When you began your career in dentistry you were no doubt optimistic about where it would lead you. However, as 2020 has reminded us all, life-changing events that are out of your control can change the course of the future you planned. You may even have friends and colleagues who planned well in advance to finish their career strong, only to be caught off-guard by an unexpected illness or injury that caused them to put their dental practice for sale sooner than anticipated.
While we acknowledge that there are plenty of circumstances beyond our control, we can also plan as best as possible for whatever life brings our way. We can take into consideration best and worst case scenarios, and recognize there are no guarantees when it comes to the future. This way, if an emergency arises forcing you to sell your practice early, you will be ready.
Below we share five steps every dentist should take now to help prepare your practice for an emergency sale.
Step One: Thinking About Every Scenario
You have likely heard the phrase, hope for the best but plan for the worst. We all eventually come to the realization that we do not control everything that happens to us. An accident, illness, or even the careless actions of others can alter the path we are on. So, while you hope to be able to retire strong after a lengthy career, you should also plan for unexpected circumstances that may cause you to put your dental practice for sale.
Obviously, it would be impossible to plan for every unknown situation, but thinking through some “worst case scenarios” and planning generally for them will give you and your loved ones peace of mind. It is always better to be over prepared than underprepared. That is why the first step is to simply set time aside to think through uncertainties you could face in the future.
Step Two: Defining Your Retirement Goals
When you start planning for retirement, rather than thinking about how many years you want to work before you retire, you should think about what you need to get out of the sale of your practice in order to retire well. If an emergency arises forcing you to sell your practice early you need to be able to live the life you planned and support your loved ones. Your retirement plan should be reasonable and attainable. In order to do this, you must plan ahead and work with a team of experts.
First, if you do not already have a trusted dental CPA or dental attorney, don’t wait until you are listing your dental practice for sale to find one. Next, a dental practice transition specialist, such as ddsmatch Southwest, should be part of your planning team. Other experts that you may want to add to your team are an insurance advisor and practice consultant. If you’re wondering how to find trusted team members try reaching out to your dental practice transition specialist. The team at ddsmatch Southwest can refer you to one of our strategic partners, based on our experience working with dentists in Texas and New Mexico.
After gathering your team of experts, you can work to determine the amount you need to net from the sale of your practice. Your dental CPA, practice consultant, and insurance advisor will look at your practice’s financials to decide if your practice can bring in that number, or if you need to make some changes to increase its value. They may advise an increase in cash flow or collections to help you reach your goal. They will also be able to help you identify which changes, investments, or growth opportunities will bring in the best returns, while also minimizing costs and taxes.
Step Three: Maximize Value Before Listing Your Dental Practice for Sale
If you need to expand your practice in order to meet your retirement goals make sure you invest well. One common mistake dentists make is to invest in certain aspects of their practice without protecting their current assets. Your team of experts will help you determine how to invest in a way that brings value, without losing any of your current value.
Cost cutting is a big issue for any dental practice looking to expand. It is important to free up money to invest in expanding your practice, which will provide more income down the road. Remember that when it comes to cutting costs it pays to have an open mind and be creative. Take a look at things like your insurance, tax planning, and how you protect your assets. Make a plan with your advisors to cut costs and maximize value, without burdening your practice or putting your savings or income at risk.
This step is not only about increasing your cash flow, but also making sure you’re prepared to list your dental practice for sale unexpectedly. Increasing cash flow can be done in several ways including growing your patient base, improving patient retention through customer service, and increasing treatment plan acceptance. One often overlooked way to increase your cash flow is to review your fee schedules and renegotiate with insurance providers. A professional insurance advisor can help you increase your revenue by up to 10% simply through these negotiations.
The final aspect of this step is to support your staff. Make sure your office has a positive culture, and inspires your staff to be committed. When it comes time to transition your dental practice, communicate clearly with your staff and work to ensure they stay on through the process.
Step Four: Determine the Type of Sale You Want
This step may change based on the timing of your sale, and the personal circumstances surrounding it. However, you should have a general idea of whether you want to list your dental practice for sale outright, or take on an associate with a buy-in agreement.
Not sure which type of sale is best for you? In an outright sale you will receive a lump sum payment for the value of the practice. These dental practice transitions are typically faster and less risky financially. However, there are a few things you must watch out for during an outright sale:
- The deal isn’t done until you close escrow. While you still own the practice, even after you have a closing date planned, don’t move into retirement mode or slow down production.
- Hiding information, especially bad information, from the buyer is a bad idea. They will eventually find out, and when they do you will lose their trust.
- Know the difference between hiding information and keeping confidential information safe. If you aren’t sure what is appropriate to share with the buyer or your staff speak with your team of advisors.
- Remember you don’t need to take the first bidder who comes along after you list your dental practice for sale. Finding a buyer who will uphold your legacy is important. The dental practice transition specialists at ddsmatch Southwest match buyers with sellers who are like-minded, making the transition smoother.
