Selling your dental practice often takes years and a whole lot of planning to get right. Angela Tufvesson shows how to maximise the sale price before putting your practice on the market.
1. Get a valuation
Before you start daydreaming about annual European holidays after you retire or working in the practice part-time minus the hassle of running the business, you need to know how much your practice is worth. In concrete terms, that is, and from a professional—not what you estimate based on the sale price of the practice in the next suburb.
“The first thing a dentist who wants to sell their practice needs is some solid advice about the value of the practice, the value of the goodwill and the value of the assets,” says Stuart Buchanan, managing director of consultancy SmileZone, which specialises in valuing, purchasing and selling dental practices.
“To do this you’ll need to examine the pricing of the practice, the profit-loss pattern—preferably over the last three years—depreciation schedules, fee schedules, leases on any dental equipment and leases on the premises. All of these sorts of things need to be taken into consideration prior to going to market with a value and a sale.”
2. Be realistic about the valuation
You’ve spent years building up a practice and it’s easy to believe it’s worth a lot of money. The trouble is that valuations are based on cold hard numbers and have no place for sentiment. The moral of the story? Be realistic.
“Many dentists, unfortunately, have a higher expectation than what the practice is actually worth,” says Buchanan. “If they’re doing a million dollars each in the last three fiscal years, the practice isn’t worth a million dollars.
“It’s worth a percentage of the gross turnover of the previous three years, and that also depends on the type of practice. For example, there’s an expectation that a specialist practice will have a higher percentage than a general dental practice.”
3. Pay down any outstanding leases
When you hand over the keys to your practice, Buchanan says, you should own all of the equipment and not have any outstanding leases.
“If you’ve got a practice turning over a million dollars and you put in two new chairs at a cost of approximately $100,000, you’re not going to necessarily recoup that in the sale—that’s your cost.”—Susan Rusalen, owner consultant, Talking Dental
“There must be zero owing on any leases, unless there is an arrangement between the buyer and the seller,” he says.
“Dentists should never, ever capitalise. Hypothetically, if a dentist spends $250,000 on all sorts of digital equipment and decides to sell in two years, they’ve got to understand that it all belongs to them. They have to pay for it because the incoming dentist is not going to accept the capitalising.”
If you’re thinking about buying new equipment outright before putting the practice up for sale, Susan Rusalen from dental consultancy Talking Dental says it won’t necessarily add to the sale price.
“If you’ve got a practice turning over a million dollars and you put in two new chairs at a cost of approximately $100,000, you’re not going to necessarily recoup that in the sale—that’s your cost,” she says.
But in some circumstances, extra equipment can be attractive to buyers. “Something that makes a general practice really attractive is ‘free capacity’, which is if you’ve got three chairs in the practice but only two are being used,” says Rusalen. “You’ve got the potential to grow the business without any further investment.”
4. Maximise staff retention
Staff retention is always good for business, especially when you’re planning to sell your dental practice. Your staff members know how the business works and, most importantly, the patients. They will help to create a sense of continuity when the business is sold.
“Really good staff retention gets the prices up. When the practice is being sold, it’s important to handle it well with your staff,” says Rusalen.
“In any general practice sale, it is the staff that ultimately go with the business if they want to—I haven’t seen any situation where a purchaser wouldn’t want the existing staff to stay,” she explains.
5. Plan your future
Do you want a clean break or would you prefer to continue working in the practice after the sale? Both options are negotiable with the buyer but you’ll get a better outcome if you know what you want before you put the practice on the market.
“If they’re doing a million dollars each in the last three fiscal years, the practice isn’t worth a million dollars. It’s worth a percentage of the gross turnover of the previous three years, and that also depends on the type of practice.”—Stuart Buchanan, managing director, SmileZone
“There are people who purchase a practice and only want to work one or two days a week because they work at a university or they’ve got some other type of employment,” says Buchanan. “And there are people who just want to walk in and become a principal dentist, so they will buy a practice that has the capacity for them to just walk in. It’s all negotiable, and it does affect the price.”
6. Plan to sell when business is booming
Instead of waiting until business drops or you’ve got one foot out the door, Rusalen recommends selling your dental practice when you’re in an ideal financial position.
“When you’re selling a business, it’s important not to sell when the practice is starting to decline,” explains Rusalen. “What generally happens is businesses grow to a peak then they plateau. As interest wanes they tend to drop.
“It’s always best to sell on the way up or as you reach the top because it’s really important that you’ve got three years of financials that are healthy and growing. If there’s a decline, potential buyers will start to have a question mark about your business.”
7. Consider using a broker
You don’t have to use a broker to manage the sale—indeed, Buchanan says there’s usually no need if you’re selling your dental practice to an associate. However, using a professional can yield a better sale price on the open market.
If you’re put off by commission fees, consider this: a broker sells a practice for $1 million and charges three per cent (or $30,000) commission. A very skilled broker charges five per cent commission and sells the same practice for $1.2 million. The dentist pays $60,000 commission but the profit is $170,000 more.
“Dentists often focus on the commission percentage, much like we would when we sell our houses, but if you have someone who’s very skilful, values the practice properly and has a really good pool of purchasers, they might make you a lot of extra money,” says Rusalen.