By Tabitha Jaquay Fernandez
Did you know 57% of the dentists in Oklahoma are of retirement age?
The average seller used to be 62-63 years old and now the average age is 51! You may be asking yourself why? Is it stress, burnout from managing the practice, tired of managing the team or dealing with turnover? One of the main reasons for selling at a younger age is purely FINANCIAL. It goes back to money compounding over time. If you cash in now and continue working a few more years, the lump sum you put away will grow quickly.
Remember, just because you sell today, that does NOT mean you have to stop doing dentistry. If you sell at your peak you could continue practicing in your current practice. Or if your numbers have started to decline already, maybe you work a couple of days a week in a busy office that needs specific procedures and would otherwise refer them out of their practice. Another option would be to work a couple days and then teach a couple days. One of the biggest fears I hear is “I don’t know what I will do all day if I sell”. Your spouse may be asking the same questions! But what is it costing you to hold on to your practice because you are uncomfortable stepping outside of your box?
Lets look at an example. A 45 year old doctor owns a practice worth $600,000. This doctor is busy enough and cozy in the proverbial “comfort zone.” By his own admission, it is unlikely that he will put forth the effort to take the practice to a significantly higher level. This is further confirmed as he has been at or around this $600,000 value level for several years now. If our 45 year old converted his practice equity into cash today and invested the after-tax portion ($480,000) for the next 20 years at only 6% interest, he would accumulate approximately $1,600,000 by age 65. Consequently, to net the exact same amount by selling the practice at retirement (unrealistically assuming that ordinary income tax rates and long-term capital gains rates do not increase any over the next 20 years), he would have to sell the practice for $2,000,000 (paying taxes of $400,000 to net the same $1,600,000) at age 65. That means that his practice would probably have to have a gross collected production of around 3 million dollars a year by age 65. If only dreams were real!
So what does this mean for you? If you are contemplating whether now is the right time to have a conversation, or if you have ever said “I will be ready to discuss a transition in 3-5 years”, ask yourself these questions:
- Do I still enjoy doing dentistry?
- Do I enjoy managing my practice and team?
- Has my practice peaked and/or plateaued?
- Is my practice in a decline and if so how hard am I willing to work to turn it around?
- Would it benefit me to cash in now and continue to work either in my own practice or another practice to help reach my financial goals quicker?
If you are interested in talking about whether it’s the right time to sell or buy a dental practice, let Jaquay Enterprise help you make a smooth transition.
Tabitha Jaquay Fernandez
Phone (405) 834-8653