Seller Articles

5 Points to Ponder About a Transition in the New Year

We have been involved in practice transitions since the mid-1990’s.  Our company has sold over 500 practices in 12 different states.  Doctors have sold their practices for numerous reasons ranging from just being tired of owning and managing a practice to severe health issues forcing them to sell.

In all these years and transactions we have performed, not one doctor has come up to us and said “I wish I wouldn’t have sold my practice so soon”, or “I wish I still could own my practice”.  In fact, most doctors whom we talk with months, or even years after selling their practice say “selling was one of the smartest decisions I made, I wish I would have sold much earlier”.

So, how do you know when is a good time to sell?  Here are a few things to consider:

1. The Current Sales Market – Is it a buyer’s or seller’s market? A buyer’s market is when there are a lot of practices for sale, interest rates are average to high and there is low demand.  Currently, as of today, we are in a seller’s market.  Interest rates are quite low.  The economy is doing well.  The demand for practices is high.  Doctors and groups looking for practices producing over $1,000,000 per year is very high.  That is attributed to the number of corporate buyers in the marketplace.  The demand by corporate and other buyers is driving up the price of practices.  In a few years, this will change, and prices will drop, possibly significantly.  You want to sell your practice in a hot seller’s market versus a buyer’s market.  Even if you sell 5 too early, you will make it up in the sales price you are going to receive versus the income you would make as an owner.
2. Being Forced to Sell – There are certain things that are inevitable in life. Getting older is one of them.  And that includes all the aches, pains and other health issues that go along with it.  We have seen doctor after doctor, every year, sell their practice because of back, neck, hand, or eye site issues to name a few.  We have also seen more serious health issues that forced a doctor to sell.  Cancer in all its’ forms and other diseases can happen when you least expect it.   There have been several doctors who every year told me they were ready to sell.  Only when they were diagnosed with cancer did they decide to sell.  One of them sold their practice and then passed away the next day.  We have story after story of doctors who sold their practice expecting to enjoy retirement with their family only to report back that they or their spouse got sick, or worse yet, passed away.  Enjoying retirement and life is something we should all have the opportunity to do.  Selling when it’s the right time ensures us of this.
3. Harvesting the Equity in Your Practice – This is one of our favorite strategies in selling a practice. And, selling in a seller’s market with higher practice values make it even a smarter decision.  When you started or bought your practice, you probably took out a loan with the bank.  As you have been in practice, you have paid your loan down and have built up your practice.  The difference between the potential sales price of your practice and any debt you may have on your practice is called equity.  Many doctors may have hundreds of thousands of dollars, if not millions of dollars, in equity.  This equity does not do anything for you while you still have the practice.  You cannot receive this money unless you harvest the equity.  You do this by selling your practice.  You put the hundreds of thousands, or million dollars into the bank, invest it, or pay off your house.  Whatever you would like to do.  You can then work back in the practice you just sold, or work in another practice.  Or, you can even go buy a new practice, build it up and harvest even more equity.  It’s a beautiful thing.
4. And now for Something Completely Different – That was for the Monty Python fans out there. At times we all get tired of doing the same old thing, day in and day out. We are just tired of the monotony, tired of staff, tired of the patients and just ready to do something completely different.  We have doctors who are ready to change course completely.   We have had doctors sell and tell me they want to be a real estate agent, a barista, or they are going to run a surf shop in Hawaii.   If you have reached that point and are tired of the same old routine, life is short, it is time to take action and do something different.  You can always come back years later if you decide you have had a long enough break and are ready to return back to practice.
5. Annual Production is Decreasing – For fun, go back and take a look at your last five years profit and loss statement or tax returns. Have your annual revenues gone down year after year over the past 5 years?  How’s your income?  Has it also gone done year after year?  We frequently see this as practice owners start to get a bit tired towards the end of their career.  They slow down their production, but the overhead stays the same, so their income goes down even faster.  They then decide to sell and think that the price should be based on what the practice used to do, before the slide in production.  It does not work that way.  A practice’s value is what it is doing today, not five years ago when it was double the revenue.  Using the Equity Harvesting strategy in number 3 above, would have given these doctors hundreds of thousands of additional dollars.

We are imparting this knowledge to you, not to get you to sell your practice as soon as possible.  We are simply giving you some things to think about and passing on to you some wisdom from prior experiences of other doctors.  Thinking about these five things in addition to taking action may provide you more time with your family if you sell a few years earlier.  It may also give you more money to have a happy retirement.

