Ask yourself, “Can I afford to retire, and what type of lifestyle will I want after retirement?” This is a question you may not want to risk answering without some professional assistance. So, we urge you to enlist the services of a fee-based financial planner. Together, carefully examine your current assets and net worth to determine if you are financially ready to sell your practice. More importantly, determine if you will need the proceeds of your practice sale to be an important component of your retirement income or a supplement to what you have already saved.
Regardless of whether you intend to retain a financial planner or not, having an updated understanding of your practice’s value on the market is a must. This is important when considering a sale, or any type of transition (buy-in/partnership), for retirement planning, and for proper estate planning purposes (in the case of disability or death). You and your spouse should know what your business is worth, particularly if something were to happen to you. In this, your current age is somewhat irrelevant in determining when you should have your practice valued. The correct answer is NOW.
3Take an Honest Look at Your Facility
1. Condition of Physical Plant
New practitioners are now being trained in high-tech, modern clinics. If your practice has not had a “facelift” for a number of years, it is time to consider enhancements to your facility and possible updates to your dental equipment. If you intend to practice five years or more, this is imperative. If your timeline is less than five years, you may consider some cosmetic updates but expenditures should be made in consultation with a transitions specialist. In any case, you should confer with your accountant about making major equipment purchases so as to evaluate any possible tax consequences. Prospective buyers usually give newer, better equipped offices stronger consideration, while offices with older equipment are often likely to see severely discounted offers.
Do you have current practice management software? Are you planning to go paperless? Do you have digital radiography, intraoral cameras, patient education software, CAD-CAM and/or laser technology? If “no”, should you make the investment? Similar to new dental equipment, the question is how long you will continue to practice? That answer should be the driver of your decision.
There is no singular answer to real estate in transition except that it is always our preference to see a doctor own the facility in which a dental practice resides. As such, you may decide, as the owner of real estate, to sell or rent your facility at the time of transition. Some purchasers want real estate, others want to wait to purchase, few will never want to be real estate owners, though. This is important to note with respect to your financial plan – will you receive a stream of rental income from your building to supplement your retirement income or will a lump sum be more desirable... or can you be flexible to either?
In any case, you should have (and keep updated) an MAI certified appraisal of your building. This allows everyone to know and understand the present value.
If you are looking at selling both practice and real estate at the same time, there are important things to keep in mind. Some professional dental lenders will assist the purchaser in obtaining funds for the down payment as well as the practice acquisition loan. But this strategy can only work when the practice value is substantially greater than the value of the building. If the opposite is true, the cash flow is not there for the borrower to obtain funds for the down payment and so the source of funds for the real estate down payment must come from personal or family resources. A lot of deals fall through because a purchaser does not have ample cash on hand.
In the event that you are going to be serving as a landlord for a period of time, you must charge geographically specific market rent. The lease terms also need to be a minimum of five years with a five-year renewal – primarily due to the requirements of the lenders who need some comfort level in terms of lending money for an acquisition. The bank wants to ensure that the tenant, its borrower, has a practice location for the duration of the loan repayment timeline.
Getting ready for your practice’s transition is one of the most important tasks you will undertake in your career. Careful financial and practice planning is a must to ensure success. These are vital but yet just a few of the steps that need to be taken well in advance of an actual sale date. Everyone’s plans for retirement are different so start planning early, clarify your goals, and weigh your options.