Question: How far in advance should I begin planning the sale of my practice?
By Tom Snyder, DMD, MBA
Planning for the sale of your practice depends on a multitude of factors. First of all, how well have you planned financially throughout your career? We recommend that when you are seriously thinking about selling your practice, you retain a financial advisor to have a comprehensive financial plan prepared. A well-crafted financial plan will include a retirement income needs analysis that will quantify how much you will need to live comfortably based on your current assets and how much you still need to save.
Once that is completed, ideally, good transition planning requires at least a five-year time line. This is important for a couple of reasons:
1. In the event that you wish to upgrade your facility, you will have adequate time to receive the proper tax benefits of any equipment updates and enhancement upgrades. However, if you upgrade your facility and sell your practice in one to two years, you may be subject to depreciation recapture, and that may cost you thousands of dollars.
2. Another important ingredient in the transition planning process is whether you want to increase your revenue and net profit to possibly get a higher value when you sell. In this case, you may wish to retain a practice management consultant to increase your practice’s performance. However, you need to show a future buyer that your potential increase is not a one-year phenom, so having a solid track record of two to three years of enhanced performance is key to increasing the odds of a higher value for your practice.
So those are two reasons why a five-year planning time line makes sense.
Tom Snyder, DMD, MBA, is the director of transition services for The Snyder Group, a division of Henry Schein. He can be reached at (800) 988-5674 or [email protected].
By Lynne Nelson
It is not a bad idea to always keep your practice in a sale ready position regardless of where you are in your career lifecycle. Nobody has a guarantee as to the number of days they will have, so for emergency planning purposes you should have a practice appraisal on file with a trusted broker, sending them updated numbers every two years. This will make it possible for someone at any given time to quickly provide an appraisal of the practice which protects one of your most valuable investments. This could save your family in a time when they need it the most.
For optimal pre-retirement planning and positioning, my recommendation is to start three to five years before you actually want to begin transitioning your practice. This allows enough time to look constructively at the practice to determine the strengths and weaknesses. This will also give you the time you may need to improve the overhead expenses and work on the overall appeal of the practice. Compare your last year’s expenses on your profit and loss statement with the normal averages for your area. If overhead is high look for areas to work on and enlist the help of your staff in areas such as dental or office supplies. What is your new patient flow? How many active patients do you have? These are all questions that a potential buyer will ask. What is your practice “curb appeal?” This is not the time to do major renovations or purchase expensive new equipment but perhaps some fresh paint or new carpet? The idea here is to refresh the look and feel without breaking the bank.
With today’s economy, now more then ever, careful planning is necessary to set your practice on a course that will maximize its appeal and value!
Lynne Nelson is senior broker at Consani Seims, Ltd. and ADS Northwest, and cofounder of Practice Management Associates, LLC. For more information, contact her at (206) 920-6217 or [email protected].