The Art, Science and Emotion of a Dental Practice Sale – Part One

By Rick Willeford, CPA – The Willeford Group

For most of your professional life you have looked to your dental practice as your job. Your career. It has often defined who you are. But at some point you have to give serious thought to looking at it as a valuable asset in itself. And have it poked and prodded and subject to due diligence by prospective buyers. As you approach that point, you may want to ask yourself a few questions:

– Does your dental practice valuation represent an important part of your financial assets?

– Would you be upset if you did not get the highest fair market value for your dental practice for sale?

– Do you need to add an associate or build up your dental practice for sale to maximize its value?

– How would you feel if you paid more taxes than you had to on the sale?

– Although you may want to retire, do you know if you can afford to….?!?

– Are you counting on slowing down but still working in your practice after a sale?

– Do I have a Dental Practice Broker I can rely on?

Most practitioners do not think about the value of their dental practice or about the questions above until it is time to “cash out” and move on. But “moving on” is no longer limited to just the traditional picture of “retirement”.  Over one half of sellers are under 60 years of age due to various changes in their circumstances or goals. On the other end of the spectrum,  70 is becoming the new retirement age for many folks due to the economy and declining portfolio values—or just their failure to have planned an exit strategy.

Speaking of failing to plan, would it surprise you to know that 6 out of 10 dental practices simply close their doors? How sad. Not only for the practitioner, but also for their “stakeholders” who rely on them: their families, their loyal team and their patients.

When it comes down to it, there are just two times when you sell your dental practice: when you “want” to and when you “have” to! Are you—or will you—be ready?

Also, a “dental practice sale” does not necessarily mean that you are selling out and leaving. Part of your long term financial strategy may be to sell your dental practice more than once. By that, we mean that it may be a wise move to bring in a partner to buy half the practice now. That not only gives you a cash infusion to pay off some debt, fund your retirement plan, etc.; but the real payoff comes 5-10+ years later—when you are ready to sell the second half. You may discover that it has grown to be as large as or larger than the entire practice was when you sold the first half!

So with the myriad of options (immediate/deferred buy-ins/buy-outs, earned equity approaches, etc.) we would like to share some insights based on the NAPB’s combined experience of over 1000 successful transactions with dentists. Regardless of the reason for a sale, be it either a “transition” or a “succession”, we would like to help you not only maximize your dental practice value but also to protect that value in the case of an emergency sale.

I. The Challenge: Selling What You Can’t See!

No matter what your situation is, Selling a dental practice is not an easy proposition, even if your practice is profitable, well documented and has a demand in the current market. It is much more complex than selling a tangible asset like a house, a car or a piece of land, where the prospective buyer can literally see and touch what they are buying.

But with a dental practice sale you are not just selling cotton rolls and some used equipment. At least 75% of your dental practice valuation is in the intangible asset loosely called goodwill. In addition to the benefit of having a skilled workforce and systems in place, the primary value of goodwill is the expectation that patients will continue to frequent the practice. How in the world do you measure that? Suffice it to say, a prospective buyer will approach this biggest purchase in his or her life with a lot of trepidation. Dental practice brokers who are immersed in these efforts everyday are your best ally.

It’s that trepidation and healthy skepticism that can easily put you at odds with a prospective buyer. By definition, you two are on opposite sides of the transaction. No matter how kindly your intentions may be, the prospective buyer must take everything you say with a grain of salt. That can easily hurt your feelings, because, as a professional, you are used to getting respect and trust. But now you are facing one of the trickiest and biggest business transactions in your career: trying to convince someone to buy something they can’t really see or touch!

Here is where a respected, experienced dental practice transition consultant or dental practice broker can serve as an intermediary to keep all the parties on track. However, long before you pull the trigger on an actual sale—and before making any decisions or commitment to any course of action for that matter—we have found that most dentists achieve some peace of mind and confidence in their chosen game plan by taking a logical approach to understanding the dental practice sale environment and the process.

We’ll explore the environment of selling your dental practice and dental practice transition process in detail in our next installment.