Selling your practice in the next 5 years?

March 22, 2016
Clip this and tape it to your desk for review of things you must know.

Clip this and tape it to your desk for review of things you must know.

Gretchen Lovelace, MS, CFP, CPM

There are costly pitfalls in any dental transition. A prudent dentist will use a dental practice broker to avoid stress and lawsuits when he or she sells the practice.

MONEY

Do you have enough money to retire? Determine exactly what income you will require post-sale. Determine what you will do with your time after you sell your practice. If your practice collects less than $650,000, it is highly unlikely that you will be able to work in the practice after the transition period.

PRICE

The price is not "how much you need for retirement," or "the value of sweat-equity" but how much your practice is worth to a buyer. You are selling a job. Practices sell from 30% to 75% of one-year gross income depending on location, overhead, and competition. A competent broker can guide you on price.

NONDISCLOSURE

Your broker will inform potential buyers of the confidentiality requirements in writing. Once the word is out that you are selling your practice, your patients will immediately find a new dentist and you will no longer have a practice to sell.

OFFER AND ACCEPTANCE

An offer from a buyer is usually made in writing. Like the sale of a house, you can accept, reject, or counter. Although laws vary from state to state, you may be sued if you accept an offer and then change your mind. This is especially true when you're also selling your building. Get a building appraisal before your broker puts the practice on the market. An appraisal of your building may cost $2,500 or so, but it will protect you and prevent undervaluing your building.

PURCHASE AGREEMENT

This document governs the sale. Read every word of your purchase agreement before you sign it!

• Existing contracts: If you have signed a contract for three years with any company, you will either have to pay that off at the sale or get the buyer to assume the contract. Existing contracts can be costly impediments if not handled correctly in the purchase agreement.

• Lease: If the buyer merges your practice into another existing practice, he or she may not want your lease. If the buyer will be using your existing building, he or she may want a favorable long-term lease to assume. Talk to your broker before you sign a new lease in the years leading up to the sale of your practice.

• Accounts receivable: The forgotten portion of accounts receivable is money owed to patients (positive balances). You are responsible to refund positive balances before the sale, or you will pass this money and the liability to the buyer. Again, this is a costly mistake if not handled correctly.

• Staff benefits: Anything you promised your staff (unpaid vacations, pensions, etc.) must be paid by you. In most transitions, the seller is firing the staff, and the buyer is hiring the staff. The number of lawsuits filed by departing staff is on the rise.

• Patient letter: This should inform patients about the new dentist and should not be a "farewell" letter from the seller.

• Remakes and other liabilities: This should be covered in detail.

• Noncompete, nonsolicitation, and goodwill: The noncompete that you sign will mean that you must travel out of the area if you still want to work in dentistry after the sale. "Nonsolicitation" means that you may not entice your staff or patients to follow you or go elsewhere. "Goodwill" means that you are obligated not to disparage the new owner in any way to old patients, staff, or potential new patients. Any of these actions may end in a costly lawsuit.

A good broker will walk you through the rough waters of a transition and hopefully help you emerge with a profit and no lawsuits. If you remember that honesty is the best policy in a transition and that your word is your bond, you should sail into a delightful retirement with a little planning and the help of a competent and honest broker.

Disclaimer: This outline is not all-inclusive due to space. This outline is not legal advice and will vary from state to state.

Gretchen Lovelace, MS, CFP, CPM, is the past national president of ADS Inc. Gretchen lectures at Louisiana State University School of Dentistry and at national, state, and local dental associations. Her primary focus is ethical practice transitions. Contact her at [email protected] or (225) 892-5135.

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