When You Should Think About Selling Your Practice
There are many reasons why dental practices are put up for sale. Some of the more common reasons actually have little to do with the practice’s general performance. For example, many practice owners discover that they need to sell for health reasons or personal concerns, such as divorce or partnership issues. While a business downturn might prompt many dentists to sell, economic drivers are not the only issue. Owners may want and need to sell, but often it isn’t always that simple.
Many dentists are looking to retire but are unpleasantly surprised to learn that they simply can’t afford to do so. Still yet, many dentists don’t truly want to retire or sell, but instead, they just want more freedom in their lives. The day-to-day responsibilities of owning and operating a practice can take their toll. Many dentists are looking to make a change and would love to be free of this burden. This class of owner has already “checked out” mentally, and this can have profound negative consequences for their businesses.
When a dentist wants out but discovers that he or she simply can’t afford to sell or retire, it will come as no surprise that there is usually an accompanying drop off in enthusiasm. Ultimately, the vast majority of practice owners will start to lose focus. Often, we find that they stop investing the capital necessary to continue the growth of the business, which can trigger other events, such as the loss of key staff members and/or customers. The failure of the practice to maintain its footing and competitive advantage can lead to a more aggressive posture by existing competitors or even encourage a new competitor to move into the market.
In time, the practice owner may come face-to-face with the harsh realization that they have no choice but to sell if they are to salvage any of the practice’s value. The best way for a practice owner to safeguard against this situation is to sell when his or her practice is doing well, as this helps to ensure an optimal price.
Working with a practice broker, even years before one is interested in selling, is one of the single smartest moves any business owner can make. The time to think about selling your practice is now, as no dentist knows what life or the market will bring.
To help figure out where to start, register for one of our upcoming webinars or contact us today – phone: 877-866-6053 or email: info@omni-pg.com.
Read MoreWhat You Need to Know Before Signing a Covenant Not to Compete
You’ve graduated from dental school so naturally, you’re ready to get your feet wet and start seeing patients. Nearly every dentist will be an associate at the beginning of their career and with that comes the dreaded associate contract. You found a great associate opportunity and you’re eager to start collecting paychecks. But before signing that contract, particularly the non-compete clause, be aware of the details that could prevent your opportunity to start your own practice in the areas/neighborhoods you desire.
A covenant not to compete, otherwise known as a non-compete agreement, or restrictive covenant, is a clause in the contract that prohibits the restricted party from engaging in services similar to those of a non-restricted party. Non-compete agreements may restrict a dentist’s actions by time, location, and clients.
Here are some valuable tips before signing a non-compete agreement for dentists who plan on owning their own practice in the near future.
Be sure you understand every detail: Associate contracts are designed to protect the owner more so than the associate. OMNI Practice Group highly recommends you have an attorney who specializes in dental Associates contracts review all legal documents before signing. If you don’t already have an attorney, we will be more than happy to recommend one.
Advocate for the minimal non-compete radius: A standard non-compete radius should be between 3 to 5 miles. Keep in mind the radius is “as the crow flies.” In more rural areas, we have seen up to 15 to 20 miles, but of course try to negotiate for less, especially if you plan to stay in the area.
The shorter the better: We’ve seen unfavorable terms of up to five years. Typically, your non-compete clause should only be enforceable for 1 to 2 years. Try to negotiate to a shorter period, that will work in your favor when you’re ready to own your own practice.
Be sure your non-compete only covers the location in which you are employed: If your employer owns multiple locations, but you’re only seeing patients at one specific office, make sure your non-compete only applies to that location.
Notice of resignation: Keep in mind that when you’ve found the ideal practice to purchase or if you decide to do a start-up, the process can move rather quickly. We’ve seen contracts that require the associate to give up to 6 months’ notice before leaving their position – a fair amount of notice is typically 30 days. Be sure to negotiate the least amount.
My rule of thumb when it comes to associate contracts is “Less is Best” …well, with the exception of wages!
When you’re ready to purchase a practice or just want to discuss the process in preparation please feel free to reach out to me for a free no-obligation consultation. I’m here to help you.
Read MoreTransition Announcement and Patient and Team Retention
In my experience, sellers get concerned with the “correct” time to tell their team about the transition. We recommend informing them when all documents or some are signed and there is no doubt the sale will go through. It may be 2 weeks or 2 days before closing, it depends, and your transition advisor will assist you.
If you tell your team too early, they may become stressed, confused, and unsure of their future, so they may panic and find another job and possibly tell patients. None of this is good! Your team and patients are important to the goodwill of your practice.
When you do announce the new buyer, remind the team that they love their teammates and patients and that isn’t changing. Explain a bit about the new dentist and schedule time for them to meet. Help them feel confident that the transition will be great, and the new dentist will need their assistance for everyone to be successful.
