Seller’s Guide
How to Sell your Dental Practice
You've worked for years in your practice, provided great care for your patients, and helped your practice grow. It's been your business, your career - you've poured your life into your office, your patients, and your team. And now you're thinking about selling.
Selling your dental practice is a major decision, and no matter where you are in the process, you deserve the very best professional guidance.
In today's dynamic market, working in tandem with a professional practice broker can make the difference between just getting rid of the practice and selling it for the very best price and terms.
In what follows, we have collected some of the most common topics and questions frequently brought up by sellers. And if you have any questions we have not covered here, please don't hesitate to ask!
For Dental Practice Sellers
If you've on this page, then you've already taken a good first step towards selling your dental practice. The information below should guide you through the maze of the process and help you understand what is necessary to successfully sell your practice.
No matter why you're contemplating the sale of your practice, it's always a serious decision that must be carefully considered and planned.
In this guide, I will help you prepare for the sale of your dental practice, walk you through the different steps, and provide a plan that you can use to make sure that 1) the new dentist will continue to provide great care for your patients and 2) you receive top dollar for all of your hard work.
1.0 WHAT IS MY PRACTICE WORTH?
The first question almost every seller asks is, "What is my practice worth?" When our co-founder Dr. Bill Kimball sold his practice, this was his first question, too.
At the end of the day, the value of your practice will be determined by the market.
Unfortunately, the market doesn't care what you think your practice is worth or what you want for it. It also doesn't make any difference what your accountant, banker, attorney, or best friend thinks your practice is worth. Only the marketplace can decide. Our job as brokers is to optimize your practice for the current market and connect you with the right buyers to get you the highest possible value.
When we calculate our opinion of value, we take many different factors into consideration. Market conditions, location, build out, curb appeal, practice age, the age and condition of equipment, the level of technology in the practice, and the recent income trends all contribute to practice value.
However, at the end of the day, the primary driver of our opinion of value is cash flow.
The greater the revenue (collections) and net income (doctor take-home pay), the higher the practice value is likely to be. From the buyer's perspective, it only makes sense to purchase a dental practice if the practice generates sufficient cash flow to pay overhead, pay the loan on the practice and have enough left over to provide a reasonable income for the buyer and his or her family.
Want to learn more?
This post will teach you
- How we valuate a practice
- Useful terminology that you'll definitely hear when valuating
- Why cash flow is king
1.1 WHAT IS THE DENTAL PRACTICE SALES MARKET LIKE?
We believe that the market for dental practices is just beginning to shift from a seller's market to a buyer's market. There are a few important big picture trends responsible for this shift.
1. MORE SELLERS
There are a large number of dentists that graduated about 35 years ago and are looking to retire. Additionally, many doctors who took a financial hit during the 2007/8 financial crisis are now recovered and planning to retire.
2. FEWER BUYERS
The number of dental-school graduates is increasing again after a long decline, but young dentists are less focused on ownership than prior generations. Therefore, there are fewer buyers compared to sellers.
3. MORE EXPENSIVE BANK LOANS
Interest rates are going up on dental practice loans, making these loans more expensive for buyers. This reduces buyer-purchasing power, disqualifying some, and reducing the overall number of available buyers in the marketplace. Practice values go down when interest rates go up.
With the supply of dental practices slowly increasing relative to the number of potential buyers actively seeking to own a dental practice, the 'power' in the transaction is slowly shifting from sellers to buyers. This trend will likely continue for several years.
This means that if you are considering selling your dental practice, now may be the right time. As I explain below, there are good options for selling all or part of your practice now, even if you're not ready to retire!
With that said, the market for different types of practices in different types of locations will often not follow the overall trends. Speak to a qualified broker today if you want to know more about the market in your specific area.
Want to learn more?
This post will teach you
- What a dental practice sales broker does
- How they help with your sale
- How you can avoid common pitfalls during the sales process
1.2 ARE YOU READY TO SELL?
The next question you have to consider is, "Do you really want to sell your practice?"
There are a number of different reasons you may be considering a practice sale, from retirement or semi-retirement, relocation, reduced stress associated with management and administrative responsibilities, frustration with insurance companies and regulatory pressure, or simply wanting to pursue new challenges.
We assess readiness on three different lines.
Want to learn more?
This post will teach you
- How to know when you're financially ready to sell
- How to make sure your practice is attractive to buyers
- How to be emotionally prepared for the sale (it's important!)
1.3 GATHERING YOUR TEAM
Selling your practice is a team effort. In addition to your financial advisor, you will need an attorney, accountant, and broker. It can also be a good idea to speak with a dental consultant prior to selling. Both increasing your profitability and strengthening your systems in the years leading up to a sale can make a big difference in the sale price.
