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The dos and don'ts of retirement planning

Sept. 22, 2016
Retirement planning is different for dentists. If you're a practice owner, these are the steps you need to take to ensure a smooth transition—both personally and professionally.
Retirement planning is different for dentists. If you're a practice owner, these are the steps you need to take to ensure a smooth transition—both personally and professionally.

For most people, retirement planning involves investing in a 401(k) account and preparing to be debt-free or close to it when the time comes to stop working. But for dental practice owners considering retirement, it also entails thinking about what to do with what is probably their largest asset: the dental practice. As you plan for retirement, it is critical for you to design an exit strategy that maximizes cash flow to fully fund your retirement years and that accounts for a realistic amount of money that you will need to enjoy retirement.

According to a report prepared for the American Dental Association, approximately 64% of dentists are age 45 or older.1 As we ease out of the recession and the aging baby boomer population drives business, the time is ripe for dentists to retire.

To ensure a smooth retirement, dentists should take a few key steps and set specific goals to prepare for a successful practice transition and a successful personal transition.

Do create a transition plan

It's hard to believethat someone else could effectively take on the practice you've spent your life building, but creating a detailed transition plan will ensure the practice will continue to thrive for years to come.

The first step is understanding your personal and practice economics to help define your ultimate goals and the timeline for your transition. Decide if you want to bring in a partner, fully retire, or spend a long-term transition period working under the new owner as an associate. If the best option for you is to continue working as an associate under the new owner for several years, ensure that the sales agreement stipulates definitive new work hours, the duration of your employment contract, and how you will be compensated.

The next step following the sale is to develop a timeline to transition patients. Determine how you will introduce your patients to the new owner and discuss how work in progress and rework will be handled. Making your patients comfortable with their new dentist will set the practice up for success and create a better atmosphere in the office.

Don't slow down on work

The biggest mistake dentists nearing retirement make is cutting down on their hours and patient load. Although the last few years of your career might seem like the perfect time to slow down, the years before a sale-and in particular the final 12 months-are the most important in a practice's business when it comes to valuation. During valuation, practices are evaluated based on current production levels, and the last three years are closely scrutinized. You may have spent your entire career burning the midnight oil, but if you switch to working two days a week for the final few months, it will heavily impact the sale. Remember, it's not the lifetime of your business that will be reviewed but its current revenue and profitability.

Do hire a professional

Selling a dental practice is a specialized financial transaction, and working with a health-care lending professional can help ensure you get the best deal. A specialized health-care lender can recommend other transition consultants who can help throughout the process-from tax, investment, and business planning experts to qualified appraisers.

In addition to specializing in health care or dentistry, the professionals you work with should be familiar with the practice's local market dynamics. This is an important factor, as these professionals can better advise you on how to attain a full fair market value price for your practice sale, and they can expedite the sale of your practice with prequalified potential purchasers.

RELATED | Valuation forecast: What dentists need to know before retiring

You should speak with a practice transition consultant several years in advance of your projected retirement date to get a sense of what to expect. If there's a discrepancy between the income you expect to generate from your practice sale and the actual sale price, the consultant will be able to help you try to offset the discrepancy with further practice growth to maximize the potential sales price.

Do find the right fit

The person taking overyour practice needs to be able to serve your patients properly. It is smart to take time to find a partner or buyer who has similar clinical skills and a similar treatment philosophy in order to ensure continuity of service. You can also consider attributes such as personality and chairside manner. Remember, you are trusting the purchaser with the well-being of your patients and your staff, many of whom you have come to know over many years.

This is crucial from a financial standpoint as well. When evaluating a potential buyer, a lender will consider whether that person can perform the same clinical procedures as the seller and maintain an equal level of production. For a successful transition, make sure the buyer is working full-time, has good personal credit, and has a proven track record.

Don't let the practice fall behind

Your patients and staff are your practice's most important assets. Along with the physical assets, such as the facility and equipment, the practice's goodwill and number of active patient records are top of mind for buyers. Therefore, it is just as important to continue to attract new patients as it is to keep a steady book of long-term patients.

As for the facilities, you don't need glitz in each operatory, but the waiting room, operatories, and equipment should be in good repair. The office should be a place that a young dentist would be happy to move into and that a lender could see as having useful life for several years to come. It is also smart to invest in the latest equipment and technology several years prior to retirement to ensure that you get the maximum return on investment and make your practice more attractive and valuable to prospective buyers.

RELATED | Top 10 mistakes dentists make on their way to retirement

Don't forget about your needs

As you approach retirement, it is smart to reexamine your overall retirement, investment, and exit strategies to ensure you achieve your financial goals. Think about how much longer you'd like to work and how you can maximize that time by boosting practice productivity and efficiency, fully funding defined benefit pension plans, and saving for your proper nest egg. Take the time to create a personal budget for your living expenses after retirement and consult with a financial planner or wealth management expert. Finally, don't forget you can still continue to foster a network of your peers and stay active by joining associations like the Association of Retiring Dentists.


1. Diringer J, Phipps K, Carsel B. Critical Trends Affecting the Future of Dentistry: Assessing the Shifting Landscape. San Luis Obispo, CA: Diringer and Associates; 2013.

Dan Croft is head of the health care practice solutions group for TD Bank, overseeing the bank's practice finance segment, which specializes in working with dentists, optometrists, veterinarians, and physicians. He has 20 years of experience working with medical, pharmaceutical, and CPA businesses. Croft holds a bachelor's degree from the College of the Holy Cross. He is based in Cherry Hill, New Jersey.

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