A Step by Step Guide to Selling a Dental Practice

A Step by Step Guide to Selling a Dental Practice

Selling a dental practice is a complicated process which extends far beyond simply finding a buyer and closing on the sale. Therefore, to ensure your practice transition is successful, it is imperative to follow these critical steps:

  1. Are you ready to sell? Making the decision to sell your practice is one of the most important decisions you will make in your professional life. Therefore, it’s prudent to put a great deal of thought into when and how you would like the transition of ownership to occur, including evaluating the financial (including tax consequences) and emotional implications of a sale prior to initiating the transition process. Once you are emotionally and financially prepared to move forward, the next step is to choose a transition strategy.
  2. There are countless ways to sell a dental practice. In order to tailor a customized transition strategy to fit your individual situation, you should begin planning your transition 3-5 years in advance of a sale with the assistance of an experienced dental practice broker. Undoubtedly, if you wait too long to start planning, you will have fewer options available to you when the time comes to sell your practice. Another advantage of beginning the process well in advance of a sale is the ability to address/correct issues and avoid making mistakes that could have a negative impact on practice value. This ensures that you maximize the value of your practice upon sale and position the future practice owner for success.
  3. Once you have made the decision to sell and have selected a transition strategy, you are now ready to initiate the transition process. The first step in this process is to collect all of the information your practice broker will need to complete a formal practice valuation/appraisal, including: financials, practice management reports, office lease, equipment list, pictures, etc. Upon completing the valuation and establishing the asking price, your broker will construct a comprehensive practice profile that will be utilized to confidentially market your practice to prospective buyers.
  4. When you sell a dental practice, maintaining confidentiality during the transition process is extremely important. Therefore, your practice broker should require all potential buyers to complete a confidentiality agreement prior to receiving any information regarding your office, oversee all communication with potential buyers and their advisors, and schedule all practice showings to occur after office hours.  
  5. The next step is to find the right buyer for your practice. Your practice broker will confidentially market your practice locally and nationally, and spend the time necessary to evaluate the needs, goals, skill-set, and creditworthiness of potential buyers prior to providing them with your practice information and scheduling a showing.
  6. Once an ideal buyer has been located, the next step in the process is to agree on the terms of the purchase in a Letter of Intent, which should detail the proposed purchase price, intended closing date, assets included in the sale, and a list of contingencies that have to be met before the transition is completed (at a minimum).
  7. Upon agreeing on the principle terms of the sale, the next step in the process is for the buyer to secure financing. Since most buyers will require 100% financing, it is important for your buyer to work with lenders who are familiar with dental transactions. Again, your practice broker should play an active role in referring the buyer to several experienced dental lenders and helping position their loan request in a favorable light with each lender to enhance the probability of securing financing approval. This involves understanding each lender’s unique underwriting requirements, presenting a comprehensive practice prospectus, cash flow analysis, and supporting documentation (financials, practice managements reports, etc.), and proactively addressing any potential red flags up front.
  8. While navigating the financing process, the buyer should also be working on completing their due diligence on the practice. This typically involves meeting the selling doctor, reviewing patient charts and practice reports, inspecting equipment, and consulting with an accountant to evaluate the cash flow of the practice.
  9. The most important document involved in a dental practice sale is the Asset Purchase Agreement, which serves as the legally binding document detailing all of the terms of the sale. This document should be specific to a dental transition and be a win-win agreement that protects both sides and discusses how common issues, such as accounts receivables, credit balances, and rework will be handled post-closing. Your practice broker should either provide you with a draft Asset Purchase Agreement and/or introduce the parties to experienced dental attorneys to assist with drafting/reviewing the APA and any other legal documents associated with the sale.
  10. In addition to the APA, the buyer will need to negotiate an assignment of the existing office lease or negotiate a new lease with the landlord. It is important to consider the requirements of the lender when negotiating the lease terms and to approach the landlord at the proper point in the transaction to protect confidentiality while not delaying the closing.
  11. As the closing date approaches, the buyer and seller will need to work closely with his/her advisors to ensure that all the details of the transition are completed prior to closing, including transferring/establishing service provider accounts (utilities, phone, etc.), PPO credentialing, establishing business bank accounts, merchant services, and third-party financing options, drafting a transition letter that will be mailed to the active patient base upon closing, and ensuring the lender receives all necessary documentation to fund the buyer’s loan on the closing date.
  12. Throughout this process, the staff and patients are typically unaware that the dental practice is being transitioned to a new doctor. The reason for this is simple: to protect the goodwill of the practice. Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years. Timing of this introduction, how the initial meeting is handled, and training the staff on how to explain the transition to patients is a critical step in ensuring a smooth transition of ownership and maximum patient retention following the sale.

