A healthy nest egg can await retirement, provided it’s backed by sound, early planning. By Meg Crawford
In the not too distant past, a dentist’s options for succession planning were fairly limited. In most cases, it was a matter of divesting a practice to a family member or loyal associate, or winding down towards retirement before going to market, with no guarantee of securing a sale. Happily, a range of other options are now open to practitioners in terms of succession planning, spanning sale to a corporate entity through to becoming a practice manager pre-retirement. However, irrespective of the option pursued, there are important factors to consider well before it’s time to shut shop if a succession plan is to be viable.
Don’t wait until retirement
Repeatedly, the advice is to plan for succession sooner rather than later. When a dentist has walked away from a practice with little in the pockets, Shane Morgan, a partner at Cutcher & Neale, observes that it’s often as a consequence of leaving the run too late.
“If you’re thinking about succession, you need to be thinking about it well before retirement or when you want to close the doors,” he says. “It doesn’t matter whether you’re looking to sell the practice to a junior or a third party, you don’t want to be transitioning your work—your fees and your profit—down from five to four to three days per week and then looking to sell at that point. You want to be selling your practice at the peak of its abilities.”
Carolyn S Dean, dental and healthcare marketing strategist and author of Fully Booked agrees, having encountered many sole practitioners who confess to being not so far off retirement, without a succession plan in place. “My advice is that now is the time to act, because in five years’ time, it’s too late,” she says. “You need to speak to all of the relevant experts now, including your accountant, brokers, lawyers—as well as people in your network who’ve exited already: successfully and unsuccessfully. Find out what you need to do to bolster your business, and do it now so that you get the maximum return.”
Consider hanging around post sale
Increasingly, dentists are electing to spend a number of years getting their practice to an optimal point, selling their practices at their apex, and then winding down for a number of years post-sale as a manager or fee-earner. Morgan considers the strategy sound for a number of reasons, including seamless client transition, which, in turn, can preserve goodwill, the protection of which is always a concern for buyers.
“If you stay on as a dentist under a service fee for the practice, you’re offering continuity of service, which can make a practice more attractive too,” he notes. “If the patients can still see that you’re there while they’re meeting the new dentist, the goodwill is less likely to diminish. Compare that to a sole practitioner selling the practice and walking out the door the next day, where there’s no continuity. If you want to get the most for your practice, it’s definitely worth considering.”
Have a communications strategy
Traditionally, it’s not been uncommon for dentists to sell a practice and exit without a word to patients, which can result in patient numbers plummeting. Dean urges vendors to take a different tack and endorse the new owners, as anything that protects goodwill makes a practice more attractive. “It’s so important to communicate with patients,” she says. “A change in the team—and it could be any member of the team, but especially the principal—can be distressing for patients and it may mean that they move on.”
Put it in writing
While contracts are critical in the event things start to go south, they’re also the best way to shore up your practice or investment for viable succession.
“Certainly in a multi-dentist practice, it’s the agreements you have at the start of your practice and throughout its lifetime that become so very important when you are trying to exit,” Morgan comments. “I’ve seen examples of more senior members in a practice operating only by a handshake, and it’s been disastrous. You need to be thinking about things like unit holder agreements, or shareholder agreements or at least agreements between the owners. You need to know the rules—if someone does want to retire, whether it’s through ill health, or normal retirement, there need to be parameters for them to do that.”
Equally, Morgan considers that all terms should be recorded in a contract of sale when selling to an associate. While these sorts of scenarios have been notoriously fraught with danger—especially where an associate is promised the world—if the agreement is properly recorded, it can spare the parties heartache and expense.
“Even if you have an associate and your values completely align, it still needs to be documented.”