Edge Advise

10 Steps to a Good Dental Practice SaleTips for selling practice owners

  1. Build Your Team of Advisors: Broker/Consultant, CPA/Accountant and an Attorney (keep them informed).  When I tour around the Midwest giving presentations regarding selling a dental office, I without doubt come across dentists who “read an article or two and have a good understanding of the process” and want to handle the sale on their own to save money.  If I need my teeth fixed I go to a dentist, not a plumber that talked to a few dentists and read an article or two about dentistry.  It sounds funny, but there are experts in the industry for a reason and they are well worth every penny you will stick in to them.  So get their advice and more importantly keep them in the loop on all of your decisions and discussions.

  2. Be Ready to Transition – Determine the Goals and Transition Plan.  Why are you considering selling your dental practice?  Is it to have enough money to retire?  Is it to make sure your staff have jobs once you retire?  Is it to make sure your patients are taken care of when you are no longer around to practice?  Are you having health problems?  Is it because you don’t want the burden of owning the real estate? Your transition goal(s) will steer the transition plan, so identifying the goals of the future sale early on will help structure a defined and clear transition path which will simplify the process.

  3. Obtain a Professional Practice Valuation and Understand it.  Now that we have a team to work with, goal and a transition plan, it’s time to find out what your practice is worth.  The valuation you obtain should be completed by A) a broker/CPA/Accountant that understands dentistry and B) Understand the current market place for practice sales.  The most common and industry accepted valuation is based on “free cash flow” commonly referred to as EBITDA or a Capitalized Rate model.  This explains after expenses and a fair salary to a working dentist, the left over profit.  Then a multiple is taken based on the profits to for a value.  The other model to have incorporated is the gross revenue model or comparative model.  This valuation model looks at what other similar practices in similar regions are selling for and comparing these practices with yours.

  4. Structure the “Ideal” Transition for Yourself and Family.  By obtaining the valuation you can now derive to a point where you are either happy with the value placed on your office or unhappy with it.  If you are unhappy with it…the answer is to always work a couple more years to make up the difference.  If you are happy with the value, then you need to figure out if you want to walk away as soon as the practice is sold or if you’d like to work as an associate after the sale.  With all of the corporate entities in dentistry, there are many situations where a group will buy your practice and hire you back to work as an employee.

  5. Marketing and Networking the Practice.  Valuation check, plan check, structure check…now you need to get people looking at your practice.  Just like anything, the more people that hear about your practice for sale the better chance you have at selling it.  Practice brokers usually have a pretty good pipeline to sell, but sellers beware…find a broker that is hungry for a sale.  My rule of thumb is that selling through your accountant is a poor decision as most accountants only talk to their dentist clients.  Cast a large net to capture the most fish.

  6. Showing the Practice to Potential Buyers – Bank Approval.  Once you start getting interest in your practice from potential buyers, you need to get those potential buyers to a bank ASAP to see if they are credit worthy for a loan.  There is no sense wasting your time and effort showing your practice to individuals that cannot get a loan.  The more people you walk through your office, the better chance you have of having your staff/the community and other local dentists find out you are sell (and that rarely is a good thing).

  7. Due Diligence – Information Gathering and Sharing.  Interested parties will start asking you for a ton of information to review.  # of active patients, # of new patients, staffing breakdown of compensation and benefits, (3) years’ worth of tax returns.  Having most of this information ready and available at a moment’s notice will only help the process of selling.  It also shows the potential buyer that you are an organized individual and are ready for the sale. 

  8. Be Available and Responsive to all Parties. We touched on the topic in #7 above, but being organized, available, responsive and ready for the buyers and buyer representatives is key.  Time kills deals…and the more time you infuse into a potential sale will generally have a direct correlation to an increased chance of that deal falling apart. 

  9. Receiving Offers and Negotiations.  Once you get an offer you will have (3) options: 1) accept the terms the way they are presented to you; 2) Counteroffer and begin negotiations or 3) Decline the offer.  Each option has different consequences and messages that the potential buyer and his team will have to think through.  Sometime rejecting an offer without a counteroffer tells the potential buyer that you are not interested in him/her buying your office at any price.  This point needs to be thought through in detail before quick decisions are made.

  10. Finalizing the Paperwork. You have an accepted offer and now it is time to look at the offer in greater detail (sometimes in the form of a Letter of Intent LOI).  The Asset Purchase Agreement, Bill of Sale, Lease Assignment, Termination Letter to the Staff, Letter to your patients, etc. need to be drafted, reviewed and approved by all parties.