The sale of a dental practice is one of the most significant events in your professional career. If handled properly, it should be a rewarding and profitable transaction for all parties involved. Below, we’ve provided resources that can help you make a decision on selling your practice or help you navigate the transition process.
Completing a practice valuation is just one of the steps involved in selling your practice. If you would like to do so, you can order free sample reports now or place an order with Dentappraisal. For all other needs outside of practice valuations, please contact us and we’d be happy to put you in touch with a member of our nationwide network of dental specialists who can help you through your practice transition.
Making the Decision to Sell Your Dental Practice
Making the decision to sell your dental practice requires a great deal of thought regarding when and how you would like the transition of ownership to occur. Here are some of the key considerations you should take into account when planning your practice transition:
For many doctors, their dental practice is one of their most valuable assets and the proceeds from the sale of their office will be utilized to fund a significant portion of their retirement. Therefore, it is crucial for you to understand the key factors that influence the value and marketability of your practice to ensure that you are in the position to maximize the value of your office at the point of sale. While the average sales price of a dental practice from a national perspective is approximately 65% of the most recent year’s revenue, there are a number of other factors that can influence value in either direction, including revenue trends, profitability, type of patient base, type of dentistry, location (urban vs. rural, high visibility vs. low visibility), quality and age of equipment, curb appeal, etc.
The first step in the transition process is to obtain a practice valuation. Dentappraisal can provide an independent, accurate so that you and your financial advisors can determine if you are financially prepared to sell your office. It is also important to remember that selling your office is not synonymous with retiring, as there may be opportunities for you to continue generating personal income following the sale by working as an associate in your office or outside of the non-compete radius. Once you have determined that you are financially prepared to sell your practice, it’s time to move onto considering the emotional implications of the sale.
We have found that the emotional process of selling a practice often plays a more significant role than the financial implications. For many practice owners, it is extremely difficult to consider selling their practice due to the emotional ties the doctor has to their patient base, staff, and the business they have spent their entire career building. These emotions can be even more intense for those doctors who do not have other interests or hobbies outside of practicing dentistry. Therefore, it’s important to ask yourself these questions before making the decision to sell:
- How strong is my emotional connection to my practice?
- What interests or hobbies do I have to keep me busy following the sale?
- Am I ready to give up control of my practice?
- If you plan to continue working in your office following the sale, are you willing to adopt an “associate mentality” and be accepting of change?
It is also worth mentioning that the emotional implications associated with the sale of your practice will increase once you accept an offer and begin navigating the closing process. By asking yourself the above questions and dealing with these feelings prior to putting your practice on the market, you will be in the position to minimize your anxiety as you navigate the transition process.
The Importance of Planning Ahead
In many cases, practice owners may make the decision to sell their practice and immediately be confronted with limited options in regards to the type of transition strategy they can utilize to sell their office. Oftentimes, the doctor has also taken their foot off the gas in recent years, resulting in a significant decline in revenue, profitability, and practice value. To avoid these mistakes, we encourage you to contact a transition specialist at least three years in advance of your practice transition. In doing so, you will gain valuable insight regarding the current value of your practice and the key factors that impact practice value and marketability. This information will also provide you with sufficient time to develop a customized transition strategy to meet your individual needs, make changes to your office that will enhance value, and avoid mistakes that may negatively impact value. Dentappraisal works with a nationwide network of practice transition specialists should you need one as you start or continue this planning.
Over the past few years, market conditions have been favorable for sellers, as there has been strong demand for dental practice acquisition opportunities coupled with a limited supply of sellers and lenders have been providing buyers with 100% financing at historically low-interest rates. While market conditions remain favorable at the moment, we are expecting several changes to occur over the next few years that could have a significant impact on practice value. Therefore, it is more important than ever for potential sellers to understand the factors that influence value and take the necessary steps to maximize practice value, beginning with considering the financial and emotional implications of a practice sale and planning for their transition in advance.
