Are You Thinking About Selling Your Dental Practice? You Should Be

If you aren’t thinking about selling your dental practice, you should be. We’re not saying you should sell it now. Rather, you should be thinking about when that day does come and what you can do now to be better positioned to maximize your practice’s value. Here, we’ll discuss some things that you can do to start preparing, no matter where you are at in your career.

Start Planning Early

We all hope to be able to retire on our own schedule, but life often has other plans in mind for us. Should you become ill or injured, should you fall prey to a repetitive motion disorder, you may find the time to sell your dental practice arriving sooner than you think. And while we are not advocating you should assume the worst, the fact is that dentists who are compelled to sell their practice on a short timeline (less than one year) are more likely to get less than the actual value of their practice.

Conventional wisdom puts planning for a dental practice sale at a minimum of between two to four years. Here at ddsmatch Southwest, we say that if you think you are five years or less out from retirement, it’s a good time to have your practice evaluated by an outside consultant who can advise you on any changes or upgrades that will bring you a return in the sale. For doctors in that five year range, we offer a free, no-obligation Practice Transition Assessment.

Starting early has a couple of benefits. First, you need to realistically consider how long the transition will take. It’s not just about doing a bit of spit-and-polish, signing papers, and handing over the keys. Depending on your practice and the buyer, you may want (or need) to stay on for a period to help the buyer transition into the practice. If you’re counting the days until you can spend your days on the golf course, keep this in mind.

Also, some of the upgrades you may need to make for your practice to be reasonably attractive to a buyer may take time to implement (if you have issues with your patient base) or to make profitable (if you need to upgrade equipment or software). If your upgrades are expensive, or require a learning curve, you need sufficient time before they stop costing you money and start earning you money.

Don’t Mentally Retire Before You Actually Retire

The closer those last days or weeks or months get, the more tempting it may be to start easing into retirement. Don’t. When the buyer’s bank assesses the value of your practice, they aren’t going to rely on numbers that are five or ten years old. They want to know what the practice is earning right now and in the recent past—one to three years. If you’ve started cutting your hours, referring more work out, cancelling insurance plans, reducing the number of patients, or doing less marketing, you run the risk of devaluing your practice.

Know What Gives Your Practice its Value

This can be summed up in three simple words: active patient records. A nice clean office with up-to-date and well-maintained equipment and a pleasant, professional staff are all great things to have. But, in and of themselves, they have little value without a strong and growing patient base. Most importantly, you need to be able to show a steady stream of work for the 18 months prior to your valuation.

When you sell a dental practice, what you are really selling is you active patient records. This, along with your brand (the practice’s reputation and goodwill in your community) account for 75% or more of your practice’s value. These “intangibles” are by far your most valuable assets. Their value is increased when paired with an efficient business. If you have high overhead costs, you’ll get less than a comparable practice with a better cash flow. The buyer is going to look for a practice that can provide a reasonable income to cover their living expenses after servicing the debt of buying the dental practice. So, a strong active patient base plus good cash flow yields a better sale price.

Some other considerations on increasing cash flow and building value include:

  1. Raising Fees. Too frequently, older doctors are reluctant to raise their fees. Given that profitability is a major driver of a dental practice’s value, you must avoid making this error. Raising your fees each year may be the best way to guarantee increases in collections and profitability, which benefit you both immediately (more income that you get to keep in the practice) and at the time of sale (higher market value). Also, your buyer is going to want to have fees that are in line with the current market but not have to immediately raises fees after the transition, possibly driving away patients.
  2. Overhead. Keep a careful eye on all of your costs. Create a budget each year with specific amounts allocated for each overhead category. Be sure you are aware of current industry standards to make sure you aren’t overpaying for lab or supply costs. If your practice isn’t growing, you cannot afford to give annual cost of living raises. If this is the case, you may instead consider bonuses that are tied to increased collections. The lower your overhead, the greater your profitability, and, therefore, the higher your market value will be.
  3. Keep marketing. Just because you are retiring doesn’t mean your practice is going stop running. It might surprise you to learn how often doctors approaching retirement will cut back on marketing efforts or stop them altogether. As discussed above, the lending bank wants to know how your practice is performing right now and in the more recent past. You need your numbers to be on a consistent upward trend. A dip at the end will be a red flag that the practice has a problem. Also, make sure that you are keeping up with modern marketing trends. Your first efforts should be on referrals. But you should also update your website, invest in online marketing tools (search engine optimization, or SEO, to make sure you show up in online searches), and get patient reviews on Facebook and Google and post them on your own website.
  4. Update your office and technology. If you are closer to retirement (under two years) you can make cosmetic improvements to your office. First impressions matter (and ongoing impressions matter to your patients). If you have more time, you should consider your equipment and technology. Your buyer will likely be young and more familiar with the latest technology. However, you will need time with new tech to learn and become proficient. Once you do, however, it can bring you a return by increasing your patient flow and your treatment acceptance rates. These, in turn, will be reflected in your books as increases in profitability.

 

 

Think About the Impact of a Transition Plan on the Practice

When selling a dental practice, it’s common for the seller to stay on for a period of time. If your buyer is not already working in your practice (such as an associate or partner), this means the practice will have to support an additional doctor. You need to consider how that will impact cash flow and any existing practice debt, and whether you have sufficient revenue to support another doctor. The bank will certainly consider this when determining whether its willing to finance the purchase. These details need to be carefully considered but may be hard to predict, as what the buyer wants will impact how long you need to stay on, if at all.

ddsmatch Southwest Can Help You Sell Your Dental Practice

At ddsmatch Southwest, we bring the experience of hundreds of successful dental practice transitions, of all types and from across the country, and put it to work for you. We use that experience to help you identify a buyer with a strong skill set and personality match that will carry on the practice and legacy you have worked so hard to build. We ensure that every detail is covered, help you avoid common mistakes, and ensure no step is overlooked.  Plus, your confidentiality is always guaranteed. Contact us today and find out how we can help you meet your practice transition goals.