Selling a Dental Practice? Here’s How to Keep the Most Money from the Deal
September 28, 2017
You’ve spent years investing time and energy into your dental practice. Now, how you choose to exit your business will be almost as important as how you opened your doors.
When selling a dental practice, you’ll want to ensure your strategy leaves you with your desired nest egg — while helping you maintain the strong relationships you’ve forged over the years.
Understanding the potential complexities that come into play here is essential. Consider these guidelines to limit your risk and to keep the most money generated from your transaction.
Start Preparing Early
Get your financial statements in order, as far in advance as possible. If you think you might consider selling in, say, three to five years, then now’s the time to start preparing.
Think about the following:
- Is there variability in your expenses and revenue?
- Has your practice lost patients and, if so, why?
- In the last two or three years, have you had expense lines that would not continue for the prospective buyer (such as one-time purchases, vehicle costs, etc.)?
The answers might not be deal breakers. An explanation goes a long way.
For example, if your revenue dipped one year because of an extended illness, then you should be prepared to be clear about that without worry it could derail the deal.
If you have associate dentists, most buyers and lenders will want to know their production and compensation. Do you plan to keep working after the sale?
Buyers might be able to replace some associate production, which could increase their total income. That could allow them to take on more debt and potentially support a larger loan or purchase price.
Conduct a Good Cleaning
There’s a lot to be said about the power of a good cleaning. Toss the clutter, revamp outdated fee schedules and make sure your equipment is functioning properly.
Lenders may require a buyer to obtain a long-term lease. If you have one, don’t let it lapse. Or do you own the real estate and intend to hold onto it, providing long-term income after the sale of the business?
Review and revise your collection policies and billing systems as necessary. That’s always a good idea, of course. But when you’re prepping to sell a business, you want to make sure you’re bringing in as much revenue as possible. That will help you get a higher price. So, if, for instance, your front office is lax about collecting deductibles, consider changing that.
Tap the Experts
No two dental practice sales are alike, so refer to the experts. Seek an adviser who understands tax laws and how to structure the best deal with these kinds of questions in mind:
- What are the tax considerations in your asset sale?
- What are the allocations assigned to the particular assets being sold?
- Do you need to sign a covenant not to compete (CNC)?
- Is your business a C corporation? It’s possible to structure the deal to lower your tax burden at no extra impact to the buyer.
Don’t go it alone. When selling a dental practice, turn to your transaction adviser for guidance on the necessary due diligence.