Advice for Dentists Who Are Thinking About Selling Their Dental Practice
For Dentists who are considering a practice sale – Here is some advice from an experienced Practice Transition Advisor – Megan Urban, Omni Practice Group.
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Getting Your Practice Ready to Sell
By Cindy Pauley, DDS & Practice Transition Advisor, OMNI Practice Group
You are ready! You woke up one morning early last week and said to yourself, “It’s Time!”
You have loved being a practicing dentist. But for a multitude of possible reasons, you are ready to sell. So, what’s next? You look around and think is my practice ready to sell? All of a sudden you see the chipped paint and remember the door that sticks if you don’t open it a certain way. Not unlike a house that you are putting on the market, some quick accounting of your practice is in order. Unlike a house, big and costly upgrades will not net you a higher sales price. So, let’s talk about what is a great bang for the buck and what may be money thrown out the window.
First, some really great things that don’t cost much. If your paint is chipped worn or aged… paint! Painting is simple, fast, and the quickest way to make a great first impression during the showings. Second, and advisably after the painting, upgrade flooring if it is worn or really outdated. For both of these options, go for smart clean colors. For the flooring options, keep it simple. Commercial carpet or carpet tiles and vinyl sheet or luxury vinyl plank (LVP) are quick to install and look great.
Second, fix all minor repairs. Doors that stick, duct tape on a hose, or worn fabric on chairs can be easily and inexpensively repaired and add to an overall feeling of a well-run business.
Third, declutter your entire office. It is time anyway. Put things you can’t part with boxes and get them out of the office. Otherwise, use your local goodwill and dumpster and let things go. Walk through the office as if you were going to buy this practice. You know that you would want to have clean, clutter-free spaces to visualize your future dental life in.
Even if you choose to postpone your sale, all the things I have just mentioned should be done if they are needed regardless, so it is a win-win! Your staff and patients will love everything mentioned and it is an inexpensive boost to the whole business.
Notice what I didn’t include? That’s right. I didn’t include any expensive dental equipment upgrades. Much to the dental supply company’s sadness, new dental chairs and a cone beam are not a good investment if you are planning to sell soon. Do not buy a new laser or a CAD CAM machine because big equipment purchases, with rare exceptions, do not pay for themselves when a sale is imminent.
Ok, you are all set. Now what? Well, give a practice broker a call in the meantime to start the valuation process. A side benefit is that we are happy to come out to your practice and let you know what we see as the best things you can do prior to listing. Be ready for the answer to be that nothing needs to be done. If you look around and think “it looks pretty good here”, chances are we will too.
My door is always open for consultations at any stage of your practicing life. I am always excited to help you navigate the pathway to your new life’s adventures.
Read MoreDental Seller Preparation Checklist
The best time to start preparing for your practice transition is three to five years from the date you plan on selling your practice. Since you may not really know that date, the best time to prepare is NOW! Here is a checklist of things you should do as you get closer to deciding to sell your practice:
___ Meet with your Financial Advisor – Discuss with your financial advisor that you are thinking of selling your practice. If the intention is to retire, let them know that is your plan. Ask them how much you may need to retire at the income level you desire.
___ Discuss Taxes with your Accountant – This is especially important in the current environment. There have been discussions at the government level to increase both capital gains and income tax rates significantly. Both affect the proceeds you will receive from the sale of your practice.
___ Obtain a Practice Valuation – It’s best to get a full valuation. You can provide this to your financial planner which will help determine when you will be able to retire if you get the desired amount from the sale of your practice. If you can’t yet retire now, most practice valuation companies or brokers will update the valuation for a minimal charge.
___ Keep your foot on the gas – Don’t slow down in your production. In fact, if possible, ramp up production to get the maximum value from your practice sale. Banks and buyers like practices that are trending up in production instead of going down.
___ Assess the condition of your practice – Do you have 20-year-old flooring that is faded, stained or torn. Replace it. Do you have mustard-colored countertops from 1970? Update the countertops. Paint will do wonders as well. Don’t spend a mint, but spend a reasonable amount – $10,000 to $20,000, to make the practice look and feel fresh and updated.
___ Clean up your Accounts Receivable – If you have credit balances on patient accounts, you’re required to send those back to the patient after a certain number of years. Each state has its own Unclaimed Property, or Escheatment law. You can find it on the internet. If you cannot find the patient, you are required to submit the balance to the state. Note that you can charge a nominal processing fee to the patient.
___ Self-assess your practice numbers – Is your staff payroll and benefits expense above 25% of your total collections? Is your production down, but you have the same staffing level? Is your dental supply fee over 7% of collections? Know what your ratios should be and manage to your numbers. Contact a consultant if you’re not sure what to do.
___ Know the market – Are practices in your area selling quick? Are interest rates super high? If it takes two or three years to sell a practice in your area, then you may want to list it soon rather than later.
___ Do a self-assessment – Think you’re five years away, but your back, neck or hands are telling you – SELL NOW! Burned out on managing staff and insurance companies? Just tired of living where you live and are ready for a change? All these may lead to selling sooner than your retirement date. Just because you sell your practice does not mean you have to retire. You can still practice either in yours or someone else’s practice. Or, maybe you’ve always wanted to do something different. Maybe it’s time to test the waters. You can always go back to being a dentist. I know several dentists who semi-retired and work as a dentist two days per week and drive Uber or LYFT two days per week for fun.
