The Best Ways to Determine Overall Value
This is one of the most involved processes for determining the value of your practice. Hiring a certified appraisal expert and certified public accountant, or CPA, is helpful in determining a fair figure.
It is recommended that you have an appraisal done if you are selling your practice and have a buyer lined up, or if you need to determine the value of your practice for personal reasons such as financial planning or divorce.
Fair Market Valuation
Having a transitions specialist from your specific market work with you is helpful in determining a starting price for your practice in the market.
Generally speaking, the fair market value of a practice is based on the IRS Revenue Ruling 59-60 criteria, which takes into account the worth of a business in transition, without the compulsion of buying or selling.
Selling your practice at an auction is the fastest way to determine the highest rate at which the market would be willing to pay for it. It is recommended to try auctioning your practice only if you are looking to sell it within in a short period of time.
Options for Sellers During Dental Practice Transitions
One of the most helpful things for you to understand as you consider how you want to transition your practice is the various options you have and their benefits / drawbacks.
Selling a Practice and Retiring
Selling a practice to retire is one of the most common and straightforward transition options. This is often the cleanest and quickest option and returns the highest amount of money. One important consideration for the seller is whether they would like to sell to a corporate group, individual buyer, or simply seek the highest return. Individual buyers and their lenders idealize the seller to be available for 6 months to a year to help facilitate the transition. Corporate buyers vary in their needs though they often want the seller to stay on a year or longer.
Partnering with another Doctor to Transition Out
Partnering with another doctor is another common transition option. As a practice grows, doctors often prefer to bring in a partner to help them run things. There are many variables and complexities involved in a partnership transition process, including:
- The transition timeline
- Ownership structure
- Proper practice valuation
- Many additional specifics and details
From amending the partnership documents to working with lawyers, it is important to consider all of the potential scenarios that need to be covered to ensure that the transaction is set up securely.
Transitioning to an Associate
Transitioning your practice to an associate allows more flexibility than many of the other transition options. For many, it can be a multiple year opportunity to continue to earn income while working at your own pace and choosing which procedures you would like to handle. We highly recommend working with an experienced professional on the front end to help think through the various scenarios that can come up and to push for clarity in the contract on the front end. It is common for misunderstandings or changes of heart to lead to friction or lawsuits.
Selling to an Associate
Many transitioning doctors choose to sell to an associate. This can be one of the easiest ways to transition as an associate will already be familiar with your practice as well as the patients and the staff. However, any transition process is complex. There are countless aspects and details to consider when transitioning that can be overlooked or may be confusing without the guidance of a transitions expert.
We highly recommend each party have their own representation and that the bulk of negotiations are conducted by third parties. In many ways this is a zero sum game and the changing of leadership can be a delicate endeavor even amongst the closest of colleagues.
Merging Your Practice with an Existing Practice
Many dentists today are looking for options to expand their practices as it is becoming more difficult to profitably run a single practice in saturated markets. Merging your practice with an established and reputable one is a great transition opportunity. If handled properly, this transition process can be a very smooth way to maximize profits with better management.
Joining a Group of Dentists looking to sell for a higher multiple
Given the amount of investors looking to invest in dental groups and the higher multiples these groups are receiving, it is an attractive notion to partner with a group of other practices and sell together. While it sounds great in theory it can be difficult to execute. We encourage prospective sellers to interview multiple former clients of any group who is offering this service to ensure they have a track record of success in this regard.
Many Factors to Consider
In reality, the value of a practice is dependent on a wide range of factors that expand beyond the basic financial ratios. Your practice’s brand, location, equipment, and patient base are some of the factors which must be taken into consideration before a final figure can be determined. If you look at two practices whose financial situations are nearly identical, but one is located in a city and houses the latest equipment on the market while the other is located in a small town and uses dated equipment, the overall value of each practice would differ dramatically.
Below Are a Few Tips for Prospective Sellers Considering the Value of Their Practice
Have a clear understanding of your goals
While for many the most important factor is strictly sales price, other factors to consider include the timeline of cash flows, fit of the buyer, timeline of close, or additional considerations related to the transition. It is important to talk with you advisor about which factors are most important to you.
Be careful who you listen to
There will be lots of parties with opinions, most of which are wrong. We commonly hear of outsiders who try to apply a rule of thumb which can sound impressive and tends to signal a lack of actual understanding of the process.
Make sure that you discuss with your advisor early any preconceptions from the start. Also know that each office is different and that your practice is unlikely to sell for the same multiple of other practices in different specialties, different geographies, with different financials, or with different client mixes.
Expect some turbulence
Selling your practice for many can be a combination of buying a car, sending a child to college, and retiring. For many this is a significant portion of their retirement and will have an impact on future quality of life. Needless to say it can bring to the surface many emotions, fears, and doubts. An experienced advisor has worked through these with many clients and understands how to help you through whatever comes up.
Additionally the complexity of the transaction can lead to many fits and starts. Multiple parties are involved helping both the buyer and the seller each of whom have specific needs and timelines which can be tricky to sync.
Also on the interpersonal front, significant negotiations often take place between the buyer and seller and a delicate balance needs to be struck between this back and forth given the need for both parties to work together afterwards.
We encourage you to find an advisor you trust, to communicate primarily through your representation, and to hold things loosely despite that being difficult..
Choose a specialized and experienced attorney
We recommend our clients work with an attorney who has experience with healthcare dental transitions. These are complicated transactions that require specialized knowledge and working with an inexperienced attorney can be both costly and painful. Additionally we encourage the buyer to also work with an attorney who has experience in dental transitions. This will help protect both parties and significantly increase the likelihood of a successful transition.
Why Work with Us to Determine Your Dental Practice Value
We know the ins and outs of the market and help to maximize the value of our clients’ practices under any circumstance. We work closely with each of our clients and manage the transition process in a way that allows minimal interruptions in the daily operations of the business.
From the start, we will be there to guide you every step of the way. We will make sure that your practice is appraised in the manner that best suits your personal situation and can also help market your practice to help you find the best potential buyers, set up interviews with potential candidates, and oversee contract negotiations. With decades of experience in the industry and the utmost respect for confidentiality, you can rest assured that your business will always be in good hands with us.