Key elements to selling a practice

Feb. 1, 2012
Selling a dental practice is an involved process. There are many steps and issues that must be dealt with.

By Philip A. Cooper, DMD, MBA

Selling a dental practice is an involved process. There are many steps and issues that must be dealt with. Knowing what they are and how to manage them will help ensure a successful transition. The following is a brief discussion of essential elements for all transactions.

TIMING — The first question I ask sellers is when do they want to sell. The time until that point will help determine what kind of transition is appropriate. If they want to be out in a year or two, then an outright sale is usually the method of choice. If they intend to work three or more years, then a partnership or delayed sale might be appropriate. Most importantly, dentists should not enter into any type of transaction before they’re ready.

PLANNING — There are two important questions dentists need to consider. First, are they financially able to sell? A thorough discussion with a financial advisor is critical because after a sale, the practice income will end. Second, what will they do once they sell? Having a plan for their newfound free time (assuming retirement) is important.

PROPER PRICING — A practice should be valued by someone who is familiar with the dental market. This could be an accountant, broker, or consultant. Fair market value can be within a range, depending on various issues. You want to make sure that the price is not more than what the market will likely pay; otherwise, you might decrease the chances of a successful transaction.

TEAM — A seller should have a team to assist in selling a practice. An accountant plays a key role in evaluating the tax implications. An attorney is necessary to prepare the appropriate documents and advise on the legal issues. A broker is usually the team quarterback and is involved in all the steps from start to finish. Make sure you know what each advisor does, how they are paid, and what type of contractual arrangements they require, and be sure to request references.

MARKETING — There are many ways to find buyers. If you are using a broker, that person should have an extensive database of prospects. Today, most buyers do their primary searching on the Internet. They will also ask their colleagues for recommendations. All prospects should be required to provide background information as well as sign confidentiality agreements.

PRACTICE INFORMATION — An information packet should be prepared. This should include a practice profile, tax returns, computer reports, staff information, fee schedule, equipment list, office photos, and other items that are important to buyers. The packet can be a hard copy that can be mailed to prospects, or in digital format, which can be emailed. A well-prepared packet will not only answer many buyer questions, but can give a good impression of the practice.

KEY BUSINESS POINTS — In all practice transitions, there are certain key points that must be agreed upon — price, terms, and transition. If the seller owns the real estate, then the rent or purchase price is another point. If the transaction is a buy-in, how the income will be split is a critical point. Unless these key points can be agreed upon, the transaction should not yet be presented to the attorneys. If the attorneys get involved too soon, they tend to bring in various issues that are important, yet not relevant in most cases unless the key business issues can be agreed upon.

Therefore, the stages of transactions include finding the buyer, negotiating the transaction, documentation, settlement, and transition. The big unknown is how long it will take to find the buyer. Negotiation and documentation typically takes two to three months. The transition can occur quickly (a matter of weeks) or even take years. Most importantly, it takes motivated parties to reach a successful outcome.

Philip A. Cooper, DMD, MBA, owns American Practice Consultants, a dental transition firm covering New Jersey and Eastern Pennsylvania. He is a member of ADS “Transitions Made Perfect,” and has been in business for 26 years. Reach him at [email protected], (800) 400-8550, or (888) 419-5590 ext. 856.

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