Seller Articles

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.

So you want to sell or transition out of your office.  What can you expect?  There’s a big difference out there between expectations and reality.  When I do dentist office transitions or sales in Washington or Oregon, the selling dentist sometimes likes to work back.  That’s a great thought and I’ve seen it work.  But, more often than not, I’ve seen a disgruntled buyer, disgruntled seller, or both.

What often happens in a dentist office transition where the seller works back, is that the staff still views the selling dentist as the boss.  What he says still goes.  The selling dentist oftentimes still views himself as the managing dentist or at least the expert in running a practice.  That may or may not be the case.   The buying dentist is left as the outsider looking in.

So, what do you do to have a successful dental office sale or transition?  Communication is the key.  The sooner and more often the two sides get together the better.  If the buyer is envisioning the practice being run one way and the seller thinks things will continue as usual, there’s going to be a problem.  Everyone needs to be on the same page as to how staff management is going to happen, how marketing will happen, who gets the new patients, etc.,  After that’s done, get the attorneys together and put it in writing.  If everyone communicates upfront and everything’s in writing and agreed to, you’ll have a better chance of having a happy ending.

Call us for a free consultation on how to make sure your dental office transition or sale is a happy one. 877-866-6053

I keep running into well-tenured dentists who have enough money to retire, they’re old enough to do a transition (past 65) and they love what they do, but they don’t want to sell their practice.  Commonly, tenured dentists have not updated their technology and they’re losing patients as a result; their practice is floundering and they ask me what they should do.

Howard Farran from Dental Town had a good article on this.  He said someone had told them they love what they do, but can’t wait to retire. His response was “Mother Theresa loved what she did” and she couldn’t wait to serve another orphan or something to that effect.  His point was that if you absolutely love what you do, why retire?

A better option is to sell your practice and work back for the buyer one or two days per week or month. By associating in a practice, or simply selling or transitioning your practice and working back one day per week, or even per month, you enjoy the fruits of your labor, enjoy life, and still get to enjoy dentistry.

Call us to learn how.  877.866.6053

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.