Preparing Your Dental Practice for Transition: 12 First Steps

by Mike Carroll
Sooner or later, it’s going to happen. Because of age or health or other life changes, you start thinking about selling or transitioning your dental practice. So – what next?
For owner-doctors to be assured of realizing the best value from the sale or transition of their dental practice, there are many crucial items to bear in mind. This can be confusing because dentists typically receive input from many different quarters: professional advisors, family, friends and colleagues. Some of the advice is flat-out contradictory. The hard part is funneling all the information into a way forward that fits with your own thoughts and plans.
From considering to acting is a major step. How does an owner-doctor know when the time is right for them to sell? What steps should you take in order to achieve the result you want? For some dentists, it’s achieving a transition in the shortest amount of time. For others, it’s finding the perfect successor or the optimum purchase price.
At Carroll & Company we have analyzed thousands of transitions in the many different formats open to today’s dental professionals. We have identified the most important triggers for moving ahead or holding back, and the factors that influence time, price and structure of a transition. From this data set, we have created guidelines to help dentists understand and navigate the complex process of appraising, selling and transitioning their practice. We also understand one of the most important factors – one that’s easy to overlook in the heat of the moment: the emotional aspect of making such a major life change.
To help put more certainty into the transition process, we suggest the following ‘Twelve Step’ approach:
1) Determine your personal, professional and financial objectives. Ask yourself the tough questions, for example: Are you really ready to retire or does it make more sense to reduce your working hours? Is your retirement plan adequately funded? Is your spouse on board with your plans?
2) Discuss your thoughts with your family and professional advisors before making any irrevocable decisions.
3) Maintain or develop documentation and filing systems providing easy access to important data on the dental practice. (Banks financing dental practice transitions require that the potential buyer provides them with a minimum of three years’ financial statements, including tax returns.)
4) Make sure your patient records are up to date. Weed out and archive inactive patient files (usually those who have not been in the practice for over two years).
5) Make sure that your legal and accounting advisors are experienced with dental practice transitions. The dental transition market is unique. By selecting a professional with a history of serving dental clients, you will save yourself time and costs – as well as the headache of educating someone inexperienced in this market.
6) If your dental office is rented, ensure you have a current copy of the lease for your office, and know how much time is left on the lease. The lease may have to be renegotiated if there is no option to renew.
7) Keep the office tidy and weed out clutter. You don’t need to invest in cosmetic upgrades, but removing unnecessary items helps prospective buyers get a sense of the space.
8) The practice needs to be professionally appraised to determine the value and sales price. There is no simple formula for appraisals, as there are many variables that feed into the ultimate evaluation.
9) Don’t give unscheduled or uncontracted salary raises to your staff if you believe a transition is imminent. This is something a future buyer will want to do as part of building their relationship with the staff who stay on in the practice.
10) Staff need to be considered as part of this decision-making process, especially if they are loyal, long-term staff. When you have made up your mind on the transition, tell them sooner rather than later.
11) You need to know the tax ramifications on the sale of the practice. To avoid nasty surprises, consult your tax professional before you pull the trigger.
12) Who is your ideal buyer? Many prospective buyers are younger, and it’s unlikely that you will find another you! The most important thing is to ensure that you share the same philosophy of patient care and that they have the personal and professional skills to make a success of the transition.