Thoughts of selling your practice or making a major change like bringing in an associate doctor or a partner can strike at any time. Most often these thoughts come when we begin to accept the fact that we are not getting any younger and the most precious thing in life is time. As a priest once said when talking about deathbed confessions, “I’ve never heard anyone say, “I wish I would have spent more time at the office’.”
The journey from realization to actualization takes time and presents many questions. It requires data analysis, due diligence, and hard decisions. It’s rarely as easy as you hoped it would be.
There is a process and there are things you need to know. This article will present some of the basics so you can be prepared to move ahead.
DISCLAIMER: Whitehall Management can assist you with the process and help guide you through it. However, there are legal and financial implications that accompany this process and you will need advice from both a competent business attorney and your accountant along the way.
DECIDE WHAT YOU WANT
This is where you start. Just making this decision is challenging. You may not even know what you want. Gather all the information you can. Whitehall Management can fill in some of the blanks, if you wish. Below are some of the options.
• Sell out and be done. List it, sell it and retire.
• Find an associate and plan a future sale.
• Sell part ownership (a partner) and continue to work for a few more years.
• Sell to a DSO or dental group.
INFORMATION YOU WILL NEED ABOUT YOUR PRACTICE
Any potential buyer or practice broker will need an incredible amount of information about your office. All of the following categories will need to be addressed.
Your practice is an active business. Part of the appeal of the practice is its physical appearance and location. You can’t move the building, but you need to be able to discuss why your business is located where it is and the positive aspects of it. Look at the other listed items and do your best to make them all positives, not negatives to your potential buyer.
- Modern and contemporary
- Size and number of treatment rooms
- Equipment. Is upgrading needed?
- Dental software. Which one and which version?
When you gather this information, you will probably learn things about your practice you previously didn’t know. Numbers tell a story, and your business statistics are no exception. Any appraiser will want all of the following data and more.
- Production, gross and net
- Office census. Growing or shrinking?
- Age demographics
- Percentage of insurance and fee for service patients
- Profit and Loss statements
- New patients per month and their sources
- Treatment plan conversion
- Total amount of open treatment plans (last 24 months)
- KPIs month to month
Appraisals are not perfect. The true value of your office is what someone is willing to pay and what you are willing to accept. If those numbers don’t agree, there is no sale. There are many sources of appraisers. Some of the major dental suppliers provide that service (for a fee) and there are local and national appraisers available. If possible, talk to you banker about appraisers they use and any they do not accept. Credentials and experience count. There are several appraisal methods. Some are listed below:
- Comparisons to recent sales (Comps)
- Sum of Assets
- Cash Flow/ Profitability
- Capitalization Rate (Cap Rate=NOI/Cost)
- Rule of Thumb
All methods have fudge factors that rely on the appraiser’s opinion. The appraisal is important, but if you are selling, what really matters is:
- Who is your target buyer?
- Are they interested In you or just the practice? (A transition period where you stay on for a while).
Paperwork is an annoying but necessary fact of life. You will need all of the following and perhaps more:
- NDA or non-disclosure agreement
- Term Sheet. (Outline of what you and the buyer agree on)
- Corporate Organization
- Operational Agreement
If you’ve made it this far, you have also discussed financing with the buyer. Sometimes this is easy, and sometimes you need to be creative. A variety of financing can be considered.
WARNING: If an offer looks too good to be true, it probably is. Beware of claw backs or conditions with the sale that require specific (and usually impossible) performance by you in order to receive the full purchase price. An example would be to require a high growth requirement along with a reduction in overhead. If these are present you may never receive the payout you expected.
- Bank or Lending institution
- Other third party
- In house
- Sweat Equity (This can be very creative)
- Combination of the above
WHITEHALL MANAGEMENT can help you with this process. Contact us and request a no obligation discussion.