I recently met with one of our clients who is considering selling his dental practice. His story resonated with me as I hear many experienced dental professionals thinking about the next stage of their lives.
Dr. Smith has owned a solo dental practice for nearly forty years. While highly experienced in treating generations of patients, he is not necessarily well-versed on the constant demands of running a successful business. New dental equipment is expensive, the building he owns needs some upkeep, and recently he’d seen a decline in new patients. Dr. Smith is considering selling his practice and finally retiring to spend more time enjoying his hobbies and grandchildren. His challenge is that he doesn’t know where to start in evaluating how to successfully sell his dental practice.
Many dentists who own their own practice can relate to this predicament when getting ready to sell and retire. While selling a practice may seem overwhelming, keep in mind an exit strategy is a process, not an event. The “right” endgame for the practice will emerge when the market and the owners’ aspirations intersect.
Here are some steps to take with your dental advisor to ease your stress and prepare for a smooth transition:
Making Financial and Tax Projections
- Analyze how much you have saved for retirement and in what type of plan. Through a tax projection, your consultant can calculate your tax liabilities and advise on the best time to sell.
- Make a plan to address any existing debt, and ask for information about refinancing at a lower interest rate if necessary.
- Finally, obtain a valuation of your practice. Generally, the purchase price would range from 60 to 80 percent of annual collections and goodwill would represent about 70 to 80 percent of the purchase price. Goodwill is the perceived future value of the patients, above and beyond the sale of the equipment, and taxed at the lower capital gains rate.
Dealing with the Building
- A dental advisor is able to help with the decision of whether to sell or to lease the property. They can also recommend dental-specific lenders who can provide practice loans, working capital, and building loans to fit your particular situation.
- Not unlike selling a home, you should also evaluate what improvements need to be completed to make the building more attractive to a buyer.
Putting a Transition Plan in Place for Staff and Patients
Do you want to participate in the business after selling your interests? You may decide you want to continue as a consultant to the practice after the sale, so it’s important to ask your advisor about employment agreements, and non-compete agreements, in case you want to re-enter the practice at some point.
We suggest practice owners surround themselves with trusted advisors who know the dental industry as well as professional services. A team of advisors can illuminate the path to sound personnel, practice management, and financial decisions that will reap the greatest valuation at a future date. They can balance the needs of the owners with the ongoing requirements of the business. And they can help both sides of the transaction manage their respective cash flows, tax liabilities, and overall financial well-being to best advantage.