Look at each one of the five items above and ask yourself if you want to sell your practice when you have to, or when you want to?  As always, call us if you would like a free consultation.

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Top 10 Mistakes When Selling Your Practice

By Rod Johnston, MBA, CMA

Omni has sold over 500 practices since we started selling over 20 years ago. The majority of our transactions go pretty smooth, but in nearly every transaction there are road bumps, hurdles, or just some things that need to be ironed out or discussed. Here are ten of the most common mistakes that sellers make when selling their practice:

1. Waiting Too Long to Sell

Every business or practice owner thinks they can continue working until one day they decide to sell. They believe they can just put it on the market, and it will sell in a month or two for a high price. But timing is everything. If you decide to sell when your numbers are declining, you may lose hundreds of thousands of dollars. Selling when rates are high also reduces value, as banks assess the cash flow after debt service of your practice. Higher interest rates lower cash flow and, consequently, the value of your practice. Similarly, if you choose to sell during an economic downturn when there are fewer buyers, you may again lose value, and your practice could sit on the market for months—or even years.

2. Not Watching Your Payroll

What is your annual payroll as a percentage of last year’s collections? It should be somewhere between 25% and 30%. If you get to a point when it’s time to sell and your payroll is high, a buyer will not look favorably at your practice. Keep your numbers up, and make sure your payroll is where it should be.

3. Managing Patient Credits

Typically, you sell your accounts receivable less patient credits when you sell your practice. However, did you know that every state has a law requiring you to refund a patient’s credit if they have not been active in your practice for a certain period, typically around three years? If you cannot locate that patient, you need to send the patient credit to the state where your practice is located. This is known as the unclaimed property or escheatment law. Look it up and manage your patient credits accordingly.

4. Lingering Liens

Have you ever borrowed money against your practice? You may want to run a lien search to check if any liens are still against your practice. Even though you may have paid off the debt, banks are notorious for not releasing the lien once the debt is paid off. You can perform a lien search, also called a UCC search, on your state website, or contact an attorney or a service that conducts lien searches to examine your practice for any liens.

5. Renewing Your Lease

If you are renewing your lease, now is the time to discuss assignability with your landlord, real estate broker, or attorney. Try to include assignability language in the lease. Many times, landlords will require you to stay on as a responsible party for the life of the lease, even after you have sold the practice. Having assignability language can help you be released from personal liability on the lease sooner rather than later.

6. Not Giving Enough Time to Find a Buyer

On average, it takes about nine months to sell a practice. If you have a great practice in a desirable area, the time will probably be less. However, if your practice has low production, under $350,000, it will take longer to sell. Practices in remote areas, which are less desirable than metro or affluent areas, also tend to take longer to sell. Small practices with only 2 or 3 operatories will generally require more time as well. When we say longer, it could mean twelve months, or it can be up to five years.

If you’re in a remote area like the San Juan Islands, consider starting the sale process five years before your ideal selling date, as fewer doctors may be looking to practice there. If you find a buyer years before you’re ready to sell, congratulations! You have a bird in the hand—take it! You can then consider working for someone else, teaching, or work back in the office. It is a good problem to have if you sell before you really want to in a remote area.

7. Not Weighing All Your Options

There are numerous ways to sell and various types of buyers. You can sell to an individual, a corporate-owned group, a small local group, or even to an associate. Working with a broker can help you explore and discuss your options. Perhaps you want to sell and then work back, or maybe selling to a larger group is a better fit. Brokers know the market and can help design an optimal transition plan for you.

8. Failing to Plan

This is more than just failing to plan; it’s failing to put the plan into action if you have one. Banks and brokers look at the last two or three years of tax returns to determine the value of your practice. If you want to maximize the sale of your practice, your best years need to be your last two or three years. If necessary, hire a consultant to help you streamline your practice, increase production, and reduce overhead. Most importantly, keep your foot on the gas!

9. Selling On Your Own

I have spoken to doctors who sold their practices themselves. One doctor, who was collecting $1.5 million, sold his practice in a nice metro area for $500,000. I did not have the heart to tell him that he undervalued his practice and could have gotten another $500,000 to $700,000. We have listed practices where the seller tried for two years to sell on their own, thinking just placing an ad in the state association would be enough. We sold these in four months. In other cases, sellers were difficult to work with, scaring away every buyer interested in the practice. Hire an expert to take the emotions out of the transaction. You may not always get a higher price, but you’ll likely save on stress and avoid costly mistakes.