While this list covers the most significant steps required to sell a dental practice, it is by no means comprehensive. Each practice transition is unique and presents its own set of challenges to overcome during the transition process. Therefore, it is imperative to be educated about the process and employ the services of experienced professionals (practice broker, attorney, accountant, etc.) to help you navigate the process, protect/maximize the value of your practice, and ensure your transition is as smooth and successful as possible for all parties involved.

WHAT TO DO WHEN YOU CAN’T DO DENTISTRY

These are interesting and difficult times. Though you are all dealing with matters concerning your practice and office personnel, and you are still seeing emergencies, you probably have some unexpected time on your hands. Here are some ideas on how to spend that time…
1) See if it makes sense to refinance your business and personal loans. Interest rates may never be this low again. 
2) If you haven’t done it yet, apply for unemployment, apply for the Paycheck Protection Plan, and apply for the SBA Covid-19 disaster loans (if needed).
3) If you don’t have one, apply for a line of credit so that you have access to additional funds should you need them.
4) Inform your patients that your office is not closed. You are currently limiting your practice to emergency dentistry as required by Gov. Whitmer’s order, and highly urged by the MDA and ADA.
5) Put on your social media platform a personal video where you are stating your concern for society in general, your team, and your patient families. Give clear instructions to patients on how they can contact you if need be.
6) Learn how to hold meetings online (check out www.zoom.com and Zoom for Telehealth) Check out group messaging (www.slack.com). Even after this crises is resolved, you will very likely continue to use these platforms.
7) Consult with your patients (who are having dental problems or have dental questions) via Zoom for Telehealth, or a similar venue. You can also FaceTime with them. You can diagnose problems, and possibly also avoid some emergency office visits that may not be required. You can bill for this when appropriate. Strongly consider continuing this even when things return to a more normal situation.

8) Meet with staff weekly via Zoom Video Conferencing, or a similar venue. Remind them that all practices are going through a similar situation, and assure them that your practice will survive and thrive. Remind them that patients will need them more than ever when the crises subsides. The backlog of dental work will be considerable. There will likely be extended office hours when you open again, for which they will be paid for overtime. Their jobs are safe, and things will be OK again.
9) Take online CE, and make your staff aware of its availability. CE vendors such as Parkell, My Social Practice, Garrison Dental, and many others are offering CE at no charge.
10) Stay updated with your practice’s social media content. 
11) Check out LocalMed. New patients can find your practice via social media and book themselves an appointment (when the time comes). You can also send them appropriate forms to fill out via this venue.12) Take inventory of your practice office supplies. Also, for insurance purposes, take an inventory of items you have at home. Get rid of, or donate, what you don’t need. Take pictures for insurance purposes. 
13) Shop around for better insurance rates; health, practice, auto, home, life. This is another item you usually don’t have time to attend to. 
14) Get a jump on your spring yard work. You are normally just trying to squeeze this in to your tight schedule. This is also quite therapeutic. 
15) Get going on an in-house exercise program. 
16) Clean and re-organize your at-home office. 
To all of our dental colleagues…stay safe and stay positive. The world, and your practices, WILL return to normal. Or a slightly altered normal. They always have, and they always will. 
Copyright 2020, Kim Sena DDS, Erick Rupprecht DDS

SHOULD YOU SELL YOUR DENTAL PRACTICE IN 2020, OR SHOULD YOU HOLD ON?

