If you’re a dentist nearing retirement age, you’re probably wondering how you’ll divest your practice and obtain the money you need for your golden years. The most obvious solution is to sell your practice to another dentist or a professional dental consolidation firm.
Unlike other businesses, dentists have limited options for selling their dental practice. Most states prevent dentists from selling their practice to individuals who aren’t dentists.
Thus, the prospect of passing down the practice to family members or selling it to a buyer with capital who might manage it well isn’t available unless they’re dentists themselves.
There are three potential options for dentists seeking to leave their practice. However, before discussing the alternatives, it’s essential to understand the process and seek professional help.
Your first step is to seek help from a lawyer who specializes in exit strategies for business owners. If you can find one who has previously handled dental practices, their experience will be of great assistance.
A lawyer will advise you of the various options available to divest your practice. They’ll also assist you with the due diligence process, including the valuation of your company.
The valuation of your practice is one of the most critical parts of your exit strategy. It determines how much your practice is worth. If your valuation is lower than you expect, you’ll want to work on building up the value of the practice before you sell it.
That’s why it’s essential to start your exit strategy early.
By starting your exit strategy several years before you leave your practice, you can identify ways to increase its value. Your lawyer and valuation specialist can help you find ways to build up its worth, such as changing your pricing strategy or attracting new clients.
Ideally, you should undergo business valuation every five years during the life of your practice and annually in the final five years before you plan to retire. Doing so can ensure proper preparation for what’s to come and help you get the best deal for your life’s work in building your practice.
Business brokers help market businesses whose owners plan to retire or move on to other ventures. You can locate a business broker with experience in handling sales of dental practices, or your lawyer may be able to recommend one.
When working with a broker, seek to understand how they’ll promote your practice. Usually, brokers keep a list of available practices that they market to other dentists interested in building up their clientele.
If you own your own office, a business broker can help you list your property and market it to other dental service providers or medical practitioners who could benefit from the equipment you have. They can also assist you with the appraisal process and help you understand the fees involved in selling the property.
There are three typical ways dentists sell their practices. You’ll want to choose the proper structure for you and your practice.
Dentists often mentor other dentists as employees before they arrange to sell their practice to them. If you already have a dentist on board interested in building their practice, this may be the right option for you.
Selling your practice to an employee allows you to time the transition according to your desires. You’ll train the dentist and introduce them to your patients, which can be reassuring to your long-term clients who may not know what to expect when you leave.
However, this option can be expensive if you don’t have many clients. You’ll be responsible for paying the dentist’s salary for several years. There’s no guarantee that the dentist won’t choose to leave your practice in the meantime.
Further adding to the complications is the risk that your dentist won’t have the capital to buy your practice from you. You may have to assume the risk of installment payments or accept less money upfront from the sale.
Sometimes, other dentists seek to purchase dental practices to build their clientele. If you’re aware of another dentist who wants to build up their client base, selling to them could be a good option.
However, like the first option, there’s a risk that the dentist won’t have the money to purchase your practice.
If that’s the case, you may need to accept an installment agreement. In some cases, the dentist may be able to put some money down on the practice, but it might not be the total value that you’re looking for.
On the other hand, you won’t spend the time and money training a dentist who might decide to leave later on. Less training means less transition time, which is ideal if you’re very close to retiring.
Selling your business to a dental service organization will likely provide you with the highest sales price. There’s also little transition; you won’t need to train another dentist or spend time finding the right candidate in your community.
However, there are some downsides to selling to a dental service organization. First, most organizations require that you stay on board for a year or two until they find the right person to manage your practice. During that time, the dental service organization may require you to follow specific procedures you might disagree with.
Another disadvantage is the pay structure. Some dental service organizations will pay you a fraction of the value of your practice – maybe 50 or 60% – while rolling the remaining amount into stock ownership. If the business doesn’t meet its future financial goals, you may lose part of the value of your practice.
All business owners should have an exit strategy. Dental practice owners are no exception to the rule. Since most states have specific requirements for selling a dental practice, it’s crucial to establish your plan for leaving well in advance to avoid any hiccups in the process.
Seeking the advice of a qualified lawyer, valuation specialist, and broker can ease the challenges you face. They’ll be able to advise you on the process and help you avoid potential pitfalls that could reduce the value of your practice when it’s time to sell.
Cowen Partners’ approach is notable because we are one of the nation’s leading executive search firms and are in touch with potential buyers daily. Our Partners come from a diverse set of backgrounds and skills, ranging from business owners and entrepreneurs to CPAs and financial analysts. This diversity of talent enables the team to guide our clients with firsthand knowledge and experience through all phases of the business processes of building, buying, and selling.
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