- Don’t rush to market your practice before it’s ready. A business valuator (such as Blue & Co., a ddsmatch Southwest strategic partner), a transition specialist, or a dental CPA can offer advice on ways to maximise value before you list your practice.
If you know you aren’t ready to stop working, an inside transfer may be the right path for you. You can sell your practice to an associate over a period of years, rather than all at once. Three to five years is typical, and allows you time to grow the practice and take time for yourself.
However, just like listing your dental practice for sale outright, it is important to watch out for a few things with a buy-in agreement. Most importantly, you need a lawyer who is experienced in these situations. Create an agreement that clearly lays out the terms of the transition such as when it will take place, how the value will be measured, how everyone will be compensated, and the conditions under which the agreement can be cancelled.
Step Five: Planning for the Unknown
Create a Contingency Plan for Your Practice
The four steps we laid out above apply to any dentist planning a sale in the future, on their own terms. This step, however, is all about how to prepare for an unexpected transition, one that happens on life’s terms. A sudden injury, disability, or death does not have to mean your practice’s value suffers. By planning well you can protect the value of your practice, and ensure it continues to operate at the highest possible level. That way, you and your family will get the full value when you list your dental practice for sale, and your employees and patients will continue to be cared for.
Your contingency plan may include a buy-sell agreement. In this agreement a formula is agreed upon to sell a share of the business to a company or the remaining members of the business if the owner dies or leaves. Life insurance and disability insurance can also be used in these situations. For instance, the proceeds of the insurance can be used to hire an associate to run the practice until completion of the sale.
Creating a contingency plan is one of the reasons we recommend working with a team of experienced dental practice transition specialists. Knowing what to do when a dental practice must transition under unexpected circumstances is part of the job, and your team will likely have experience in this area. Ask your team to use their expertise and put together a plan to protect your loved ones and your legacy.
Create a Contingency Plan for Yourself
Estate planning is never fun, but always necessary. It is especially important to review your estate when you are planning to list your dental practice for sale. If you have not already reviewed your own affairs with a dental lawyer or CPA, now is the time to get everything in order. If you made a plan years ago it is a good idea to revisit it with your advisors to ensure your plan still meets your needs. Your current financial situation should be able to cover your family’s needs, and cover the costs of long-term disability should that become necessary. If your current assets will not cover these costs look at life insurance and disability insurance to make up the difference. However unpleasant it is to think about, you should also include important documents like a power of attorney and an advance medical directive so your family knows your wishes should the worst happen.
Start Planning Now for a Successful Dental Practice Transition
At ddsmatch Southwest our goal is to help dentists successfully transition their practices, and we have been meeting that goal for years. Our expertise plays a big role in this success, and has helped us create a proven process for dentists who are listing their dental practice for sale. Each new practice we work with helps us revise and perfect our process with new information and important insights gained.
One process we use is the Practice Optimizer Experience. This program is excellent for dentists who are trying to prepare their practice for the unexpected. Whether or not you are considering a sale in the near future, this program can give you invaluable insight into how to optimize your practice for best performance. The program includes:
- Conceptual Transition Experience: What will your transition look like? We help you visualize and set goals for your transition, and create strategies that will help you make them a reality well ahead of your planned transition.
- Trusted Valuation Analysis: As part of your wealth management planning, we will analyze your practice two times. First, at the beginning of the process. Second, when you are ready to start your transition.
- Ideal Retirement Calculation: A financial review of your current status and future income projections will establish the ideal timing for listing your dental practice for sale. If you already have a financial advisor this step can be performed in tandem with them, or as a supplemental third-party opinion.
- Estate Preparedness Gameplan: Sit down with a local attorney to discuss your will, trusts, and estate planning. You should also review or update any essential legal documents that have bearing on your practice assets should you suffer from an unforeseen death or disability.
- Dental Insurance Negotiator: Our partner Shelley DeGroff of Integrative Dental Solutions, a PPO Advisor, will review and consult with you on the dental insurance plans you currently work with. Ms. DeGroff will offer advice on new insurance plans to consider, or plans to discontinue, in order to maximize your practice’s value and cash flow.
- Clinical Opportunity Blueprint: We analyze your practice to determine if there are underutilized earning opportunities. In our report you will see a blueprint of opportunities to help you achieve maximum growth before listing your dental practice for sale.
- Critical Metrics Analysis: Our customized practice report provides information about critical items, and acts as a guide to keeping your practice at high levels of production. Your practice is always changing, which is why we provide an annual review of the results of our analysis.
- Trusted Transition Process: Sooner or later you will need to transition your dental practice. Our Trusted Transition Process guides you during this time, and helps you protect your legacy. Our complete range of professional services make dental practice transitions smoother by providing trustworthy information and advice from start to finish.
Dentists often hear they need to start planning for a transition three to five years ahead of time. However, it is never too early to start preparing for an emergency. At ddsmatch Southwest our team of dental transition specialists is prepared to help doctors putting their practice for sale, or those simply wanting to plan for emergencies. With our Practice Optimizer Experience you can set goals and create a roadmap for your future. Contact us today to learn more.