___ Contact a broker – Some of the best transitions we have done began several years before the sale occurred. We built relationships with the seller. In several cases, we found a buyer asking for a specific area. We made the call to one of the dentists we had a relationship with and they said “it’s time”. Brokers can also be advisors over the final two, three, or five years of your practice ownership. Should you buy the new CBCT? Should you hire an associate? We can help answer those questions.
Selling your practice is a major life event right up there with buying your first practice. Be sure and prepare, have a plan and get the right advisors. We’re always here for you and phone calls are always free. Give us a call – 877-866-6053.
Download your own checklist here: Seller Preparation Checklist
Read MoreSeller Carrybacks and Dental Practice Transitions Today
By Jen Bennett, Practice Transition Advisor
You’ve heard the term “Seller Carryback,” but what does it mean?
Seller carryback financing is when the seller of a given property, or in this case, a seller of a dental practice and assets, acts as a lender for the buyer if a conventional bank will not offer the full amount that the buyer needs to close the sale.
Years ago, it was commonplace for a retiring dentist to act as the lender for someone to purchase a dental practice. Seller financing was driven largely by the fact that banks and financial institutions had yet to embrace the industry like they do today. Therefore, there was a wide variety of structures, interest rates, terms, etc. that were built into those transitions and the exchange of funds between the buyer and seller.
Much like the rest of dentistry, the industry and the financing supporting transitions have evolved. In most transactions, it is quite common for the seller to receive all the cash at the time of closing, which is ideal. However, certain circumstances still exist where seller participation in financing is a requirement. In these cases, the buyer’s lender will require the seller to carry a certain portion of the purchase price. Usually, that amount is 10-25% of the total purchase price. Why would a bank need that, you might ask? Some common scenarios include: a declining revenue trend, uncertainty around the buyer’s production capability, and tight cash flow, to name a few.
Every lender has different standards around seller participation, but here are some common features of that path in the current environment:
- Term: Most carrybacks are amortized similar to the buyer’s bank loan. Payments based on a 10-year repayment are common.
- Rate: Since these loans are typically junior to the bank loan it is not unusual to see a seller note 0-2% higher than the banknote. Right now, around 5% is reasonable.
- Prepayment Penalty: Sellers typically want to receive the funds over a shorter timeline of 10 years. Most carrybacks do not have prepayment penalties so that the loan can be paid off or refinanced within 24 months of the transition.
With talks of increasing capital gains taxes in the near future only time will tell how prevalent carrybacks will become.
For more information, please feel free to contact Jen Bennett.
Read MoreWhat is My Practice Worth?
By Megan Urban, Practice Transition Consultant
Have you ever said something like this? “In the 90’s I was producing over $1.5M. Five years ago I was producing $900,000. My practice must be worth at least $1.0M and this area has huge potential.” Value is not based on “long ago past” numbers nor “potential” numbers. Buyers don’t pay for what you did over 3 years ago nor potential. They have to put in the work for the “potential”, so they don’t pay you for that and most banks and appraisers look at the last 3 years.
First of all, production is not nearly as important as collections. In some offices, the two numbers might be pretty similar, but in many, there is a huge variance due to large insurance write-offs, any in-office discount plan, and uncollected production. Next, how much of your collections are you taking home?
Let’s talk about what your practice may be worth, potential action items, and who should assist you to value and sell your practice. It is one of the most important decisions in your life that impacts your income.
Gather your team of trusted advisors. Now is not the time to listen to friends and family that aren’t familiar with the dental industry and do not have many years of experience. You will want a reputable transition consultant (broker) and dental-specific CPA and attorney. Your transition consultant will have a list of dental-specific CPAs and attorneys that do much of the work in your area. The CPA will help you to maximize any retirement plan you have, reduce taxes, and pay off the debt in a way that makes sense for your specific situation. The attorney will ensure all sale agreements, non-compete, and re-do treatment is correct, as well as any work back or carry back documents.
To help with a simple and successful transition, ensure your financials or books are clean. Work with your CPA to ensure personal expenses are not being run through the practice. Know what your actual take-home is out of your collections. If collections are high but all expenses are high too, the value won’t be as high as you’d like.
Take a look at your AR and try to collect as much as possible and do any necessary write-offs. AR can be purchased by the buyer and the over 60 or 90 days old is not worth much unless you can show the patients are keeping up with monthly payment plans.
Most dentists don’t think they have many credit balances, but there are sometimes surprises here. Some credit balances may be correct and you need to do your due diligence to refund the money or better yet, finish treatment. Check that the credits are not an error. EOBs are difficult to read and an insurance adjustment may need to be modified or corrected. Credit balances are often adjusted directly off the purchase price.
So, how much is your practice worth? Your transition consultant will complete a full valuation and prospectus and then together you can set the price. If collections and/or income have been declining, that’s fine if you’re happy, just understand that buyers don’t pay for “old days numbers” and “potential”.
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