The Critical Steps of Selling a Dental Practice
As previously mentioned, selling a dental practice is a complicated process which extends far beyond simply finding a buyer and closing on the sale. Therefore, to ensure your practice transition is successful, it is imperative to follow these crucial steps:
- Begin the planning process three to five years in advance of a transition. There are countless ways to sell a dental practice. Another advantage of beginning the process three to five years before a sale is the ability to address and correct issues that could have a negative impact on practice value, thus ensuring that you maximize the value of your practice upon the sale and position the future practice owner for success.
- Once you have selected a transition strategy and prepared your practice for sale, you are now ready to initiate the transition process. The first step in this process is to have a valuation performed on the practice. Dentappraisal offers multiple practice valuation products that will be suitable as you begin your transition.
- When you sell a dental practice, maintaining confidentiality during the transition process is extremely important. A dental transition specialist can oversee all communication with potential buyers and their advisors and handle initial practice showings after office hours. Should a buyer determine that your practice is a good fit after reviewing the profile and visiting the office, a follow-up meeting will likely be arranged to allow both doctors to get to know each other.
- The next step is to find the right dentist for your practice. To sell a dental practice, many brokers will simply list a description of your practice in various journals and on their website with the hope of coming across a buyer who is a good fit. This approach doesn’t cut it! A practice transition specialist can help cultivate relationships with prospective buyers to understand their needs, goals, and skill-set then match them with the appropriate practice. By taking a more hands-on approach, our team can find a quality buyer in a shorter amount of time.
- Once an ideal buyer has been located, the next step in the process is to agree on the terms of the purchase in a Letter of Intent (we provide our clients with a draft LOI), which should detail the proposed purchase price, intended closing date, assets included in the sale, and a list of contingencies that have to be met before the transition is completed.
- Upon agreeing on the terms of the sale, the next step in the process is for the buyer to secure financing. Since most buyers will require 100% financing, it is important for your buyer to work with lenders who are familiar with dental transactions. Dentappraisal has a nationwide network of experience dental lenders, and our team has past experience working for these lenders, so we can help guide you through this process.
- While navigating the financing process, the buyer will also be completing their due diligence on the practice. This typically involves meeting the selling doctor, reviewing patient charts and practice reports, inspecting equipment, and consulting with an accountant to evaluate practice financials.
- The most important document involved in a dental practice sale is the Asset Purchase Agreement, which serves as the legally binding document detailing the terms of the sale. This document should be specific to a dental transition and be a win-win agreement that protects both sides and discusses how common issues, such as accounts receivables and credit balances, will be handled after the sale occurs. A dental transition specialist can help you draft the Asset Purchase Agreement and encourage each doctor to obtain their own legal counsel (with experience in dental transitions) to review the APA and other agreements involved with the sale.
- In addition to the APA, the buyer will need to negotiate an assignment of the existing office lease or negotiate a new lease with the building landlord. It is important to consider the requirements of the lender when negotiating the lease term and to approach the landlord at the proper point in the transaction to protect confidentiality while not delaying the closing.
- As the closing date approaches, your dental transition specialist will work closely with the buyer and seller to ensure that all the details of the transition are completed prior to closing, including transferring/establishing service provider accounts (utilities, phone, etc.), PPO credentialing, drafting a transition letter that will be mailed to active patients upon closing, and ensuring the lender receives all necessary documentation to fund the buyer’s loan on the closing date.
- Throughout this process, the staff and patients are typically unaware that the dental practice is being transitioned to a new doctor. The reason for this is simple: to protect the goodwill of the practice. Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years. Timing of this introduction, how the initial meeting is handled, and training the staff to explain the transition to patients is a critical step in ensuring a smooth transition of ownership and maximum patient retention following the sale.
While this list covers the most significant steps required to sell a dental practice, it is by no means comprehensive. Each practice transition is unique and presents its own set of challenges to overcome during the transition process. Therefore, it is imperative to be educated about the process and employ the services of experienced professionals to help you navigate the process, protect/maximize the value of your practice, and ensure your transition is as smooth and successful as possible for all parties involved.