Your dental practice serves as your primary source of income and, likely, your most valuable asset. Selling a dental practice is a significant decision that goes beyond the typical real-estate transaction. With patients, team members, and your professional reputation at stake, careful planning is essential as you are effectively swapping cash flow from the business (taxed at ordinary income tax rates) for a lump sum of 5–10 years’ worth of cash flow on which you will only pay long-term capital gains at today’s rates. You only get one chance to sell your business—make sure you make a well-informed decision.
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What is your business worth today?
It is hard to plan for your exit if you don’t know what your business is worth today. There is no zillow.com for dental practices. As a result, seeking expert advice is crucial. Dental practice sales advisors perform hundreds of practice valuations each year to help owners understand the value of their business. We then provide doctors with a market read of where the value is likely to trend based on previous transactions, current buyer sentiment, and general economic trends like cost of capital and private equity activity. Armed with this knowledge, you can confidently make informed decisions about your sale. Additionally, advisors can often assist in making strategic adjustments to maximize your practice's value before it hits the market.
Timing your sale
The right time to sell is when you are ready, and the market value meets your needs. Trying to time the market is a fool’s errand, because mergers and acquisitions (M&A) markets, like the stock market, move in cycles. We have recently seen the greatest rise in practice values in the history of M&A. This run-up in values was driven by private equity demand and low interest rates. While demand remains strong, increased borrowing costs have made buyers more selective. We, too, are selective about who we work with because we only want to work with owners whose valuation expectations we can meet and beat.
The January issue
A recurring trend is the rush to close transactions by the end of the year. This rush creates a scarcity of deals in the market at the beginning of January, coinciding with high demand from DSOs. The basic principles of supply and demand come into play, leading to a surge in prices. Last year, clients who took advantage of this phenomenon were rewarded. The deals that TUSK took to market in Q1 enjoyed a nice premium over deals that we took to market in Q2. If you want to take advantage of this in 2024, you need to be working with an advisor today. There are many groups and practice owners prepping to go to market in January of next year.
The boogie man
When there is uncertainty in the US economy, CEOs stall decisions, lenders get nervous, and capital freezes up. On November 5, 2024, the US will have its 60th presidential election. Today, the markets are solid, and capital is flowing. If the polling is close and the presidency comes down to a few Electoral College votes, prepare for a choppy September and October. There was lots of concern in the last election cycle that Biden was going to increase long-term capital gains taxes. Current national debt is over $30 billion dollars (highest in recorded history and 123% of GDP). If Democrats keep the White House, you must assume that they will look to more taxes. Additionally, the lifetime Estate Tax Exemption (currently at $12.9M) is scheduled to sunset on January 1, 2026, and will be cut in half. This could lead to a glut of businesses for sale in 2025. If the supply of businesses exceeds demand, we will see a precipitous decline in pricing.
Where to start?
In this dynamic environment, don’t panic, but do take proactive steps. Get a complimentary practice valuation that provides clarity on your current standing. Whether you're considering a sale in 2024 or exploring options for the future, you need to be informed and understand the intricacies of the process.
Editor's note: This article appeared in the November 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
Kevin Cumbus, MBA, CEO of TUSK Partners, has over a decade of experience in the dental industry. He has valued and sold more than 150 dental practices, managed over $100 million of revenue in a DSO, and is co-owner of a start-up dental practice, Mundo Dentistry. Today, Kevin is the founder of TUSK Partners, which helps dental practice owners sell their practices at the highest possible price with the deal terms they desire.