of your practice, articulating the practice value to potential buyers and their advisers, and maximizing the price you receive at closing are key responsibilities of a practice broker.  Practice brokers are typically paid a commission based upon a percentage of the practice sales price.  It is in their best interest to get you the highest possible price for your practice.

4. To represent your best interest during the transition process
A dental practice broker’s goal should be to structure a win-win transaction for both parties. Rather than trying to force a square peg into a round hole, they work to ensure that the needs of the buyer are met through the opportunity that the seller is presenting. The broker also serves as a buffer between the buyer and seller to preserve the goodwill of the practice and relationship between the parties during negotiations.

5. To provide a structured closing process to ensure a smooth and timely transition of ownership
Navigating the closing process is often the most tedious and stressful part of selling a dental practice.  Once you have identified a buyer for the practice, there are numerous steps involved in completing the sale, including negotiating the practice purchase price, letter of intent, asset purchase agreement, assigning the lease, securing practice financing, announcing the sale to the staff and patients, etc.  A dental practice broker will walk you through each step of the closing process to ensure a smooth and timely transition of ownership.

These are just a few of the reasons to employ the services of an experienced practice transition consultant when selling a dental practice.  Planning in advance and building a strong team of advisers will ensure that your practice transition is a success.

-Rod Johnston, MBA. CMA

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.

With the economy somewhat improving I’ve had an increase in Washington and Oregon from dentists asking about practice transitions or a practice sale.  While as a broker, I can easily just suggest they do a practice transition, but as someone who wants to have a long career, it’s in my best interest to give existing and potential practice transition clients the best possible advice and tools to make that decision.  So, with that, here are a few points to consider when thinking of a practice transition:

1. Consult your financial advisor or CPA – Can you afford to retire or cut back?  What does your portfolio look like?  What income do you need to live off of for the rest of your life?
2. Get a practice Appraisal – If you’re thinking about a transition, you need to know what your practice is worth.  A rule of thumb will give you a ballpark estimate, but may not be accurate.  Have a professional appraise your practice.  We charge $2,495 for practice appraisals with a free update on the appraisal if done within 2 years.
3. Consult your Tax Accountant on the ramifications of a sale – Are you an S-Corp or C-corp.  If you’re a C-Corp, you may want to figure out how to switch to an S-Corp.  Do you have an employment agreement?  You may want to terminate the employment agreement.  Seek good tax advice and counsel prior to a transition.
4. How’s your practice health? Are your numbers looking good?  Still getting new patients?  Is technology up to date?  Is décor up to date, or do you still have the olive appliances in the staff room?  Consider a remodel if you’re 5 years or more away from retiring.  If it’s closer, consider a cheaper update like paint and carpet.
5. What are the capital gains outlook? Currently, the Bush tax cuts expire at the end of 2012.  There’s another 2.8% healthcare tax also kicking in.  Does that make it worth it to sell sooner rather than later?
6. Do all “key” employees have non-compete agreements? If you have an associate, that is essential.
7. Clean up your accounts receivable. Are there a lot of credit balances?  Are there a lot of accounts greater than 90 days old?  Clean it up!
8. Start planning with your practice Transition consultant well ahead of time. As a practice transition consultant and broker for Washington and Oregon, I can help get things in place prior to your transition.
9. Do you own your building? Get an appraisal if you’re thinking of selling it as well.  Or, if not, get a market rate on what the lease should be.
10. Interview several attorneys who specialize in dental practice transitions on the west coast.

Planning ahead of time and asking these questions will help you feel more at ease when you do decide to do a practice transition or practice sale and seek retirement.

Happy Planning,

Rod Johnston, MBA, CMA

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In every business and in every goal that you set, you have an end in mind.  When you set your New Year’s Revolution on January 1 of getting in shape, you had in mind a fit, toned body at the end.  The same goes for a dental practice.  When a dentist first purchased or started his/her practice, he or she had visions of grandeur of helping patients achieve top oral health while making a good living.  Most dentists achieve that goal.  But then, they let the practice go, stop replacing equipment, stop marketing and watch their production and patient base dwindle down losing 20% to 50% of the value of their practice.  Money they could have put towards retirement.  They end up having to retire vs. planning to retire.

So when do you start planning for retirement?  How about now?  Especially if you’re within 5 to 10 years of retiring.  Here are a few steps to follow to help you plan for your transition:

• Meet with your financial planner to determine how much money you will need to retire.  They can help you calculate how much you will need to save in order to maintain your current standard of living while in retirement.
• Perform an assessment of your practice.  This would include an assessment of your equipment, technology, procedures, ratio analysis, hygiene, new patients, financial review, overhead, marketing, etc.  If you do not have the time or know-how on how to do this, you can either contact me or your Henry Schein representative.  Henry Schein has a great tool called the Dental Practice Assessment Tool (DPAT).  It points out all the good things and opportunities for improvement in your practice.
• Go over your practice assessment in detail with someone knowledgeable about practice management and transitions to determine your targeted sales price you are hoping to achieve when you transition your practice.
• If you need help implementing improvements in procedures or other recommended areas in your practice, hire a reputable dental practice management consultant.  They can help you get to your goals quicker.
• Implement improvements recommended as part of the assessment.  If you’re within 7 to 10 years of a transition, it’s the perfect time to update your equipment and even remodel your practice.  Having a fresh look will help your practice sell quicker.
• After you have implemented the recommended improvements and tuned up your practice, have an appraisal of your practice performed.  I would recommend having one performed every few years as a litmus test to see if you’re getting close to reaching your targeted value of your practice.

By completing these steps and putting a transition plan in place, you will have planned and optimized your transition.  You can then transition when you want to instead of when you have to.