Are you interested in selling your dental practice? There is more to consider other than simply finding a buyer. Your initial considerations may range from, “When is the right time to sell my practice?” “Who will guide me through the transition?” and, of course, “What is my dental practice’s worth?”
The COVID-19 issue and if it will affect the value of practices would be something you would also want to think about. Currently, for many dentists and practice owners, the entire selling process can be overwhelming, but it doesn’t need to be stressful.
Below are some crucial tips you can follow to ensure the sale proceeds as smoothly as possible:
Start planning your exit early.
Planning early gives you enough time to weigh every option that comes your way. Which offers should you consider? If you don’t plan well, you may find yourself taking the first offer that lands your way. But when you are not in a rush, you can afford to be a bit choosy on the offers that come in and proceed only with the one that appears the most reasonable.
Planning early also gives you time to reflect on the different transition styles. Do you want to affiliate with a dental service organization (DSO)? Alternatively, if your dental practice is large enough, you may opt to sell half of it to a partner and keep on working for a few more years. Once you are convinced the time is right, you can then cash-in on the other half.
How long it takes to sell a practice
Many factors can help estimate how long your dental practice will be on the market. However, two factors play a critical role in this.
One is the location of your dental office. Is your office in a rural community? Is it in a metropolitan area? Is your office located in a prime area of the city? Usually, dental offices located in “hot spots” of the country — like Texas, Denver, San Diego, or New York — are likely to sell faster than those situated in a smaller, more rural neighborhood.
Another factor that influences how long it will take to get rid of your dental office is your practice size. Dental practices that have a valuation of about $1 million tend to be a popular commodity when listed in the market. On the other hand, practices valued below $750,000 tend to stay on the market longer. Why? The reason is simple — smaller practices mean less income for the incoming dentist.
That said, sometimes, a sale can be made within weeks after you have shown intentions to sell, or even two or five years later! All that is needed when you decide to sell your practice is patience.
How much is your dental practice worth?
When it comes to valuing your dental practice, you would assume that the rule of thumb valuation method would be simple and quick to use. However, to some extent, this is not the most accurate method of valuing your practice since every office is a unique entity. If a dental practice performs below or above average, its actual value will most likely not be captured via the rule of thumb method.
To clarify more on this, check this example by Henry Schein:
There are two dental offices, each collecting $1 million. One has an overhead of 70 percent and the other an overhead of 50 percent. Using the “70 percent of gross revenue” rule of thumb, every dental office would be worth $700,000. However, in reality, the first dental office is much more valuable than the second, evidently because of the larger profit.
Many factors are not taken into consideration in the above case. For instance, what different procedures are offered in your dental office? How reputable is your practice? Is your practice leveraged? What is the current regulatory environment?
When doing a valuation, it will be vital to look at your dental office as a whole. You will need to consider your cash flow levels, tangible and intangible assets, or even how your practice is fairing against similar offices in the area. As strange as it may seem, even factors such as patient mix and parking availability are part of the equation.
The thing is, there is no one standard approach for valuing your practice. Real-life experience is as vital as an accounting approach. Though, you are advised to work with valuation experts since they have a good knowledge of the dental industry.
The Best time to sell your practice
Various instances may persuade you to sell your practice. One of the situations that make dentists want to get rid of their practices is a looming retirement. Everybody needs peace of mind and some financial assurance during retirement, and selling your practice is one way to achieve that.
You may also be contemplating relocating to another country or state, taking another career path, or simply wanting to become employed and stop being a practice owner. Whatever your justification for selling your practice, it is advisable to get it right in terms of time.
For top sales value, sell your practice when it is thriving and doing well. Trying to sell a dying practice will lead to a longer sales process and a possible financial loss.
Most importantly, ensure your practice is visually appealing. First impressions matter significantly. If you have been considering renovating your office in the past, now will be an appropriate time to do it. While it may not be a decisive factor, a perfectly-maintained office is more attractive to potential buyers than a neglected one.
What’s more, nobody will want to purchase your practice if it’s synonymous with inexperienced or unqualified staff. In most instances, your staff will remain the employees of that dental practice even when the ownership changes. If buyers believe your office suffers from a bad reputation due to incompetent employees, they will channel their money to more feasible investments. To save on recruitment costs and achieve your goal (improve your dental practice value), consider hiring qualified, peer-reviewed dental professionals from web-based staffing platforms like Cloud Dentistry. It is easy and simple. Most importantly, you get rid of middlemen and avoid paying placement fees!
In a nutshell, if your practice is struggling, then it might not be the appropriate time to sell. Consider improving all your business aspects before listing it on the market.
Will COVID-19 affect the value of dental practices?
Much of what has taken place in the dental sector is a deferral of revenue. Apparently, when practices resumed normal operations in June, there was a notable surge in business.
History teaches us that a crisis or a recession will have less impact on dental practices than most other businesses. Although the exact impact will be ascertained by the duration and the magnitude of the crisis, some experts believe that recessionary impacts on dental offices are likely to be moderate. Actually, an ultimate return to normal levels of profitability and revenue will be where things end up. Meaning, the value of dental practices is less likely to drop anytime soon.
Don’t do it alone — use a trusted team of advisors.
If you wish to sell your practice fast, assemble a team of experienced advisors. Come up with a transition plan with the help of your advisors. Begin with timelines of when you need everything done and an approach of how you will accomplish these plans. Below are some professionals you should consider having on your team:
Finding a buyer can be quite difficult. Brokers negotiate on your behalf, eventually making the exit easier and less emotional. They will also help you properly value your dental practice, allowing you to concentrate on what matters most — your staff and patients.
The attorney will offer you legal representation throughout your selling and buying process. Signing any legal paperwork or sale-related contracts without the advice of an attorney can be risky.
It would help to have a coach/consultant in your team the very moment you decide to sell your practice. They will help you meet your transition goals. They can also advise you on how to make your dental practice as appealing and profitable as possible.
Your accountant/CPA will do all the tax paperwork and any relevant financials. Notably, he will advise you on issues, such as tax ramifications of a dental practice sale, how to lower your tax burden without impacting the buyer, signing of a Non-Compete Agreements, allocating sale price between equipment and goodwill, etc.
Make sure the advisors listed above are dental-specific in their field. They should also show success from their collaborations with past dental clients.
As you have seen from this post, there are several factors to consider when selling a dental practice. But we hope you are now aware of the best time to sell, how to do a proper valuation, how to improve your practice’s value, who to talk to when selling, and much more.
All the best as you embark on this life-changing event!