Whether retirement is imminent or still just a dream, if you are a practice owner, it’s time to begin thinking about how you’ll eventually transition your practice. After all, sometimes life happens and you must accelerate your plans — which is much easier if you have thought about your desires in the first place!
Ultimately, your practice is worth what someone will pay for it and, most often, what a bank will underwrite a loan for. You know how great your practice is, but how do you get other dentists to see and understand how fabulous it really is? In many cases, the best place to begin is by looking at your practice through a buyer’s eyes. You want to identify, and then highlight, what might inspire them to make an offer.
Keep in mind that all buyers want the same thing: a financially sound practice where they can do the type of dentistry that excites them and keeps them engaged. No matter where you are in your timeline, you can start taking some steps to prepare yourself and your practice to shine for an eventual sale. (The tips in How to Conduct a Year-End Business Review can give you a great start, no matter what time of year!)
1) Talk to a financial professional
Ideally, by now you have built a relationship with a financial planner or wealth consultant. They can help you think through your optimal retirement timeline and ensure that you’ll have the money you need to live the lifestyle you want. Together, you can consider all your expenses (children’s/grandchildren’s educations, housing, healthcare), desires (travel, relocation, vacation home), and other factors, such as tax timing and Medicare eligibility.
There is a reason this is number one on the list! You want to be financially set when you decide to sell so you can take the time to focus on finding the right person to continue your legacy, not the right price tag.
2) Realize that buyers want results, not “potential”
I’ve spoken to many owners who were surprised to get a practice valuation that was less than they had hoped for. In many cases, these owners had scaled back their hours over previous years, resulting in lower collections. Even though the sellers could show fantastic numbers from five years ago, buyers (and financiers) were focused solely on recent performance. After all, banks make their decisions based on current numbers and trends. They will not loan money based on the hope that patients will return to the practice. (See more about Practice Valuations.)
It’s absolutely fine to consider easing your way into retirement. However, realize that it will most likely result in a lower sale price. That could be well worth it to you if it means more time with your family and you are not counting on a high sale price for your financial health as you transition into retirement. Make sure you understand the trade-offs.
If you want to scale back without affecting the practice’s bottom line, think about bringing in an associate to keep up production — ideally one who’s interested in buying you out when the time is right. Of course, you need to have the patients and space for them to be successful. You can also consider selling now, while your numbers are at their peak, then look for ways to continue practicing. You could negotiate to stay on as a part-time associate, work in a community clinic, teach — explore your options!
3) Evaluate what’s working (and what isn’t)
Consider the state of your practice. Look at trends in new patients and treatments. Review your accepted plans along with the fee schedules and the efficiency of obtaining reimbursement. See which plans provide the most bang for the buck and which have become an albatross around the practice's neck! You may need to do a cost-benefit analysis to decide which to keep as is, which to attempt to renegotiate, and which no longer make sense for your practice.
If you’re bursting at the seams, an associate who wants a path to ownership could be a great solution.
4) Weigh updates to your technology and equipment
Today’s early- and mid-career dentists expect digital radiography and functional equipment. They don’t want to have to invest in major upgrades in their first year of ownership.
You don’t need to update everything, though. If your compressor will function well for another five years, great! However, if things really do need to be replaced, go ahead and do it so a buyer doesn’t have to address replacement cost in the offer. Plus, you might as well get to enjoy using it for a little while.
5) Identify your preferences
Think through your goals and best-case scenarios. Do you want a gradual transition while onboarding a new dentist who will buy you out? (And if so — do you have enough space and patients to keep you both busy? Are you willing to watch YOUR patients be treated by a different doctor?)
Many early-career dentists desire some hands-on mentorship, whether to build their dental skills or to learn how to run a business. Would you be open to that? Or would you prefer to sell 100% and walk away?
Be sure to talk to your family. They almost certainly have ideas about ideal timing and what might fit your personal style! And think about how you'll spend your time. Remember, just because you're considering a sale doesn't necessarily mean you have to be "done" with dentistry!
6) Consider your real estate
If you own your building, do you want to sell it as part of your practice sale? Otherwise, are you willing to become a landlord, with all that entails?
If you lease your space, make sure you have a long-term lease in place, with rent at or below market rate and transferable to a buyer. The practice will not be worth as much without a place to practice from.
7) Get your practice financials in order
Buyers — and their banks — need organized books to evaluate the practice’s value. I’ve seen sales fall through when sellers couldn’t produce requested information quickly, as it casts doubts about how well the practice operates. Work with an accountant to get your financials in order, then update the files periodically so you’re ready when a buyer asks.
8) Evaluate your fees
If it’s been a few years since you raised your fees, take a look at the ADA’s Dental Fee Survey (free to members) to make sure you’re in line with your local market. Patients are much more willing to tolerate an increase from their long-term doctor than a new buyer, so a buyer will look more favorably on the practice if the fees are current.
9) Document your practice’s policies and processes
Buyers want to know that the practice runs smoothly. Take some time to document how things work: roles, responsibilities, insurance and collections policies, and so on. Also document things like average treatment wait type, new patients per month, production reports (by procedure), referral patterns, etc. This information will help you present a clear picture of a successful, lucrative practice that’s worth top dollar.
10) Boost your curb appeal
First impressions matter. You’re more willing to offer a full asking price for a house that’s freshly painted, well-kept, and decluttered. Buyers will do the same for your practice! Empty out that overflowing storeroom, ditch the old dental journals, and clean everything top-to-bottom. (Yes, even under the cabinets.) Consider a fresh coat of paint, updated landscaping, and recovering the chairs. (See: 5 Easy Ways to Boost Your Practice’s Curb Appeal.)
Revisit this list periodically to make sure you’re taking good care of your practice and your future, and start thinking about how to answer buyers’ questions. And if you're not sure how about your path and timeline for selling your practice (or what comes next), download our free ebook: Know Your Options: Building the Right Exit Plan for You.
Want more? See 5 Years Out: How to Sell Now and Retire Later.