By Don Spiert, Director of Acquisitions
Building a successful dental practice takes years of hard work to establish local reputation, loyal patient base and dependable staff. Whether you started from the ground-up or purchased an existing practice, being a dentist has been a significant part of your life for many years.
So when you’re ready to retire, selling your practice will be one of the most difficult decisions of your career. Why? Because a practice isn’t just an asset, it’s your legacy achieved through dedicated hard work. There’s an emotional component that most dentists don’t factor into the process. It’s not like selling a house or car. It’s much different.
Are You Ready?
You might say to yourself, “this practice has been my ‘baby’ and my ‘life’ for so many years.” Or “I still want to treat patients a couple of days a week after I sell my practice.” Before you make any decisions, ask yourself a few questions:
- Am I emotionally and financially ready to step away from the practice where I’ve invested so much of my time & resources?
- What do I want to do after I sell my practice? Will I retire from dentistry; work part-time or volunteer my services?
- How do I want to sell my practice? For example:
- Sell to an associate and immediately retire
- Transition to a DSO and gradually step aside
It’s understandable you want to preserve your practice legacy while ensuring the ongoing care of your patients and staff meets your high standards. That’s why it’s important you find the right buyer to entrust your “baby.” It’s one thing to be financially prepared for retirement. It’s a whole other ballgame to emotionally handle walking away from your practice.
Ready, Set, Go!
After taking stock of your personal finances, retirement and practice transition goals, it’s time to call in the experts to help you prepare for the sale of your practice. Your team of professionals should include a CPA, wealth management expert, practice transition specialist and attorney.
Certified Public Accountant (CPA)
A CPA will compile and review all your financials. Be upfront about anything that might be considered outside the normal scope of dental practice business – i.e., expenses above industry averages, any non-cash benefits, or family members on payroll who don’t work in the office. This allows your CPA to do a thorough analysis and advise any necessary adjustments.
Wealth Management Advisor
The sale of your practice could be the single biggest contribution to your retirement fund. Consult an expert wealth management professional to help you plan for any related tax consequences and long-term investment strategies.
Practice Transition Specialist
A good practice transition specialist will review market prices in your area; establish a practice sale timeline; conduct a comprehensive practice analysis; and have a pool of financially viable buyers. Get recommendations from colleagues and interview each one to find the best match for your needs.
Attorneys provide much-needed protection and reliable attention to practice sale transaction details. Due diligence and sound legal advice benefits you, your practice transition specialist and the buyer. Find an attorney who is well versed in dental practice transitions because it will save you time and money, potentially adding tens of thousands of dollars to the purchase price of your practice.
Have all your financial statements in order to accurately show the fiscal health of your practice. Make sure you prepare and review monthly/quarterly profit & loss statements with your accountant. If you don’t, start doing it immediately. Review each line item to manage revenue fluctuations, expenses and ancillary accounting issues.
The ADA, an ADCPA member, or transition specialist can give you current industry averages for revenues, expenses, new patient flow, fee schedules and much more.
Buyers will look at your profit & loss statements – comparing each line item to industry averages. Make sure your CPA explains any noted differences upfront – otherwise you could lose significant value to your practice. It also puts to question the integrity of your practice financial information. Here’s a link to our free practice valuation guide and worksheet to help you get started.
Any potential buyer will want to review your production against industry averages. Carefully analyze the following key reports generated by your practice management system:
Provider Summary Report – This report actualizes productivity by provider and type of procedure. When reviewing this report, make sure your hygiene production numbers are within industry averages. Also, if you offer specialties like orthodontics or sleep apnea, you need to make sure any potential buyer can replicate those same procedures. If they can’t, it could negatively impact the purchase price of your practice because that revenue would be deducted from the valuation.
Accounts Receivable Report – Buyers pay close attention to the percentage of receivables based on the delinquency bucket. Be forewarned – most buyers will not pay for balances over 90 days. Large account receivable balances are a “red flag” to any potential buyer. It usually signifies a lack of controls for effective practice collections and cash flow management. Carefully analyze each account and make necessary adjustments to “non-collectables.” Also be sure to record patient payments against aged receivables.
Fee Schedules – Review your current fee schedule and adjust fees to the minimum 80th percentile for your area. Read The Importance of Evaluating UCRs for best practices.
The first step to selling your practice is making the decision. All subsequent steps ensure you get the most for your practice with a transition that meets your needs. Allow enough time to carefully plan the sale and consult experts for strategic expertise and advice. The more you know upfront – the better prepared you’ll be for a successful sale.
- LCarefully vet all potential buyers. If they don’t have a clear understanding of the market and how it relates to the value of your practice – move on.
- LEstablish relationships with industry professionals. Their expertise and support will be an invaluable resource.
- LDetermine a specific date of sale with a realistic timeline. Also, clearly communicate when you want to stop practicing dentistry.
- LPlan early and anticipate delays. Your location, mix of procedures, and practice revenue trends can impact the pace of your practice sale.
This guide will help make the sale and transition of your practice less stressful and challenging for all involved parties. It will also help preserve your legacy.