A letter to patients is typically sent from the seller with the buyer’s approval. Depending on both the buyer and seller and the unique area, a newspaper ad can be placed, and an open house can be scheduled. Your transition advisor will provide ideas and examples to help you choose the best method for announcing the transition.
Patients may be unsure of the new buyer, so consider not making any abrupt changes, such as incomplete treatment and payment options. You can’t underdiagnose or discourage ideal treatment but be aware of a way to communicate based upon the previous owner to retain as many patients as possible and still bring in your processes and protocols.
The new team will be concerned about the new buyer’s expectations so consider not changing much in the practice for a while, so they have a chance to transition and become comfortable. Provide information they won’t know such as how to schedule and what instruments you need for each procedure. Help everyone to be successful in their position.
Remember to remind your team often that everything is ok. Consider having one-on-one meetings with each new team member and ask specific questions. “What keeps you coming here every day? What’s one thing you would change in the practice if you could? Can I count on you to bring questions and concerns to me rather than involve the entire team?”
Transitions can be stressful. Work with your transition advisor that has many experiences and ideas to share to help everyone be successful.
Read MoreWhy We Chose to Sell Early in Our Careers and What We Learned
Early retirement in dentistry is different than most fields. For most people working life involves a minimum of 5-7 career changes. With dentistry, we generally sign up for our entire working life. So, anything less than a lifetime can be considered early. And so our story begins…
My husband is in our office between patients massaging his aching thumb joint because the recent cortisone shot is starting to wear off. I am popping my third Advil of the day to deal with what has become regular neck pain and I say to him, “what’s our exit plan?”
His answer is quiet and dulled by the fact that this isn’t the first time I have asked this. “I don’t know?” That’s his quick answer. “Maybe 5-10 years from now”, is his long answer.
But something has changed in me. I no longer feel the joy I once had when I am working. I know he feels the same but doesn’t say it as much. Most times it’s an actual physical ache but sometimes it’s a mental one. Twenty-eight years is a long time in any career…oh wait…except dentistry. We are supposed to graduate with our advanced degrees and never look back on the careers we have chosen for ourselves. We are to never have a thought that maybe this is no longer where my energy and passion lies.
Turns out it is not all about having the most money possible in your lifetime. Money can put a down payment on a lot of things both figuratively and literally. But there is a word I have come to love with regard to money and it is the word “enough”. Did we have “enough” to live comfortably? Did we have “enough” to not worry about finances driving the important choices in our life? It turns out some of our final decision-making depended on the value of our practice. And so I looked at my husband and said “let’s get our practice evaluated again and see what we find out.”
We already had an evaluation done by a local practice management team that had sold my husband’s first practice a decade earlier, but it seemed low to us. We had assumed, at that time, that all practice valuations were the same. We thought practices were like any other piece of real estate, but boy were we wrong. Our practice wasn’t any more profitable than the last time we had a valuation, but I took a gamble thinking that maybe all were not the same and we would try again.
I started doing research in the field and my search sent us to the Omni Group. They did practice brokering exclusively and they had been recommended to me by other dentists. I gave them a call and started talking to Rod Johnston. He was both mild-mannered and highly informative. I found out much later he just also happens to be the owner of the company. He came to our office and met with us and explained the valuation process. It seemed much more detailed and complex than the first one we had done. We forwarded the necessary documents to Omni and in about a week we had a fresh perspective on our practice’s value.
Wow, what a difference a new look made! The final price was almost 25% higher in this valuation compared to the previous. How had the other valuation been so off? Would our practice sell at the new price? Well, it didn’t take long to answer all those questions. After being on the market for about one week, we had three full price solid offers and the ability to choose our buyers and our own transition plan.
The subsequent transition met and exceeded our goals. We wanted new owners that shared our philosophy of patient care. We wanted none of the staff to find out until the final paperwork was signed, and a quick exit with little to no overlap in our time in the practice. We achieved all of those goals and a full price offer.
How did that happen so quickly and how could the price point be so different? We didn’t over-analyze at the time; we were just happy it was working out so well. The full understanding wouldn’t come until later when I decided this whole process was something I was passionate about and became a broker myself.
When the dust clears and the paperwork settles out, there are multiple pathways you can follow. The most important thing is to remember as a dentist we are not just skilled at one thing, we are in every aspect of business from top to bottom. When you run a dental practice you literally do it all. The list is long, so I won’t bore you with it, but never forget how talented you are.
My husband’s path after clinical dentistry was to form a company that would oversee the maintenance and upkeep of multi-family and commercial properties which included our own holdings. I immediately got my real estate license and formed a management company to take over the tenant relations and leasing. After hiring an employee and settling into the rhythm of our new lives I still felt I had more energy and passion that extended outside of the new world we had created.
