As a practitioner you are well trained in diagnosing a clinical situation, assessing, and creating a treatment plan, and carrying out the necessary steps to successful completion. Many practitioners have faced clinical challenges where the result was not a guaranteed outcome but one where you addressed the clinical problem to the best of your ability. Alternatively, you may have decided to refer to a specialist rather than treat the patient yourself.
Actually, this approach is not dissimilar to approaching a future practice transition – whether it be in the near, or the not-so-distant future, what you do not know can hurt you! Whether measured in dollars or lost time and unnecessary expended energy. This does not have to be the case, though, and we want to take the opportunity to bring up some recent examples of stumbling blocks with the hopes of helping you to identify and avoid or prevent them in the future.
Establishing a Price
It should be simple, right? Just read a few articles, read some online web boards, ask friends at the local dental society meeting – then come up with a number or simple formula. Then you place a classified advertisement, receive number of calls. But then, what happens when no one steps forward to make an offer on your practice? Why did this happen? While it’s unlikely that this due to you underpricing your practice, it certainly can, and does, occur from over-pricing! You may also be reaching the wrong set of potential Purchasers. Anecdotal information from your peers and the journals can be helpful but it’s just one piece of information and typically is not indicative of the actual, constantly changing, marketplace.
Packaging the Practice
First impressions can make the difference. An in-person visit by a potential purchaser is one part of the journey but presenting the make-up of your practice from procedure mix, patient demographics, payor mix, overall staffing, and of course your financial picture, will probably be make or break decision for a purchaser. Not having this correct information may lend to miscommunication, misunderstanding, a ”turned off” purchaser(s) or worse. Knowing what Purchasers, advisors, lenders, and other consultants look for can help secure the best available transition partner and ensure the highest possibility of success in transition.
Almost equally, not having the right dental experienced advisors can be a detriment to you and your transition. Someone whose expertise is primarily in retail businesses or marital law is most likely not well suited for the very specific nature of your dental practice and practice transition. Knowing the ins and outs of redos/remakes, non-competition agreements, specific indemnification clauses, A/R collections and even the transaction’s allocations is all vital to your understanding, to ensure that you maximize the income you are entitled to at the closing of your practice sale.
Do you operate out of more than one facility? This can lead to a myriad of questions that must be addressed prior to even contemplating a sale. For example, are there shared staff members or different dental management software programs at the locations? These are just to name a couple of the issues which can complicate and potentially derail a transaction. Working through a review of the administrative systems and structure of the practice and then the desires and expectations of buyer and seller is key. Any limitations of the transition can early on shed light on the likelihood of a sale and smoothness of a transition as well as the transactional process. Knowing what to ask, where to look and what to focus on can be the determinant.
Does everyone know you are looking to sell your practice? Have you been marketing in dental journals and websites and are you showing the practice yourself? This can be to your significant detriment. Do you really want everybody in your community to know that you are trying to sell your practice? Obviously, this could be a major disaster if you are a specialist. Will this impact your patient base or staff? This may also lead to potential Purchasers misunderstanding or mis-reading your opportunity therefore passing on the opportunity in the future even if the practice is then more favorably or professionally presented.
Lender / SBA Liens
In nearly every case, when you take out a loan or line of credit for your business, there will be a lien placed on the assets of your practice. This would include all your equipment, furniture, fixtures and even goodwill. To sell your practice, any outstanding liens will need to be released so that a new lender can file a lien to encumber those assets, or so a cash purchaser has full and clear ownership of what they are buying. The process to clear liens can take considerable time. Some lenders will take weeks or months to generate a payoff letter (your monthly statement is insufficient for a closing) which can, and will, delay closing. With that in mind, you may propose simply paying off the note before closing. While logical, this is one of those options that can truly spiral a situation from manageable to unmanageable. Specifically, if the lender then does not file the proper paperwork to release the lien in a timely manner, everyone will wait until they do, and with documented evidence typically only available from a state agency – and we all know how much we enjoy waiting for the government to do anything we truly need done! If you have an SBA loan, it may be even more difficult as now it’s state and federal bureaus, not just one, and the SBA typically will only respond to emails, first come, first served, although you do not know where you are in line.
SBA Loan Requirements
Speaking of the SBA, while there are some attractive products that can be very helpful in acquisitions, and noting they have evolved over the years, it’s important to know that if you have an SBA loan on your real estate that it often will include a requirement for that facility to be “owner occupied”. Specifically, you cannot sell your practice, keep your facility, and lease it back to a tenant. You may be required to have your primary residence used as collateral for the loan (which further may supersede any local homestead exemption if you have one where you reside). While a 20- or 25-year loan product may sound nice, this requirement has complicated transactions in the past and required a significant decision from the owner as to how they would like to proceed. If you have utilized the SBA in the past, and your practice is now thriving, it may be worthwhile to reach out to them for a conversation so we can leverage our resources to look at refinancing options for you so to re-establish flexibility for you in future transition decisions.
Those are some examples of the common issues that we see and there are significantly more complicated scenarios out here that can lead to a rabbit hole of transactional issues. Our professional team has been transacting practices with tenure and volume that is unmatched amongst other transitions firms.
We invite you to join us on a webinar on March 13, 2024 to explore more potential pitfalls in transition and/or reach out to our local Henry Schein Dental Practice Transitions representative for a no-obligation, complimentary consultation on your practice and what you want in transition. Proper planning is the ultimate detour for roadblocks, or slowdowns, on the road to transition and we have unrivaled tools, resources, expertise, and experience to guide you along the way.