Presently, we are in the grips of a significant health and financial crisis. Depending on your age, this is a partial list of the events you have weathered in the course of your professional career:
1) 18-20% interest rates early in your career

2) The 1980s Savings & Loan crisis

3) The 1987 stock market crash

4) The Kuwait War

5) The Oct. 27, 1997 mini-crash

6) The early-2000s dot-com stock market meltdown 

7) 9-11

8) The financial crisis of 2007-2009

9) The Oct. 2018 stock market meltdown

10) The Covid-19 financial meltdown and health crisis


These events, and the everyday challenges and responsibilities you face as a practice owner, have all taken their toll. Maybe you’re thinking that it’s time to ride off into the sunset and let a young dentist purchase your practice. If you are a practice owner, and you are financially able to sell, here are some pros and cons of selling at this time
Pros:
1) Buyers put extra emphasis on the the most recent calendar year’s gross revenue. You had a good 2019, but 2020 will very likely show a decline of practice revenue.
2) Buyers are still looking to purchase, and banks are still open for business. If you begin today by having your practice evaluated (which would take 2-3 weeks), and a buyer is found within a short span of another month, the writing and negotiating of contracts and setting up a time for closing on your sale would typically take another 60-90 days. By that time, this crisis will very possibly be over, or at least will have become significantly more manageable.

3) Interest rates are at historic lows. Buyers want to take advantage of these low rates. 
4) Even though business is currently almost at a standstill, the mandated closure of dental practices is creating a tremendous backlog of need for dental services. You know how busy you are when you come back from a one-week vacation. Most of us have avoided long vacations for this very reason. This pent-up demand for dental services presents a good scenario for buyers, and we are making them aware of this.
5) Concerning practice sales, we have been in a seller’s market. Age demographics have been suggesting that a buyer’s market is inevitable; baby boomer dentists are eventually going to sell their practices in large waves. This current health/financial crisis is likely to hasten the development of a buyer’s market. If you’re considering selling, you’ll want to be at the front end of a buyer’s market; competition increases and prices drop as that market establishes itself. Several doctors have shared with us in the past few weeks that this current crisis is the final straw for them. Expect the wave of practice sales to grow because of the combination of these factors.
6) It’s time to leave business behind and enjoy the fruits of your labors. You only live once. Every economic downturn and/or significant world event takes something out of you, especially as a business owner. How many more of these events do you want to endure?
Cons:
1) There could be an economic boom after this crises resolves, making this hardship a relatively small blip in the big picture. This may or may not happen.
2) Being a dentist is fundamental to your identity, and you want to keep going for as long as you can do it. We get it, and we applaud you!
3) There will always be buyers. That’s true. However, in a buyer’s market, there will be many other practices for sale. As new sellers flood the market with dental practices, the strongest practices in the prime locations in the biggest cities will sell the fastest (even though they will sell for less than in today’s market). Smaller practices in smaller urban areas or rural areas will have fewer buyer candidates.
4) You’re in the middle of a long-range, strategic plan to build up your practice and sell at X time. It may make more sense to stick with that plan. 5) Even though you may be financially able to retire, it may not be the the best time strategically for you to sell with regard to your overall financial strategy. That’s a decision for you, your spouse, and your financial/legal advisors.
6) You decide you want to sell on your own terms. You’re not going to let an outside event determine your timeline. Again, we get it!
Whatever your decision is, good luck in this difficult time. Consider your future as you deal with the present. We hope that things work out the best for all of our fellow dentists!
Copyright 2020, Kim Sena DDS, Erick Rupprecht DDS
Michigan and Ohio Analysts; Legacy Practice Transitions At Legacy, we do not take a commission on the real estate portion of your sale.

THE IMPORTANCE OF PERSONAL TRANSITION GUIDANCE TO ENSURE A SMOOTH, SUCCESSFUL PRACTICE TRANSITION

When you eventually make the decision to sell your dental practice, you may think that the hard part is over once you’ve found a prospective buyer. Actually, that’s just the beginning of the process. Many important decisions, and potential problems, lie ahead:

1) What is the best type of transition for you?

There are many different potential transition avenues to take…1) walkaway sale – as of the closing, the buyer takes over your practice and you are done practicing in your office; 2) pre-sale – as of the closing, you are no longer the owner, but you continue working as an associate in your office, 3) deferred sale – you bring in the potential buyer as an associate, and at a contractually specified time, the actual sale occurs. You may or may not stay on as an associate after the closing, 4) mergers – another practice is combined with your practice, with specified buyout parameters, 5) partnership – you and the buyer become co-owners of your practice, with specific parameters for a buyout down the road, or 6) many modifications of each of these methods.

