Understanding how to sell a dental practice effectively and identifying the best ways to maximize your return can make a significant difference.
Whether you are thinking about selling your dental practice today or thinking about retirement at some point in the future, there are several steps you can take to prepare.
Even if you have an Office Manager who handles the day-to-day business activities of the practice, it is important to know, at a minimum, how to utilize the reporting features of the software.
Running reports is an easy way to get a handle on your production, collections, patient demographics, insurance utilization, and other areas that can provide key indicators of your practice’s health.
It can also help reduce the risk of embezzlement. Double-checking collection numbers with deposits on your bank statements is an easy check and balance.
When you are considering selling your dental practice, a broker will request an initial set of reports, depending on the PMS software you use.
The buyer will typically ask for several additional reports, depending on who their advisors are and which aspects of the practice they want to drill down into.
If you know how to run the reports yourself, you will not run the risk of potentially tipping off staff that you are in the process of selling the practice too soon by asking them to run reports that you don’t typically look at on a regular basis.
Confidentiality is important during the dental practice sale process to protect the practice’s goodwill, as is providing a potential buyer and lenders with information in a timely manner.
Some dentists and their accountants are quite liberal in what they run through the business, which is fine to the extent that the IRS allows those perks.
If you have personal expenses that are expensed through the business, it can sometimes be difficult to separate those from the practice expenses when trying to understand the true profit.
The sooner you can clean up your books and tax return the better. The more profit you can show on the bottom line will result in a higher offer price from a buyer, and it will be easier to justify a higher asking price.
It is also important to have your accountant file your tax return as soon as possible the year you plan to sell your dental practice, or the year following if you are in the process of selling.
Banks and buyers will request the last three years’ tax returns, and if your accountant files an extension, it will significantly slow down the process for a buyer applying for a practice loan and could delay the sale of your practice.
This can be done at any time, but the value of the practice is typically at the end of the last calendar fiscal year, based on your most recent tax return. Many dentists will have one completed when working with a financial planner on retirement preparations.
It is also important to have an appraisal completed when considering a partnership or hiring an associate who may eventually buy in as a partner in the future.
An appraisal can give you a better understanding of the value and can provide another data point for your retirement planning to ensure you are financially prepared to walk away from the revenue stream that you will lose after you sell.
Negotiating with insurance companies is something that many dentists don’t do on a regular basis (for example, annually) because it can be a time-consuming process, but the result can increase your collections and help you maintain a financially healthy practice.
There are companies that can help you accomplish this, and since they specialize in this area, they know the ins and outs of the process and can ensure that your paperwork is filled out correctly. Making sure your fee schedule is up to date can be a valuable selling point to a buyer.
Dentists have been dropping participation with some PPOs that don’t reimburse at an acceptable level. Many dentists who have done this say that while they may lose some patients, the ones who remain are more valuable to the practice.
If you provide high-quality dentistry and they have been a patient of record for at least a few years, most patients will acknowledge that value and stay with the practice, just like most patients will stay with a practice after it is sold.
Keep in mind that if a patient’s insurance is no longer accepted, the practice can still offer to file the claims on the patient’s behalf. The office would collect the full amount from the patient, and then the insurance company would directly reimburse the patient for the amount that is covered.
An extremely important, but often overlooked, phase of retirement planning is figuring out what you will do with your time.
When you sell your practice, you will typically have to sign a restrictive covenant, which will prohibit you from practicing and/or soliciting patients for a certain period, within a certain number of miles.
Some dentists feel burned out and want to sell their practice to rid themselves of the burdens and stresses of ownership, but still want to practice dentistry for a few more years. This can be fine if the buyer is not an owner-operator and wants the seller to stay on for months or years.
Sellers often find, however, that working for someone else in their own practice can be difficult. If you decide to leave but want to continue practicing dentistry, your restrictive covenant may require you to look 10-15 miles away, which can introduce new challenges, especially if you live close to the practice you sold. Even if you think that you will be able to golf every day, many people find that eventually they need something more fulfilling to occupy their time.
Accomplishing the points above on your own is certainly possible, but you can maximize your chances of success by leveraging the expertise of others.
Most dentists will sell a practice once in their career and, when that is the case, they have often lived in an insulated bubble during that time.
Consider enlisting the services of experienced professionals, such as dental practice brokers, attorneys, and accountants who specialize in dental practice transitions. These experts can provide valuable guidance and support throughout the selling process, from initial valuation and marketing to negotiating terms and navigating legal and financial complexities.
You spent your life building a successful practice, and you owe it to yourself to maximize the return on your life’s investment.
In 2017 Kevin joined his father at American Practice Consultants and became owner in 2023. Kevin has has assisted dentists with over fifty dental transitions, written articles for ADS Dental Transitions and serves on the ADS Marketing Committee. Kevin knows firsthand that practice transitions can be complicated, and the ins and outs of practice sales often exceed the dentist’s training. American Practice Consultants is qualified to help you with every step of the journey, including valuing your practice, marketing, negotiation, drafting contracts, arranging financing (often 100%), and planning for staff and patients through a practice transition.
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