Questions Frequently Asked by Dentists Who Are Thinking About Selling Their Practice
The earlier the better, but no later than 3 years prior to selling your practice in order to optimize your sales price and find a good buyer match. Practice values are typically based on 3 to 5 years of financial information with the numbers weighted heavier towards the most recent years. If you focus your last 3 years in your practice on maximizing collections, overhead and updating your practice, you will come out money and time ahead.2. Will I get a higher price if I ramp up production for another year?
Typically not. Since values are based on up to 5 years of production and net income, simply ramping up numbers for one year will not increase the value a whole lot. In fact, if it goes up too much in one year, a potential buyer and banks may even question why the production suddenly went up in one year.
3. Should I buy new equipment or remodel before I sell my practice?
If you are 5 to 10 years away from selling your practice and your practice is looking dated, then you should update the practice. The updates can range from simply painting the practice and installing new carpet, up to replacing patient chairs, adding new x-rays and other technology. If you spend a lot of money too close to the sale date, you will not get the depreciation write-off that you would be doing it much earlier. The exception to this rule, there’s always an exception isn’t there, would be digital x-rays and computers. If you are not digital, don’t have computers, or your computers are 10 years old, you should consider adding or updating those before selling.
4. What are buyers looking for in a practice?
Individual buyers like to see a well-run practice with a decent amount of production, typically over $500,000 per year, average to low overhead (below 65% is good), somewhat up to date look and feel to the practice and a good location.
Group practice or DSO (Dental Service Organization) buyers like to see similar things, but also want the seller to stay on and work in the practice for another 1 to 3 years depending on which Group or DSO buyer. They prefer larger practices collecting over $1 million. Larger group or DSO buyers want the seller to carry-back approximately 20% or more of the purchase price of the practice. This means you get 80% of the purchase price upfront and then you receive the other 20% after you’ve completed your 1 to 3-year work requirement and have met established production and other targets in the practice. If you don’t reach those targets, you may not receive the final 20%.
5. I have an offer from a DSO or Group Practice buyer, why do I need a broker?
It’s been said that “the man who represents himself has a fool for a client”. A broker wears many hats in a transition. Finding a buyer is only one small role they play. The broker also looks at the offer and looks out for the clients’ best interest. DSO and Group practice offers are all not alike, so brokers must also play the role of analyst and look at each offer. They have to understand accounting, finance, the law, contracts, and even human resources. If you try to do this all yourself, you will end up costing yourself, your family, your staff and patients more time, money and grief than if you just hired a broker in the beginning. We have case studies where we have caught things in the offer that would have cost clients hundreds of thousands of dollars. We have helped negotiate and solicit more offers that have put much more money in client’s pocket than what the clients first offer was. Or, saved them a major headache and/or time.
6. The person representing a Group or DSO buyer told us they prefer us (seller) to not work with a broker. Why is that?
They don’t want you to use a broker because it weighs the negotiations in their favor and gives them an upper hand. They have powerful attorneys, CPAs, and professional negotiators to pit against you. They may first knock on your door with a friendly neighborhood dentist as their representative, but behind that friendly representative lurks the professionals hoping you don’t have anyone helping you out. They’re able to get lower prices, better terms and buyer favored contracts if the seller doesn’t have a broker.
7. I own my building, should I keep it as a rental for future retirement income?
In the current real estate market, the short answer is “no”. Especially if you’re considering a DSO or Group buyer. We have pictures and case studies of sellers who kept their building only to have the buyer move out of the building two years later to a new building they built down the street. Or, they acquire another practice in the area and merge yours into their practice. The seller is left with an empty building that was a dental practice and will be difficult to find a tenant. The exception might be if you have a beautiful building in a fantastic location on a busy street with great visibility and the building is in pristine condition. These buildings make up less than 10% of dental buildings.
8. I want to do an associate to own transition. Can you help me with that?
Absolutely. We can help with pretty much any type of sale. Whether you want to do an associate to own transition, a straight sale to an individual, a group or DSO sale, or anything in between, we can help. We will show you all the options and scenarios to help you make the right decision. Often, doctors think they want an associate to own transition and not sell to a Group/DSO. But when we start talking to them and asking a lot of questions of both them and the potential associate, we find that associate to own isn’t the best type of transition for them. The ADA says 70% of associate to own transitions fail before they make it to closing. We’ll help walk you through each scenario to do what’s best for you and your family.
9. I want to continue working in the practice after I sell, is that possible?
It depends. If you sell to an individual and your practice isn’t large enough to support multiple doctors, then the answer is probably not. But we can help identify the right buyer for you who will allow you to do what you want to do. In fact, one of the questions we ask of the seller is “What is your dream transition scenario?” We then go from there and do our best to make your dreams come true.
10. I want to make sure my staff and clients are taken care of. How do we make sure that happens?
We like to call ourselves matchmakers. We spend time getting to know you as a dentist, practice owner, family person, etc. We ask a lot of questions to find out what your needs, wants, and dreams are in a transition. We then go out and find a perfect match whether it’s an associate, individual buyer, or even small Groups and DSO buyers have their own unique personality, culture, philosophy, and terms. We make sure that the buyers we present to you, who will want to buy your practice are a good match for you and your practice.
