The Importance of Owner Flexibility
You shouldn’t expect to sell your practice overnight. For every practice that sells quickly, there are a hundred that take many months or even years to sell. Having the correct mindset and understanding of what you must do ahead of time to prepare for the sale of your practice will help you avoid a range of headaches and dramatically increase your overall chances of success.
First, and arguably most importantly, you must have the right frame of mind. Flexibility is a key attribute for any dentist looking to sell his or her practice. There are many variables involved in selling a practice and that means much can go wrong. An inflexible owner can even irritate prospective buyers and inadvertently sabotage what could have otherwise been a workable deal.
Be Flexible on Price
A key part of being flexible is to be ready and willing to accept a lower price. There are many reasons why practice owners may fail to achieve the price they want for their practice. These factors range from lack of management depth and lack of geographical distribution to an overreliance on a handful of customers or key clients. Of course, one way to address this problem is to work with a practice broker in advance, so that such price issues are minimized or eliminated altogether.
Be Prepared to Compromise
In the process of selling your practice, you may want to achieve confidentiality and sell your practice quickly and for the price you want. However, the fact is that most sellers find that it is possible to have confidentiality, speed, and the price you want, but not all three. Ultimately, you’ll have to pick two of the three variables that are most important to you.
Be Patient
A third way in which practice owner flexibility can boost the chances of success is to embrace the virtue of patience. By accepting the fact that practices can “sit on the shelf” for a considerable period of time, you are shifting your expectations. This realization can help reduce your stress level. The fact is that stressed out owners are far more likely to make mistakes.
Sometimes Losing is Really Winning
A fourth way in which practice owners should be flexible is realizing that you and your lawyer will not win every single fight. There will be many points of contention, and a smart dealmaker realizes that it is often better to have a good deal than a perfect deal. You may have to make sacrifices in order to sell your practice. Simply stated, you shouldn’t expect the other side to lose every point.
At the end of the day, a savvy practice owner is one that never loses sight of the final goal. Your goal is to sell your practice. Seeing the situation from the buyer’s perspective will help you make better decisions on how you present your practice and interact with prospective buyers. Maintaining a flexible attitude with prospective buyers helps to position you as a reasonable person who wants to make a deal. Goodwill can go a long way when obstacles do arise.
Read MoreWhen is it Time to Value Your Practice?
Transitioning the practice is probably one of the biggest decisions a dentist will make in their career. Deciding whether to transition the practice to a partner, associate, a new dentist, or corporate dentistry, you will need a plan and experts to help you make the right decision.
3 to 5 Years Before Retirement
Having a financial plan when you are 3-5 years out from selling your practice will allow you to know what the total value of your assets are and what value is needed from your practice to afford to retire. Knowing the value of the practice 3-5 years out will also allow you to focus on reducing debt, increasing production, and collections, which are critical factors in determining the practice valuation.
When developing your financial plan, you will need to have your CPA do a thorough review and analysis of your financials and advise of any necessary adjustments. This would include family members on the payroll who don’t work in the office, expenses that are above industry averages, and other expense benefits being run through the practice. Review your internal and external marketing programs with your marketing professional to focus on increasing new patients and adding additional revenue to the practice.
1 to 2 Years Before Retirement
Once you have an established financial plan and are 1-2 years from retirement, you need to find a dental broker to help with a practice valuation and options for selling your practice.
The benefits of enlisting a professional dental broker are:
- Independent and accredited appraisal of your practice’s worth, the patient population, equipment, and, if applicable, the real estate.
- Knowing what your minimum sales price will need to be to meet your financial goals to retire.
- Exploring the different buyer options for the sale and which one is right for you.
- Developing a marketing plan for your practice that will keep it confidential until a buyer is found.
- Determining the average length of time it will take to market and sell your practice.
- Identifying what improvements or changes could make the practice more attractive to potential buyers.
1 Year or Less Before Retirement
It is time to implement your plan to sell the practice. The average practice takes 6-8 months to sell Pre COVID-19. Some rural practices might average 18 -24 months to sell. Enlisting a professional broker will save you time putting together a marketing prospectus and then marketing the practice locally and nationally. A broker can also assist you with updating your valuation to determine the asking price for the practice. Keys areas to focus on with less than a year are reducing as much debt as possible and keeping the hygiene and doctor production as high as possible.
There is no doubt that the COVID-19 pandemic has created new considerations for anyone who is considering selling their dental practice. Selling a dental practice doesn’t happen overnight. Developing a plan with experts can ensure you get what you want out of a sale while maximizing your dental practice’s value and allowing for a smooth transition to the purchaser.
Omni Practice Group has been helping dentists for over 15 years develop plans for dentists to transition their practice. Our goal is to help you find the right buyer and make a smooth transition of your practice when the time is right.
Contact us today for a free no-obligation consultation with one of our Practice Transition Advisors. We are here to help – Kevin@omni-pg.com.
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Why 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 MoreDealing with Credit Balances in a Dental Practice
Kevin Brady, Practice Transition Advisor, gives dentists important information about credit balances in a dental practice.