03 May Thinking of Selling Your Dental Practice? 5 Things You Should Know
By owning your own dental practice, you have a host of responsibilities, many of which transcend the day-to-day obligations that go with being a dentist, including formulating a budget, managing staff, and attracting new patients. Which are also the first responsibilities that potential sellers look forward to NOT having to worry about. Like many dentists, your business is your most valuable asset, representing your retirement nest egg or a significant portion of it. This type of liquidity event has massive financial ramifications. Ideally, everything will culminate with a nice prize when it comes time to sell your practice.
Here are five key considerations that you as a dental practice owner should be thinking about as you begin to think of selling your business:
1. Start early
Selling a dental practice doesn’t happen overnight. It’s a process that requires planning in order to be successful and often hinges on firming up the financial plan of the owners. For most, the fundamental questions are “Can I afford to do this?” and “When can I do this?” A quick review of individual retirement, investment, and cash accounts will lead to the answer for many. For others, it’s not a question of if, because they have the assets. At the same time, they may have to scale back their current lifestyle by downsizing their home, selling a vacation property, or relinquishing a country club membership.
2. Have realistic expectations about what your practice is worth
Like other business owners, dentists often have an inflated view of how the market will value their practices. For instance, they may assume that a buyer will give them three to five times earnings before interest, taxes, depreciation and amortization (EBITDA), which traditionally has been what privately held small businesses could expect in a sale. But it’s not always that simple. Consider the dentist who is between 55- and 65-years-old and on the brink of retirement, who likely has patients who are a part of the same demographic. To be blunt, older patients are depreciating assets depending on the buyer looking at your practice and the type of dentistry they plan to do. Another factor is the number of low paying insurance plans you may be on – your patient demographic plays a role in the value of the practice. That means there could be a sizable gap between the paper worth of the practice and what a buyer is willing to pay for it.
3. Keep essential equipment and facilities up to date
A good blueprint for maximizing value is to build a turnkey operation that allows a new owner to step in without having to incur any significant capital expenses. If your equipment is outdated and you have been thinking “I will just let the new guy purchase digital xray” and still plan to practice another 2 years or more – YOU ARE HURTING YOUR PRACTICE VALUE. But practice owners should know that it’s not necessary to spend extravagantly to make a lot of wholesale changes all at once. Once a timeline for a sale is established, owners should simply make incremental improvements to keep important hard assets current. If you are looking to transition in the next year we do NOT recommend purchasing any major equipment unless what you have is not working. All assets must be in working order when transferred to the new owner.
4. A sale doesn’t always mark the end of the road
Practice owners may be asked to stay on temporarily after a sale, even if only in a part-time role. The timeline on this depends on the practice, the buyers’ desires and needs and most importantly whether the practice numbers can justify this. A big source of concern for prospective buyers is that existing patients will disappear when ownership changes. Any reductions would diminish the value of a buyer’s newly acquired asset. Therefore, sellers should anticipate less up-front, and this will be offset by incentives that reward owners for acting as a bridge with patients. Even if you don’t want to continue working in your office, there are many other options to keep you active in the dental field.
5. Plan for success rather than failing to plan
Knowledge is power! You must first know where your practice value sets, discuss a timeline, look at options. Many times practice owners will have one set path or price in mind, because they had a friend who transitioned previously and his/her transition went this way. Every practice is different based on the numbers, the services being offered or referred out, how much a seller wants to work or not work after, team, patient base, location….so many factors come into play.
Contact Jaquay Enterprise for your complimentary consultation to determine your practice value and discuss your options for the next chapter in life. Call today 833.ADVISRS (238.4777) or visit us at www.Transition-Advisors.com