When you're choosing a broker (or deciding to represent yourself), some important considerations include:
- Does the broker specialize in dental practice sales?
- How long has the broker been working in your market?
- What does the broker expect me to do? What will they do for me?
- How does the broker market my practice to the widest set of possible buyers?
- What is the broker's reputation for honesty and ethical dealing?
- Do lending institutions recommend and work closely with the broker?
2.0 PREPARING FOR THE SALE OF YOUR DENTAL PRACTICE
As you prepare for a practice sale, there are a number of important considerations.
2.1 GATHERING YOUR TEAM
If you're like many dentists, you started thinking about selling your practice after you started slowing down, taking more vacation days, and being less diligent about collecting money.
If you want to get the most for your practice, don't let production and your net income start to drop off!
Maintaining your business is the single best thing you can do to optimize the value of your practice. If you're struggling to understand what to look for, let's shift the lens. What is a potential buyer thinking? What are they looking for?
A buyer wants clear-cut financials, books, and records. They're going to want to know about all applicable property taxes. While preparing for a sale, it might help to understand your practice through a buyer's eyes.
Want to learn more?
This post will teach you
- What to look for in your financials
- How to review your books and records
- How property taxes affect your sale
2.2 GATHERING YOUR TEAM
Selling your practice is a team effort. In addition to your financial advisor, you will need an attorney, accountant, and broker. It is also a good idea to speak with a dental consultant prior to selling. Both increasing your profitability and strengthening your systems in the years leading up to a sale can make a big difference in the sale price.
When you're choosing a broker (or deciding to represent yourself), some important considerations include:
- Does the broker specialize in dental practice sales?
- How long has the broker been working in your market?
- What does the broker expect me to do? What will they do for me?
- How does the broker market my practice to the widest set of possible buyers?
- What is the broker's reputation for honesty and ethical dealing?
- Do lending institutions recommend and work closely with the broker?
Once you decide together with your broker that it's the right time to sell your practice, the next step is to sign a listing agreement and let your broker go to work on your behalf.
Note: We use "broker" and "agent" somewhat interchangeably in this blog. At IPS, we have brokers and agents that do virtually the same jobs. Actually, a broker hires agents and/or other brokers to work for them. A broker is an agent with advanced certifications. The Bureau of Real Estate (BRE) requires that a broker be involved in every sale.
2.3 PREPARING FOR MARKETING - VALUATION AND PROSPECTUS
As long as you have decided to work with a broker team who knows the current market, they will work hard to place the right value on your practice. After valuing your practice, your agent will discuss pricing your practice. Depending on the market and your individual needs, it may make sense to price a little high and wait for the right buyer, or price a little low and start a bidding war. This is something you should discuss with your broker or agent.
It's important for your agent to review their Opinion of Value and Practice Prospectus with you for your input. After all, no one knows your practice and locale better than you. Once a value has been placed, a listing price set, and a prospectus created, you're ready to go on the market.
Want to learn more?
This post will teach you
- What the current market looks like
- If now is the right time to sell for you and your practice
- Tax laws that may be applicable to your sale
2.4 ON THE MARKET
Your broker will use their access to the market to put your practice in front of as many potential buyers as possible. This will usually include some mixture of trade publications (like the Dental Trader), journals (especially for specialty practices), online marketing, and direct mail.
Different brokers offer different levels of confidentiality in their advertising. Some make it very easy to figure out that your practice is for sale without making the buyer sign any type of confidentiality document (a Non-Disclosure Agreement). In our opinion, this runs too high a risk of patients and team members finding out, which may lead to a messy transition and, ultimately, the devaluation of your practice. Remember: the value of your practice is protected when you carefully manage the transition and introduce the patients and staff to the new doctor in the way that will maintain the goodwill you've worked so hard to build.
Once the broker identifies a number of interested potential buyers through their marketing efforts, they should work to qualify those buyers. A successful transition depends on matching the right buyer with the right seller. This ensures that the care and hard work you've put into your practice and patients continues to benefit the new buyer.
Remember that before you find a buyer, it is crucial that you continue to work as normal. Continue to accept new patients, stock supplies, schedule patients, keep up with recall, and all the other details that make a dental practice run smoothly. You're selling a fully-functioning business, so don't do anything that would stop the business from prospering.
Want to learn more?
