How To Sell A Dental Practice

If you are not prepared for the sale of your practice, then it is unlikely that the sale will go smoothly. Several things need to be considered before launching into the process.

This post provides an overview of what you need to do to sell a dental practice.

Let’s get started!

First things first:

Do You Understand What Taking Part In A Dental Practice Sale Involves? 

The answer to this question is not as simple as it may appear. When considering the sale of your dental practice, you must take into account all the aspects involved in this process from start to finish.

Time And Resources

You should ask yourself if you have enough time and resources to devote to such an arduous task. It can take up to 90 days for everything to come together and for the sale of your practice to be finalized.

Take Into Consideration Factors That Can Determine The Value Of Your Practice

Factors such as:

• Profitability. This means how much money the practice makes compared to how much time and effort goes into running it every day.
• The location of your practice affects its visibility and accessibility.

• The type of practice (solo or multi-specialty), influences how profitable it is. Also, if you have a dental clinic that offers specialized treatments, then it could be worth more than one that offers general treatments like teeth cleaning and fillings.

• The reputation of the practice and its doctors, as well as their experience level in dentistry.

• Competition (and the price for dental services in your area), affects your ability to cover expenses and generate profit.

• Timing of the sale – how quickly do you want your practice sold? For example, rushing a sale may mean sacrificing higher purchase prices.

• Debt load. A high debt load can make it difficult to pay off loans or other obligations if demand for services drops or expenses increases unexpectedly.

Other factors may exist depending on your practice but those mentioned above are the most common ones. The most important thing is to stay focused on your goals, keep your eyes on the prize, and strive to fix the issues you can.

Know That A Dental Practice Can Be Sold In Different Ways

Before now, the most common way is to sell to another dentist who is looking for an opportunity to expand their own business. Alternatively, there may be an investor who wishes to purchase the practice and keep it as an investment or use it as a money-making opportunity. Today, many dentists find the proposition of selling to private equity hard to resist – typically corporate-type buyers cater to the administrative side of the practice and leave the dentist to concentrate on providing dental care.

Don’t Cut Corners

Lastly, there’s no one-size-fits-all when it comes to selling medical practices and clinics like this. Each case is unique so knowing what needs doing beforehand makes sense for anyone who wants to avoid making mistakes along the way (and having problems later).

Steps To Selling A Dental Practice?

Make Sure Your Practice Is Ready For Sale

Before you sell your practice, make sure it is in the best shape possible. Review your financial statements, get your records in order, update your policies and procedures, update your marketing materials, and get organized!

It also means that all equipment is up-to-date and functional, the office is clean, there’s no pending litigation against the practice, and again, if there are any issues with the practice itself, they should be resolved before going forward with the sale.

Determine The Worth Of Your Dental Practice

Dental practice valuation ensures that you receive a fair price for it. You want to avoid under or over-pricing your business when it comes time to sell. If you under-price your dental office, then you won’t make as much money as you can on the sale. On the other hand, if you overprice it, then it might take longer than expected to find a buyer who will pay the asking price.

There are three popular ways for a dental practice valuation:

• Market comparison method. This is a good way to get an idea of what similar practices in your area have sold for recently. You can find out what other dentists are charging for their services and use that information to make a general assessment of value. Real estate appraisers often use this method when valuing commercial real estate.

• The income approach. This involves calculating how much money would be left over after expenses if you sold your practice now. Income can be calculated using historical data for revenue and costs, or projected numbers based on future growth rates – whichever you prefer. One of the most common methods for calculating this figure is called “capitalization of earnings,” which multiplies net annual profits by an appropriate capitalization rate. Another is the “Discounted cash flow analysis” (DCF).

• Asset-based method. This method uses the value of the assets in your practice to determine their worth. It’s not necessarily the easiest way to estimate your dental practice’s value but one of the most accurate because it takes into consideration intangible assets like “goodwill.” Goodwill is the value of a good reputation, client base, intellectual property, copyright, proprietary technology/technique, etc. It can be difficult to quantify because it is intangible but it is also very crucial because it amounts to a greater percentage of how much someone is willing to pay for a business.

Be Honest With Yourself About What Type Of Buyer You Want

It’s okay if you don’t know yet — most sellers don’t know what type of buyer they want until they start getting offers from potential buyers! The first step is figuring out what type of buyer would be ideal for your practice. Do you want someone who will continue running the business as-is? Or maybe you just want to cash out and retire? These are all valid reasons for selling and all require different strategies to find the right buyer.

Attracting Buyers The Right Way

Determine Your Selling Strategy

After you have determined your practice’s worth, you must decide whether to sell it yourself or find an advisor who can do so for you. In general, selling a business yourself takes longer than if an expert does it for you. Also when you do it yourself, you risk losing out on more money — especially if you do not have much marketing experience, negotiation skills, or contacts with potential buyers.

Irrespective of whatever approach you take it involves a marketing process.

Marketing Plan For Dental Practice Sale

Create A Buyer Avatar

You will need to develop an avatar for each potential buyer. Avatars can be based on demographics such as age, gender, location, and income level; psychographics such as lifestyle choices, interests, and values; or behaviors such as whether they have children or pets and what kind of car they drive.

Once you have developed your avatars, think about what qualities or characteristics they might look for in a dental practice. You may also want to consider what kind of information they would need from you before making an offer on your business.

Get The Word Out

This could be done via targeted email, direct mail, traditional and online advertising, or word of mouth. The key is to get the word out that you are selling your dental office and that you want to receive offers from buyers interested in purchasing it.