Selling Your Dental Practice Does NOT Mean You Have to Stop Practicing
Whether you have owned your practice for 40 years, or owned it for 5 years, selling your dental practice does not mean you are done practicing. We often meet with doctors who are sick and tired of managing their staff, doing the bookkeeping, playing games with the government agencies, dealing with the ups and downs of the economy, the changing environment of the profession, and on and on. The doctors are about to crack but think they cannot yet sell their practice as, according to their CPA or financial advisor, are not yet financially ready to retire. We counter this by asking them “who said you need to retire?” You can “harvest your equity” and either work back in the practice or go work for another practice. What the CPAs and financial advisors may not see is that your practice collections numbers are going down. Or, your blood pressure is skyrocketing due to the above-mentioned challenges of managing your practice to the point of a heart attack coming right around the corner. If you have a good amount of equity in your dental practice, we can sell your practice and you can put the cash in the bank and work as an employee until you are ready to retire in 5, 10, 20 years, or as long as your heart desires. Transitioning out of your practice may be the way to enjoy your profession again.
Preparing To Sell My Dental Practice
Preparing To Sell My Dental Practice
By Megan Urban
Selling your practice can be a difficult decision to make for many reasons. Perhaps you aren’t ready to stop treating patients but want fewer headaches. Perhaps you don’t know where to start or how the process works. Start today by contacting us to provide you with years of experience to bring you comfort and understanding. Below are a few things to consider.
You can start by having us provide you with the potential value of your practice, without the cost of doing a full valuation. We can do the same for your property if you own it. These potential prices will assist you in working with your CPA and financial planner to determine what your retirement cash flow looks like. Be prepared to pay off any debt on the practice at the time of closing. Debt could be from recently purchased equipment or any loan you may have taken out against the practice. If you lease your space, please review your lease.
Start thinking about whether or not you want to continue working a bit. You may not be able to stay on at your office if there is not enough production for two providers. Perhaps you want to work at the dental school or cover for your friends when they are on vacation or sick. These important issues will need to be included in the purchase and sale documents if anything is outside the standard non-complete.
If you have a family member working in a main position in your practice who will be retiring as well or leaving the practice, consider options. We can discuss if it makes sense to hire and train someone new and if the wages you pay family are inflated, we need to consider that in the expenses and adjust potential income to a new buyer. The family member may also be held to a non-solicitation agreement or the like.
Preparing to sell also includes us looking at your dental software reports and tax returns. If dental reports don’t look accurate, they may need to be researched. If you refer out services, please start tracking this so we can provide a buyer with potential immediate increase in income if they can keep the services in-house.
Please look at your credit balances. Some dentists are surprised to see how high those balances are, and they will need to be addressed. It may be an error you can fix, such as unposted treatment or incorrect insurance adjustments. If it is truly a patient credit, get the patient in for an exam, cleaning, or any incomplete treatment. Any credit balances at closing will be directly reduced from the sale price.
If you have a lot of old accounts receivable, determine what needs to be written off, such as old accounts receivable that you know you cannot collect or family members that you don’t intend to charge. Accounts receivable are often purchased separate from the practice sale and aging amounts are reduced. If you allow monthly payments in your office and the patients are up to date on payments, you may decide to not sell these or negotiate for a higher price for this specific piece of accounts receivable.
Now may not be the time to get all new equipment if you are preparing to sell, but it may be time to shape up a few things. If you do not have digital x-rays and electronic charts, consider investigating the cost and process to determine if you want to take that on or not. We can discuss if painting or other minor aesthetic changes might make sense. Decluttering is always encouraged!
If you have a website, be sure to increase Google reviews. This is important to new young buyers.
Please do not tell patients and team members about potentially selling. We can discuss the timing of this for you and your specific situation.
If you are considering selling, let’s schedule a time to talk about the general process of selling your practice and how we are different in our approach to representing you and your best interests.Read More
The Short List Before Selling Your Dental Practice
by Megan Urban, Practice Transition Advisor, Omni Practice Group
There are many steps to selling your practice and your trusted advisors are here to help. Right now, I want to address just a few items that many dentists don’t think about and that can lead to surprises.
Contact your CPA and/or Financial Planner regarding the following items:
- Are you financially prepared to retire? Your transition specialist (broker) can assist you in determining the potential price of your practice and your real estate (if any).
- Depending on your entity structure and past depreciation, what taxes will you owe?
- Depending on your state, what taxes will you owe?
- If you have any debt against your practice or real estate the debt will be paid at closing from your sales proceeds
- What will you do with the final funds? Do you have a retirement plan to maximize or does a 1031 exchange on the real estate make sense for you?
Again, there are many steps to selling your practice, but please address the above items to help reduce surprises.Read More
By Megan Urban, Practice Transition Consultant, Omni Practice Group
Dental partnerships can be great or not-so-great. They can include different scenarios: buying a partnership, adding a partner to your existing dental practice, or a start-up partnership. To ensure you have the best outcome, financially and emotionally, you’ll need to consider some important questions.
- Are you friends, relatives, or colleagues with the people whom you are considering entering into a partnership with? Are you convinced you can get along in a work environment?
- How will you resolve disagreements and make decisions regarding advertising, patient care, team management, and acquiring new equipment and technology?
- How will you divide up responsibilities within the practice?
- Is there enough physical space for more than one dentist? Are there enough patients?
- How will you divide up new patients and hygiene exams?
- How are you going to determine compensation, such as 30% of individual collections, then 50% split on all additional income and costs? If one of you performs procedures with much higher lab bills, you may need to consider a lab payment These items will need to be written up by your dental attorney as part of your partnership documents.
- Do your legal documents include specifics on terminating the partnership? You will need to address details regarding non-compete agreements, disability or death, and how to sell a practice when one or both partners are ready.
- Do you know a good dental CPA who can assist you with setting up the entity or entities that make the most sense?
There are many items to consider to ensure that you make the right decision, but we can help make the process go smoothly with the best outcome for all parties. We have guided many dentists through purchasing and selling practices, partnerships, multiple locations, and every size and type of practice. We have the experience and the expertise to help you achieve your goals.Read More