You've spent years or even decades building your practice. For many dentists, it is the culmination of your life's work. Whether you have decided to move states, take your retirement, or change careers, putting your practice on the market is a big step. These five tips on selling your dental practice will help you maximize the return on your investment.

Maximize the return on your investment when you sell your dental practice
Maximize the return on your investment when you sell your dental practice.

5 Tips on Selling Your Dental Practice

As you prepare to put your practice on the market, you will want to lay some groundwork. While you might have the help of a professional, like a broker or agent, the ultimate decision is still with you. These five tips on selling your dental practice will help you make the right decisions as you embark on the next stage of your life.

  1. Make improvements early: Selling a dental practice should never be done in a rush. Ideally, when you start, you are 3-5 years from putting your practice on the market.
  1. Define what you're selling:  Some dental practitioners also own the building where their practice is. If that's the case, they will have to decide whether the building will be part of the sale or if they will continue leasing that space out. It's also critical to complete a thorough inventory of all the assets that make up the value of the practice.
  1. Complete multiple valuations: Before you put your practice on the market, know your worth. Do a preemptive assessment of your practice's value based on your income, assets, and market. That will help you understand which buyers to focus on in your search.
  1. Consider your tax burden: When selling a dental practice, it is important to consider how much you will take home from the sale. This depends a lot on how you structure the deal.
  1. Keep communication transparent but discrete: Determining when and what to tell your team about the sale of your dental practice is tricky. You want to be transparent about the possibility of the practice changing hands, but you do not want to create an anxious culture.

By following these guidelines, you will be well-prepared to successfully manage the sale of your practice and ensure it commands its value in the market.

#1: Make improvements early.

Selling your dental practice is not a sprint; it is a marathon. If you rush the sale with little preparation, you will certainly get less than it's worth. Ideally, you'll begin preparing for sale three to five years before you put the practice on the market.

This runway time will allow you to:

  • Make practice improvements. Hastily done decor changes and modifications probably won't get much return on investment if you can't show how they drove growth. Ideally, you should start making these types of improvements years in advance to show how they contribute to the business's bottom line.
  • Reduce liabilities: A few years out is also the time to resolve any outstanding liabilities, like loans or lines of credit. Everything your practice owes (or could owe) reduces your potential asking price, so do what you can to resolve these debts. This is also the time to look at organizing your business under a less expensive structure, like if you are a C-corporation that should move to tax-friendlier S-Corp status.
  • Build patient lists: The patient list is often one of the most valuable things in a practice sale. These are ongoing patients who present future revenue to any buyer. Build a practice list of consistent patients who attend their follow-ups to create a more attractive prospect for buyers.

As you prepare for the sale, establish a process for creating clear, detailed financial records. This will help you as you set your asking price and assess your assets.

#2: Define what you're selling.

"Selling a practice" is a broad description of the bundle of services, patients, assets, and tools you put on the market. Before you put it up for sale, inventory items in your business that give it value.

Here are some things to look at.

 

Assets and Equipment

Patient Records and Contracts

This encompasses the physical and technological assets of the dental practice.

Examples:

  • Dental chairs
  • X-ray machines
  • Software systems

This category addresses the management of patient records and contractual agreements.

Examples:

  • Patient record transfer process
  • Compliance with confidentiality laws

Staff

Services Offered

You will provide detailed information about your practice's employees and their contracts here.

Examples:

  • Full-time employees and tenure
  • Contract workers and terms
  • Staff transition plans

 

Specify the range of dental services provided, including any unique selling points.

Examples:

  • Basic dental services
  • Specialty services
  • Partnerships, referrers  

Financial Statements

Leases and Real Estate

This involves presenting data to assess the practice's financial health.

Examples:

  • Financial records
  • Expense breakdown
  • Profitability over the past three years

 

This category covers information about the practice's leased space or real estate.

Examples:

  • Leases and contracts
  • Deeds for real estate and properties

Compliance and Licenses

Patient Base

In this category, you will demonstrate regulatory compliance and licensing status.

Examples:

  • Up-to-date licenses
  • Clean legal records
  • OSHA and training records

 

This covers your overall patient base and demographics.

Examples:

  • Total patient base
  • Percentage of recurring patients
  • Practice growth rate

 

 

It will also be helpful to establish a transition plan for how the ownership takeover will happen. This reassures potential owners who may worry they will not be able to maintain the office when it changes hands.

#3: Assess Your Practice's Value Using Multiple Methods

You need a good idea of your practice's value to market it to the right groups. There are three broad ways that the value of any business is assessed: income, asset, and market value.

 

Income

Asset

Market

This method estimates a business's current or fair market value by discounting future cash flows to their present value. This means that, in the estimate, a future dollar is worth less than one received today.

This method is frequently used to assess businesses with predictable, stable cash flows.

This approach compares a practice's assets and liabilities. Assets encompass tangible items such as dental equipment and intangibles like patient lists and intellectual property.

This valuation method can be a great option when selling a dental practice with an extensive patient list or practice-owned specialty equipment.

The market approach bases the value of your practice on how well other similar practices have sold in your area.

This approach appeals to practices in high-demand areas that are the focus of franchise buyouts.

 

It is best to complete an assessment based on all three so you can understand the opportunities and limitations of sales. It can also help you address these issues during negotiations. For example, a low market value may not reflect the practice's potential based on its growth and patient list. Clear financials will justify your asking price.

#4: Consider Your Tax Burden

Asset allocation is a term you will need to become familiar with because it determines your tax burden when selling your practice. How you categorize the items you sell affects the level of taxation you'll face upon the sale.

One big part of your asset allocation is "goodwill." Goodwill is a way of categorizing the intangible selling points of a business, like its reputation and brand recognition. For a seller, it is appealing to categorize a large percentage of the asset allocation as goodwill, as earnings from it are taxed at a lower, more friendly capital gains rate. Alternately, funds from the sale of depreciable assets like equipment are taxed at a regular income tax level, increasing your burden.

The buyer benefits from the exact opposite scenario. If the asset allocation leans more heavily toward equipment, they can write off depreciation. If it is skewed toward goodwill, they will have greater tax liability. It is vital to speak with an attorney or tax advisor with specific experience in handling this to create a win-win deal for both parties.

#5: Keep Communication Transparent but Discrete

Communicating a dental practice sale to your staff requires a delicate touch. Striking the right balance is crucial. You want to provide reassurance and transparency without jumping the gun with the announcement. It is essential to first ensure all the necessary details of the sale are in order, such as the terms and timeline.

Once you have a clear understanding of the sales logistics, you can schedule a meeting with your team to discuss the upcoming changes. During this meeting, emphasize the positive aspects of the sale, such as potential growth opportunities for the practice and continued job security for your staff. Be prepared to address any concerns or questions they may have and offer ongoing support throughout the transition process.

These tips are the fundamentals for a successful sale
These tips are the fundamentals for a successful sale.

These tips for selling your dental practice will help you lay the groundwork for a successful sale, but they don't make up for the guidance of an experienced professional. Connect with an attorney or financial expert to help you navigate the process. That way, you can get expert advice, ensure all legal aspects are addressed, and maximize the value of your practice during the sale.


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