Once potential buyers start reaching out, what next?

Due Diligence

Once you’ve made contact with interested parties, it’s time to start your due diligence process. In other words, you need to learn everything about the potential buyer that could affect your decision about whether or not to sell. This includes their financial standing, reputation, and history as well as their previous experience in owning a dental practice.

Here are some tips:

• Ask questions. If you need clarification on any matter, a hunch, gut feeling, or any hesitation, ask about it – get a solid answer before you proceed.
• Get them to sign a non-disclosure. A Non-disclosure Agreement(NDA) forbids the prospects from discussing your business information with another party.
• Invite them to visit your practice. 30 minutes or a day’s visit to your practice would allow potential buyers to experience operations in your facility first-hand.
• Check their credit score.
• Research the internet and forums.
• Before moving to the next stage, have the prospective buyer solidify their intention to purchase your practice with a Letter of Intent (LOI).
• Inform the buyer you’d back out of discussions upon the expiration of a limited period.

Negotiate And Close The Deal

You may be thinking that the hard part is over, but it’s not. This is where things can get sticky.

To begin, you need to have your financials ready so that they can be reviewed by the buyer. They will likely ask for a copy of your tax returns and an audit letter from your accountant. Additionally, they may want to see your lease agreements, as well as any contracts with third parties (i.e., dental insurance companies, dental labs, etc.). Your attorney should be able to provide this information.

Negotiations will typically begin once all of the necessary information has been collected by both parties. At this point, you will get an initial offer from the buyer which is usually less than what they would be willing to pay for the practice. It’s important for you not to accept this first offer because it’s unlikely that it will reflect what the buyer would pay if given more time to review all of the information.

Remember that there are no hard and fast rules when it comes to negotiating prices. Some general guidelines can help you get the best deal possible:

• Create an Executive Summary to help capture vital information concisely to help guide your negotiation;
• Aim for a larger upfront deposit;
• Keep payout duration shorter than 5 years;
• Most buyers would like you to sign a non-compete agreement, which can restrict your ability to practice dentistry within a certain distance from your new location, so make sure it’s fair;
• Don’t be afraid to highlight your strong selling points (which may include reputation, location, staff, etc.);
• Staying after the sale of the practice. Most buyers will want you to stay and help with the transition. Ensure negotiating fair compensation.
• Negotiate with the buyer on everything, including fees and terms.

The Sales Contract

The signing of the sales contract by both parties is the next step in this process. The buyer and seller must sign the sales contract and have it notarized. The sales contract should be reviewed by your attorney or accountant before it’s signed, especially if there are tax implications for you as an owner of the practice. The attorney or accountant can also help you negotiate for additional funds to cover these implications.

Once both parties have signed on the dotted line, the deal is legally binding.

To protect yourself, include the following in the sales contract:

• Specifics about what’s included in the sale (i.e., equipment and supplies).
• A clause that allows you to back out if the buyer fails to obtain financing or other necessary approvals.
• The buyer is liable for interest. If interest rates rise after your practice has been sold, the buyer must pay you any increase above what was agreed upon.
• Also, a clause that states the buyer would be responsible for any additional cost including legal fees accrued in the process of trying to retrieve your money should they default.
• The buyer’s obligation is to assume all existing contracts and leases in effect at closing. You must make sure that this obligation is spelled out in writing so that you are protected from any future liability on these contracts and leases.
• A clause stating that if anything goes wrong after closing, it’s up to the buyer to fix it
• The buyer is liable for interests
• No early-payment penalty.
• You get paid if the deal falls through. If a buyer backs out of a deal after signing an agreement with you and paying an earnest money deposit (a small amount of money given by a buyer to show good faith), you may be entitled to all or some of that deposit back.

The Transition

To help smooth the transition, here are some things to consider:

• Share ideas, tips, and suggestions on how to do things better. Don’t just hand over the reins of your practice; guide your buyer through the transition process.
• Make sure that everyone on staff knows about the sale and why it’s happening. Tell them that they’re valuable employees and part of the practice’s history.
• Make sure that everyone has an opportunity to ask questions before signing on or leaving. If some staffers aren’t comfortable working for a new owner, don’t try to convince them otherwise — just wish them luck in finding another position elsewhere.
• Be ready to stay and work for the new owner.
• Make sure everything is documented in writing. Put everything in writing — including agreements about how long you’ll work for them after closing and any compensation arrangements — so that nothing can be held against you later.
• Don’t leave too many loose ends for the new owners to deal with after you leave.

What Are The Common Mistakes Made When Selling A Dental Practice?

Not having a clear idea of what you want. If you’re selling your practice, then it’s going to be gone soon. You need to know why it’s valuable, and how that makes sense for your goals and desires in life.

Not having a realistic idea of the value of your practice. Don’t try to lowball or overprice your dental practice; these mistakes can prevent buyers from taking action on a deal with you. Again, this is why dental practice valuation is critical to the process!

Not being honest about the condition of your practice. Buyers are smart people too! If there are issues with your business (for example low patient satisfaction scores), then potential buyers will find out about them eventually anyway—so don’t try to hide anything from them!

Last Words

The reality is that there is no single strategy that will guarantee success. Selling a dental practice or clinic is not as easy as ABC; it requires expertise, patience, and determination to identify the right buyer, negotiate the right deal, and wrap things up successfully.

We would strongly suggest you set yourself up for success by working with professionals along the way who know how to analyze data, identify opportunities and negotiate creative terms so that you get the highest possible price for your practice in the shortest amount of time.