Death, Taxes and Transitions

Benjamin Franklin famously coined the phrase in a letter to Jean-Baptist Leroy, 

“In this world nothing can be said to be certain, except death and taxes."

For owners of Dental practices there is another certainty they will eventually face and that is the transition of their business. While you can’t stop an eventual transition, you can take steps to influence the form the transition takes.  With planning, you could sell your practice for maximum value to help finance your retirement, and ensure that your patients will continue to have access to quality care. 

About a year ago, I was having a follow up lunch with one of the practices we recently transitioned. It was a celebratory meeting since we are able to get a satisfied buyer to pay the full asking price and both buyer and seller seemed to be a great match. The lunch went great but right before we were leaving the selling dentist blurted out:

“Bill, How could I have gotten more money for my practice.”

I was a little shocked since the ratio of price paid to previous years collections was rather high. I paused for just a moment and instinctively answered: 

“If you had contacted me 2 years ago.”

The seller was surprised but satisfied with my retort.

Close up a man working about financial with calculator at his of

Consider your exit strategy early

In an ideal world, we would suggest every business owner begin to discuss their exit strategy at least five years prior to their anticipated retirement. Below we will demonstrate on a verbal timeline why:

PRE-SALE (2-3 YEARS)

Just like preparing your residential Real Estate for Sale by remodeling a kitchen, or adding a new roof, a seller should plan to prepare his/her business for sale way before they actually list it. Every Dental Practice I analyze for an appraisal has some deficiencies. Some more than others. These deficiencies can be cleaned up over time to improve marketability hence value. In order for these deficiencies to be corrected properly and actually count towards an increased value, you must allow at least 2 years of these corrections to show on your books. In order to maximize practice value, this is the most important time period.

SALE PROCESS (1-2 years)

Typically, a transition from initial contact to close is approximately 1 to 2 years. Some may seem surprised by this but it is a realistic range. We find a seller takes on average 6 months from first contact to actually signing a listing agreement and gathering all the data required to do a comprehensive practice analysis. Finding the right buyer tends to be the largest variable. It can take as little as 30 days or as long as a year or more depending on the marketability of the practice. Lastly, the closing process can be 45-120 days depending on the finance position of the buyer or diligence required of the Dental Service Organization.

POST SALE (6 months to 3 years)

In addition, a seller selling to a sole practitioner, should allow between 6 months and 1 year for post-sale transition assistance to maximize value of the goodwill. In the case of selling to a Dental Service Organization you must be willing to stay for at least 2 years post sale.

Regrettably, a large amount of phone calls I receive are from Dentists whom haven’t planned and/or have fallen ill and need to me sell their practice right away. In these events, we typically see practices that have reduced their hours/production which causes their expense ratios to look inflated and net profits reduced. The value banks are willing to lend and buyers are willing to pay for is greatly reduced. In addition, the marketability is damaged, making the sales cycle actually longer.

There seems to be a correlation between holding on too long and not planning to having a fear of loss of Identity. It is completely understandable that a Dentist whom has been leading the charge for so many years and whose Identity is so tied to their business that the thought of losing that identity is terrifying. The reality is that in almost all the sales I have been a part of the seller expresses a recognition of relief and a renewed sense of freedom once the transition is completed. The most successful transitions occur when the seller has come to grips with moving on to the next phase of their lives and embraced that reality.

In summary, Every Dentist is going to face the transition of their business and occupation. The Dentists whom plan will have a more successful and profitable transition than the ones who do not.

If you are considering selling your practice, bringing in a new associate, or otherwise transitioning your practice, call Commonwealth Transitions early in the process to ensure that you are getting the best possible outcome for your situation.