You’ve been thinking about selling your dental practice. It hasn’t been an easy decision, but now that you’ve started to think about it, you realize you don’t know how to go about it or what to do next. We have helped thousands of dentists make the successful transition, and we are here to you by providing a list of the top ten things you should do before selling your practice.
1. Meet with your financial advisor.
You should confirm that you can afford to sell your practice. Wanting to and being able to afford to are two different things. You may be surprised. If you have never had a financial plan prepared, now is a good time to have one done. Often, we speak to potential sellers who are finally emotionally ready to sell, but financially unable to do so. With cycles of instability in the financial markets, you may find that you’ll have to put your plans on hold for a few more years, or conversely, you’ll feel quite confident that the practice sale proceeds will only enhance your retirement lifestyle.
2. Discuss the tax ramifications of a sale with your accountant.
Depending on the type of corporation or legal entity you formed, the tax consequences of a sale will be different. For example, if you are a “C” corporation, there are some issues that must be addressed. How will you allocate goodwill between the corporation and yourself? How tax efficient is the future sale? Getting answers from your accountant regarding what you’ll retain after a sale is critical when you’re making a decision to sell.
3. Make sure you get a comprehensive practice valuation.
If you use a broker, retain one who will prepare a certified valuation. Most brokers who prepare formal valuations will credit the valuation fee against the sales commission. Beware of “FREE” practice valuations, which will not necessarily serve your best interest. You want a certified valuation that takes into account a full valuation of all the physical attributes of your practice, including the location, office, equipment, and other items that go into a detailed analysis. In addition, a practice valuation must take into account intangible assets and goodwill, which often make up a sizeable portion of your practices assets. Henry Schein PPT uses multiple valuation methods to validate the value and ensure that the assessment is accurate and provides an extensive written report. That is the level of detail and support you should get from a practice valuation whether being used to set a price during a practice sale or to support a financing application for a lender.
4. Do not slow down or work fewer days.
When you do this, often times you stop accepting new patients as well. This will hurt your practice’s value and make a purchaser less interested in buying a declining practice. It can also harm your gross receipts and, ultimately, the sale price of your practice.
If you have an associate, be sure that they have an Employment Agreement containing a legitimate restrictive covenant and non-solicitation clause.
If you do not have an existing agreement, consult with your attorney; you may have the associate sign an Employment Agreement for additional compensation known as “consideration.” This will protect your practice’s value. Selling your practice without a covenant will be very detrimental. Remember a restrictive covenant that extends too far or sets extreme limits on an Associate’s ability to earn a living may not be enforceable.
5.If you have an associate, be sure that they have an employment agreement containing a legitimate restrictive covenant and non-solicitation clause.
If you do not have an existing agreement, consult with your attorney; you may have the associate sign an employment agreement for additional compensation known as “consideration.” This will protect your practice’s value. Selling your practice without a covenant will be very detrimental. Remember a restrictive covenant that extends too far or sets extreme limits on an associate’s ability to earn a living may not be enforceable.
6. Evaluate the condition of your facility.
While you don’t necessarily have to make any large capital expenditures, first impressions are important. You should make repairs to things that are broken and cosmetic enhancements (e.g., fresh paint, new carpet, clean up the exterior if you are on the street so that there is curb appeal). You want your practice to look aesthetically appealing, clean, and maintained, even if it’s not the most modern. First impressions are always important.
7. Purge any uncollectible accounts receivable and make every effort to collect those accounts that are past due over 90 days.
If you fail to do this, it will become a sticking point in your negotiations.
8. Institute fee increases.
We suggest you get a fee and/or practice analysis to determine where you stand within the fee percentile range in your area. If you are well below average and you still have a year or so to go before the sale, do yourself a favor and increase your fees. Chances are your patients will accept the fee increase; you will increase your income, and possibly enhance the value of your practice.
9. Hire an attorney who has dental experience.
It can save you and the purchaser thousands of dollars. Ask your accountant or broker for referrals, because they often work with attorneys who have considerable dental experience.
10. Be realistic in your timing.
Sometimes, we get calls from doctors who want to sell their practice in six months or less! This is an almost impossible task for any broker. We tell prospective sellers to give a broker 9 to 12 months to sell a practice if they want to avoid a fire sale.
In the end, a good deal of planning is necessary for you to really get your practice ready to be put on the market. Careful planning will give you the highest return and, most important, peace of mind. For those of you who are thinking about selling your practice in the next few years, here are some key points to consider when getting ready for that big event. Failure to do so may result in getting a lower value or not being able to get a transaction that you can live with!
Thomas Snyder – DMD-MBA