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Planning the best exit for your practice and future

June 8, 2023
Planning your exit strategy now and keeping it up to date will ensure you move on under the best possible circumstances.

Owning and operating a dental practice is an all-consuming labor of love. With a focus on delivering top-quality care for your patients and a prosperous and healthy work environment for your employees and staff, the topic of succession may take a back seat. Even though you may consider yourself years away from retiring, understanding the required planning will help you formulate a thoughtful exit. What you learn now will facilitate an easier and less worrisome ownership transition. 

Plan your succession right 

You’ll need at least 18 to 24 months to correctly prepare for succession. This means assembling a team of advisors you trust—CPA, attorney, banker, and wealth advisor—to identify your best options for execution and then act on those strategies as soon as possible. Keep in mind that once you set a specific exit date, there are still many steps to implementing that plan. 

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To correctly navigate the intricate details that make up a well-designed succession strategy, have your business banker lay out the specific mechanisms that come into play and how the financing and transfer of ownership will work in different situations. This can include tax, trust and estate matters, and guidance on the most financially beneficial path forward. 

New ownership loan considerations may also come into play. The ability to adequately qualify for the loan and the buyer’s existing loan obligations are two examples of what you might encounter. Your financial team will provide a clear picture of the process, guide you through the steps and timeline, and provide you with different options. They can also help you coordinate transitional lump sum payments, sidestep complications, and avoid unnecessary costs. 

A crucial step is to ensure your finances will thrive beyond the succession of your practice. Determining allocation of investments and assets to secure future growth takes a considerable amount of time and calculation, but the process greatly outweighs the financial risks of waiting until after the practice has sold. 

There are several avenues of ownership succession. It could be transferring between family members, the gradual reduction in ownership coinciding with senior staff buy-in, or the outright sale of the practice to an outside entity or individual. Also consider that not all dental practice exits are planned, and a sound succession course of action can alleviate undue stress in such circumstances. 

Common options when it comes to changing ownership

  • Sell to associate: An associate is familiar with the staff and patients, and this can lead to a smooth transition.
  • Sell to a strategic buyer: Another dentist with a similar office and philosophy regarding patient care will seek to realize synergies by combining or running the practices together.
  • Sell to a qualified buyer: This is someone you have spent time with and understand their background and experience, who you feel comfortable with entrusting your patients and staff.

More points to consider 

A well-planned succession looks beyond what the owner needs to maximize value and create a cash windfall and seeks to determine what’s best for employees and customers, suppliers, and other organizations the practice does business with. This requires a lot of time, thought, and resources, including perhaps an independent audit, a business valuation, and bringing in experts on succession planning. This ensures that expectations align with reality and the vision of others involved in the business. 

An 18- to 24-month window is a good guide, yet this process can take much longer, depending on the office’s structural complexity. Any successful transition needs to be well-thought-out and completed over a time commensurate with the level of decision and thought from all different angles. 

Establishing a sound plan as soon as possible should be a priority, but once determined, a financial partner should regularly revisit the details. Preparation and review work hand in hand, and updates are almost always required because people change, situations change, and operations change. Because of this, a financial partner in the succession planning should be familiar with the mechanisms and provide objective analyses. 

Whether moving on to a new venture or retirement, or preparing for the potential of an unforeseen event, practice owners should have an idea of how to exit in a way that best benefits themselves and employees while honoring the vision that led to success. Determining top priorities and identifying the proper succession plan will lead to execution of that plan to carry on a legacy built.

Editor's note: This article appeared in the June 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

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