We at Legacy Practice Transitions have been guiding over 1,500 practice transitions since 1987, so we’re very experienced in helping you select the type of transition that fits your needs.

2) Is this the right buyer?

A questionnaire filled out by a buyer can’t give you all of the answers to that question. Every practice has its own distinctive personality; largely based on yours. The importance of finding a buyer with a similar personality cannot be overstated. Are you and the prospective buyer’s personalities compatible? Are your practice philosophies similar? Is the buyer empathetic, like you are? Is the buyer financially able to purchase at this time? Does the buyer know what he or she is getting into? At Legacy, we spend a lot of time meeting with and talking with dentists looking to buy practices. In Michigan, for example, we have over 150 buyers who are financially able to purchase a dental practice who we converse with on a regular basis. In regard to Erick and myself; as long-standing dentists and former practice owners, we’re very attuned to the nuances of a dental practice, and to the personalities of prospective buyers. Every Legacy consultant has a dental-related background. Our goal is not just to match you up with a buyer; rather, it is to find you the right buyer.

3) What if you and the buyer have disagreements during the contract phase, and beyond?

When you sell your practice, the biggest component of the sale is your practice’s goodwill. The smooth transfer of that goodwill is vital to a smooth, successful transition. As transition consultants, we are a buffer between you and the buyer. It is our job to ensure that the scores of potential points of angst in the contract negotiations, and with the transition in general, get handled in a way that keeps you and the buyer on an amicable basis. You will want to be on a friendly basis with the buyer of your practice during and after the sale. We cannot over-emphasize the importance of this.

Even though we prepare the seller and the buyer for the transition steps ahead, during the course of the typical transition, Erick and I receive an average of over 50 phone calls from both the seller and the buyer. (This is in addition to all of our calls with the attorneys, accountants, and bankers.) These calls are almost always during the evening or on weekends, and are many times spontaneous. When you sell your dental practice, many transitions are happening simultaneously; yours, your family, the purchasing doctor, your staff, and every one of your patients. Think about that! Questions and concerns pertaining to any of these transitions always come up during the course of one’s practice transition, and when they come up, you’ll want to talk it over now and deal with it right away and properly. That’s why we’re here, and why we pick up the phone when you call and want to talk things out. We’re even available to you after the sale.

4) Who should write your purchase agreement contract, and what other transition experts should you talk to?

Legacy Practice Transitions has their own contract attorney, and Legacy has prepared over 5,000 practice transition contracts in the past 30 years. In addition, your Legacy consultant can give you transition contacts of all kinds, including CPAs, attorneys, insurance credentialing consultants, bankers, and others.

5) Are you asking the right price for your practice?

Legacy has been evaluating practices for over 30 years. Most dentists will have the tendency to undervalue their practices if they sell them on their own. As long-time dental professionals who are also very aware of the dental marketplace, we can see all of the elements in your practice that represent value. Just as importantly, we can convey our reasons for that value to the prospective buyer.

6) Should you sell your practice to a corporate entity?

Some practices, because of their particular characteristics, are well suited for a sale to a corporate buyer; or to a dentist multi-practice buyer. There are MANY of each, and they are not created equal. A selling dentist trying to guess which one is best is akin to walking through a minefield. This is why we take so much time getting to know you and your practice. There are nuances to each of these particular entities that would make them suited or unsuited to the purchase of your practice. We work with these purchasing entities all of the time, and are therefore able to find the one (or more than one) that is best suited to your needs.

In closing; at Legacy, we are full-time transition consultants. This is what we do for a living. All of the satisfaction we used to get taking care of our patients, we now get by taking care of you and your practice transition. Whether your practice is big or small, it is your life’s work.  is your legacy. We know what that means to you.

COPYRIGHT 2020 , 

Kim Sena DDS  Erick Rupprecht DDS

MICHIGAN AND OHIO ANALYSTS; Legacy Practice Transitions

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