This post will teach you
- The difference between selling to a dental service organization and a private buyer
- Which is right for you
- Common misconceptions
3.0 NEGOTIATING THE DEAL
Once a qualified and willing buyer has been identified, your agent will work with both buyer and seller to negotiate a fair deal.
3.1 LETTER OF INTENT
The first step in the process is for the buyer to submit a Letter of Intent (LOI) to the seller. This is a non-binding agreement that summarizes the basic terms and conditions of the transition. It will specify a period of due diligence, where the buyer has access to the books and records of the practice, and conditions based on financing. It should also include a closing date and should be accompanied by a refundable earnest money deposit.
3.2 LEASE NEGOTIATIONS
Lease negotiations can sink a deal. We've seen it happen, and it's not pretty. If you own the real estate and are planning to sell it along with your practice, then this does not apply to you. If you own the real estate and are not planning on selling it, your broker can prepare a lease for prospective buyers.
If you lease your space, it is a good idea to review the lease as early as possible. Because the lender typically requires that the terms of the lease run as long as the loan, lease negotiations can hold up financing. Some landlords can be difficult to work with, and they often see the sale of a dental practice as an opportunity to dramatically increase the rent. Working with your landlord and trying to help them be as reasonable as possible is a time-sensitive issue.
3.3 SECURING FINANCING FOR THE BUYER
In most cases, your broker can assist the buyer with obtaining financing for your practice. Make sure that your broker has good relationships with a variety of lenders.
3.4 DUE DILIGENCE
The due diligence period is the time when the buyer will verify to their satisfaction all the details of the practice.
- Some buyers hire a management consultant as independent advisors to analyze your dental practice, including office business systems, scheduling, financial arrangements, team wages and benefits.
- Some buyers will hire an accountant to do a "review of books and records", where the tax returns, profit and loss statements, general ledger, balance sheet, and bank statements will be reviewed and reconciled. (Note: reporting all of your income 2-3 years before selling can help the accountant and the lending bank support the price of your practice.)
- Some buyers will ask a supply rep or equipment specialist to review the equipment in the office.
- Buyers will work with their bank to ensure the cash flow is available for the buyer to pay back the loan and meet living expenses. Most banks want 125% of the buyer's total expenses to be covered by the practice income.
- The lease will be reviewed and, if necessary, renegotiated. It's ideal to have the lease reviewed by an attorney many months before you put the practice on the market to prevent surprises.
3.5 PURCHASE AND SALE AGREEMENT
Once the due diligence is complete (office reviewed, lease negotiated, and financing settled) the buyer's and seller's attorneys will work out the Purchase and Sale Agreement (PSA). This document will spell out the terms and conditions of the sale, including the payment terms, parameters of the restrictive covenant, and closing date.
4.0 CLOSE OF ESCROW
Shortly before escrow closes, it's time to introduce the buyer to the team. Once you close escrow (and not before!), start introducing the buyer to your patients. This is a process that should be carefully managed, and there are several good strategies for a smooth transition that are easily adopted. If your broker is also a consultant (like us), they can walk you through this process step by step and help you avoid the pitfalls we see regularly.
And just like that, you're free! Patients cared for. Money in the bank.
You'll also want to write a patient transition letter to let all your patients know of the upcoming changes. This is important!
Want to learn more?
This post will teach you
- What you absolutely NEED to say in your transition letter
- When you might need a second transition letter
- 8 simple tips for making this an easy process
4.1 SUCCESS!
While the process is complicated, the right broker can make it simple, allowing you to enjoy the final days as owner of your practice with minimal stress.
If you'd like to consider listing your practice with Integrity Practice Sales, the first step is to make an appointment with an agent, who can discuss your options for transition and provide a rough value for your practice in a no-cost and no-obligation consultation.
Seller's Guide
1.0 What Is My Practice Worth?
1.1 What Is The Dental Practice Sales Market Like?
1.2 Are You Ready To Sell?
1.3 Gathering Your Team
2.0 Preparing For The Sale Of Your Dental Practice
2.1 Maintaining Your Business
2.2 Gathering Your Team
2.3 Preparing For Marketing - Valuation And Prospectus
2.4 On The Market
3.0 Negotiating The Deal
3.1 Letter Of Intent
3.2 Lease Negotiations
3.3 Securing Financing For The Buyer
3.4 Due Diligence
3.5 Purchase And Sale Agreement
4.0 Close Of Escrow
4.1 Success
Do You Have Other Questions?
Be sure to visit Buyer FAQ to answers to the following questions
- Why should I buy a practice rather than start one?
- How are dental practices priced?
- What happens when I find a practice I want to buy?
- Why should I go to a business broker?
- Do I need an attorney?