The best time to start preparing for your practice transition is three to five years from the date you plan on selling. However, since you may not know that date yet, the best time to prepare is NOW! 

Here is a checklist of preparatory items you should consider as you get closer to deciding to sell your practice: 

1. Meet with your Financial Advisor – Inform him or her that you are thinking of selling your practice, and if the intention is to retire, let them know that is your plan. Ask them how much you will need in savings in order to retire at the income level you desire. Although the proceeds from the sale of your practice can be factored into that target-retirement-savings number, we caution clients against relying on–or at least relying too heavily on–getting a certain dollar amount for their practice. Ideally, your retirement should be funded independent of any proceeds from your practice sale.

2. Discuss Taxes with your Accountant – This is especially important in the current environment. There have been discussions at the government level around significantly increasing both capital gains and income tax rates. Both will negatively affect the net proceeds you receive from the sale of your practice. 

3. Obtain a Practice Valuation – It’s best to get a full valuation, but a limited valuation may suffice for planning purposes. You can provide this to your financial planner, which will help determine when you will be able to retire. If you can’t yet retire, most practice valuation companies or brokers will update the valuation later for a minimal charge. 

4. Keep your foot on the gas – Don’t slow down 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 upward in production rather than down. 

5. 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 them. Are there tears or cracks in the upholstery of your patient chairs? Reupholster them. Paint will do wonders as well. You don’t have to break the bank, but you should spend a reasonable amount – $10,000 to $20,000 can make the practice look and feel fresh and updated. Do not, however, spend a lot on new equipment. With the possible exception of certain items, you will not recapture the cost of new equipment in the sale of your practice.

6. 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 laws, which you can find 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. Go through your old accounts and write-off or send older, delinquent accounts to collections. 

7. Self-assess your practice numbers – Are your staff payroll and benefits expenses above 25% of your total collections? Is your production down, but you’ve maintained the same staffing level? Is your dental supply fee over 7% of collections? Know what your ratios should be and adjust your numbers as needed, if possible. Contact a consultant if you’re not sure what where your overhead should come in at and/or if you need guidance on how to make adjustments. 

8. Know the market – Are practices in your area selling quickly? Are interest rates on practice acquisition loans high or low? If it takes two or three years to sell a practice in your area, you may want to list it sooner rather than later. 

9. 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 of these scenarios 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. In some cases, you can even continue to practice in your own practice. In other cases, you may need to move outside a reasonable non-competition radius and continue practicing in someone else’s practice. Or, maybe you’ve always wanted to do something completely different. Maybe it’s time to test the waters. You can always go back to being a dentist. We know several dentists who are semi-retired and work as a dentist two days per week and do something else completely unrelated to dentistry, such as real estate or driving for Uber or LYFT two days per week, just for fun. 

10. Contact a broker – Some of the best transitions we have facilitated began several years before the sale occurred. We have built relationships with many future sellers. In several cases, we found a buyer asking for a specific area, so we made a call to one of the dentists in that area that 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 be prepared. Have a plan, and get the right advisors. We’re here to help you, and phone calls are free. Give us a call.