10. Not Hiring an Attorney to Prepare Documents

We have had buyers and sellers who wanted to save a few thousand dollars by simply reviewing the agreements themselves. They would ask for changes to the document and send them to the buyer. The buyer would then send the changes to their attorney, who would reject them, leaving the sellers unaware of the legal reasons for the rejections. A transaction that should have taken two months to complete ended up extending to six months and then ultimately fell apart. Hire an attorney and get it done right. It’s one of the biggest transactions you will make, so ensure it is handled correctly.

Being on top of these ten items will help ensure a smooth practice transition. Contact us for a free consultant and help you get started on planning for your transition.

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The Newby, The Young Gun, The Rockstar & The Legend…Which One Are You?

By Jon Rutty, Practice Transition Specialist

Have you ever wondered what it will be like to transition your practice? No doubt you have heard stories from mentors or colleagues about the process and perhaps that is the reason you haven’t even thought about it or had the thought “I’ll cross that bridge when I get there.” But here’s a question, what if you’re on the bridge right now and you don’t even know it?

For over a decade I have helped doctors across the nation improve their practices. I have traveled to 41 states and met doctors with all sorts of ambitions, but in my humble opinion, the majority of them fell into one of two buckets.

1. The doctors who waited too long to start thinking about their practice transition and who are now desperately trying to make something happen before they get too tired to continue, or worse lose their health; or
2. The doctors who have not even begun to think about their practice transition but soon begin to realize, “If I don’t sell when I’m at a high, I may not be able to make the return on my investment like I want to”.

So how do you know when you should start to look. Here are some key factors that assisted my most successful clients in transitioning well.

1. They started the process of inviting another provider in before they even thought of a transition. And because they did, they got to find the right person for the job. They weren’t desperate for someone to take over quickly or to fit a specific mold. They had agility because they had time on their side.
2. They saved for their retirement early. While many of the doctors I worked with were running out of steam and low on money to support their retirement, the wisest doctors had been saving for years and were working with a professional to assure that they would not be solely dependent on their practice sale to fund their dreams.
3. They had a clear vision for what they wanted. Some doctors I know don’t have a vision for their next steps and because of this they wait too long to begin the process of finding a suitable doctor to join them in transitioning. But when you have a vision behind your eyes, you can see how the work you put in now to make the practice desirable to potential buyers will pay off and you operate with clarity and on purpose instead of “one day.”

 

So where do you stand? Where are you on your transition timeline?

The Newby – I just bought a practice. I’m beginning to dream about my career and will dedicate time to building out my ideal retirement throughout the process.

The Young Gun – I’ve been practicing for 5-10 years now and have a nice sized practice. It may be time to start inviting another doctor in to have flexibility and perhaps find a future business partner.

The Rockstar – I’m at what could be the peak of my career. My use-before date is closer than my born-on date. I have thought a lot about when and how, but I’ve never taken any steps to discover more.

The Legend – I was booming just a few years ago, but I’m seeing some decline in my office and I’m tired of trying to find new ways to market myself. Add to that, a lot of my colleagues are retiring. It’s just a matter of time now.

No matter who you are in this scenario I can tell you that as a business owner, if you don’t seek out a highly skilled transition consultant, then you are either spending too much time trying to figure out what works, or you are likely depending on the experience of staff to help you grow your business. Omni has a long history of helping doctors with successful practice transitions. Newby, don’t wait too long to find one. Young Guns, same to you, but you are likely in a place where you need to start looking for a doctor to join your practice. Rockstars and Legends, it’s past time to talk with someone about your transition. Even if you are still 5-8 years away from taking the plunge, you owe it to yourself to talk with an experienced transition expert to discover the best options for you moving forward.

At Omni, we specialize in helping owners transition their practices into the hands of capable and competent private owners. We can arm you with a practice valuation so that you can see what your next step could be and for those of you reading this newsletter, we are happy to do that absolutely FREE. That’s a cost savings to you of about $3,500. Click the link below for more information on how to begin the process.

Dental Practice Valuations

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How Much Will I Get for The Sale of My Practice?

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Typical 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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