When I added up the things that I loved: business, real estate, and the dental community it was an easy decision to move forward with my new career. I only wanted to be a practice broker in one place and that was with Omni Group.
I found out pretty quickly that what looks simple to the buyers and sellers is actually a tricky business. First, on the subject of valuations. Omni does a three-part and highly complicated deep dive into each practice. This includes the goodwill, location, production, collection, overhead, and investments one has made in their practice. As far as marketing, Omni blankets the airwaves literally across the country and Canada to get the news out of the practice you are selling. They have more buyers tuned in than any other brokerage house. They also have more listings. Relationships with lawyers and banks come in as well. It turns out that the brokers are at the ready to find competitive financing with banks that are actively lending on dental practices. Each party needs an experienced lawyer to take them to the finish line and Omni works closely with local attorneys who are experienced in dental practice transitions.
One thing that came up that I didn’t expect was how much I would care about who would take over our practice. I have bought and sold many properties in my lifetime, some more valuable than my practice. In all cases, my level of really caring who bought them was low. The highest price was usually top of mind. Not so with the dental office. Obviously, a good price was important, but it became clear that someone who supported our legacy and would take good care of the staff and patients was of equal value. We were given full ability to meet with and learn about prospective buyers of our practice and made a choice that satisfied all our requirements.
When interviewed after the sale, no dentists have ever said they sold too early. In fact, it’s often the opposite. As it was for us. If we could do it all again, we would only have started the process sooner.
The end of our journey in clinical dentistry was just the beginning of our next chapter in life. I have spent my life around enough dentists to know very few of us really fade into the sunset. Once you sell your practice, you will begin writing the next chapter of your life and I promise it will be a good one.
Read MoreSelling Your Practice Yourself – Penny Smart and Dollar Foolish
You’ve heard the stories of people doing their own electrical work on their house only to be electrocuted when they try fixing the bathroom light while standing in the bathtub full of water. Or the person who decides to fix his brakes on his car only to accidentally cut his brake line and end up driving off a cliff. They have awards for some of these mishaps. They’re called the Darwin Awards.
Deciding to sell your own practice may not give you a fate as extreme as the Darwin Awards, but it could cost you money, your staff, lose patients for the buyer, or end up in a lawsuit. That’s if the sale even makes it all the way to the closing table. I have been selling practices for 15 years. I keep thinking I have seen it all, but then something out of the blue pops up. For example, I was called as an expert witness to review agreements in a prior sale where the buyers were suing the seller. The buyers thought they were buying a practice and a building. They wanted to save money and not use a broker, or an attorney. The buyers showed up at the practice after closing only to find an empty space. It turned out, they just bought the building and not the practice. The agreement used was a real estate purchase and sale agreement and was not for a practice sale – a big and costly mistake on both sides.
Lenders and attorneys report that practices that are sold without a broker have a 50% chance of failing before the practice closes. I believe the failure rate to be higher than that. Reasons they fail include buyers losing interest, seller and buyer can’t negotiate a disputed item or clause, seller and buyer don’t know the steps to the transaction, and confidentiality is breached by one of the parties. A failed sale can disrupt a practice if the staff leaves knowing the practice is on the market.
When selling a practice, you need to wear a lot of hats and possess expertise in a wide variety of areas. Transition consultants need to be knowledgeable in law, accounting, tax, real estate, valuations, psychology, negotiations, design, equipment, technology, software, project management, sales, analysis, practice management, human resources, and mediation. In addition, you need to have a lot of extra time. On average it takes 200 hours to sell a practice a lot more if the sale is to a corporate buyer. That time includes gathering data to do the valuation. Putting the valuation together. Developing a prospectus or offering. Creating advertising, placing the ad, taking phone calls, meeting prospective buyers, doing background checks on buyers, talking with lenders, assisting buyers in due diligence, working with attorneys, negotiating bumps in the road, reviewing agreements, and more.
You also run a financial risk. You could undervalue your practice or get taken by a buyer who is good at talking and negotiating a good deal for themselves. If there is a corporate buyer involved, you need a broker even more. Brokers can assist in negotiating amongst several corporate buyers to ensure you get not only the best value for your practice but also the best terms. Corporate transactions require a lot more scrutiny, due diligence, negotiating, and time. Done right and with patience and you also can reap the reward.
Selling your practice on your own may not get you a Darwin Award. But, doing so comes with a lot of risks and requires a lot of time and expertise. Why risk the equity you have built up over the years to save money? Pennywise and dollar foolish could cost you thousands, if not hundreds of thousands of dollars as well as non-monetary losses.
Give Omni a call today for a free consultation and learn how we can help. Call 877-866-6053 or email info@omni-pg.com.
Read More