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Top 7 Options for Sellers During Dental Practice Transitions
Selling your practice requires careful planning and consideration.
There are many options when it comes to selling a dental practice. An experienced dental practice broker will protect you and guide you through the process, which can often be an emotionally and mentally challenging process.
When transitioning your practice, it’s important to understand the benefits and drawbacks of each available option prior to the sale.
1. Selling to a Dental Service Organization, or DSO.
DSO companies regularly buy dental offices. Research shows that DSOs are on track to grow in the Dental Industry by 13% every year. They have the funds to buy quickly, so long as your deal is packaged professionally.
2. Selling a Practice and Retiring
Selling a practice to retire is one of the most straightforward transition options. It’s important for the seller to consider 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 to 12 months to help facilitate the transition. Corporate buyers vary in their needs, although they often want the seller to stay on a year or longer.
3. 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 every potential scenario to ensure that the transaction is set up securely.
4. Transitioning to an Associate
Transitioning your practice to an associate offers you 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 with more autonomy.
We highly recommend working with an experienced professional on the front end to explore the various scenarios that can lead to misunderstandings or changes of heart. Push for clarity in the contract on the front end in order to avoid friction or lawsuits.
5. Selling to an Associate
Many transitioning doctors choose to sell to an associate. This can be one of the easiest methods to sell your practice since an associate is already familiar with your business, patients and staff. However, any transition process is complex. Without the guidance of a transitions expert there are countless aspects and details that may be confusing or overlooked altogether.
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.
6. Merging Your Practice with an Existing Practice
It is becoming more difficult these days to profitably run a single practice in saturated markets. As a result, many dentists today are looking for options to expand their practices. Merging with an established and reputable practice is a great opportunity. If handled properly, this transition process can allow you to maximize profits with better management.
7. Joining a Group of Dentists looking to sell for a higher multiple
There is a large amount of investors looking to invest in dental groups, and many are receiving higher multiples these groups are receiving. Partnering with a group of other practices sounds great in theory, but it can be difficult to execute. We encourage prospective sellers to interview former clients of any group 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 depends on a wide range of factors beyond the basic financial ratios. Your practice’s brand, location, equipment, and patient base are some of the factors which must be considered 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
Understand 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 your advisor about which factors are most important to you.
Be Careful Who You Listen To
There are plenty of parties with bad advice. We commonly hear of outsiders who try to apply an impressive sounding rule of thumb that signals 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
For many people, selling a practice 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. Many emotions, fears, and doubts can arise. An experienced advisor has worked through these before and understands how to help clients through whatever turmoil may arise.
Additionally, the complexity of the transaction can lead to fits and starts. Multiple parties are involved with helping both the buyer and the seller, each of whom have specific needs and timelines. Synching these can be tricky.
On the interpersonal front, significant negotiations often take place between the buyer and seller. Since both parties must work together afterwards, a delicate balance must be struck between this back and forth process.
We encourage you to find an advisor you trust, communicate primarily through your representation, and be honest with yourself about what terms you can and can’t be flexible on. Getting clear with your broker and yourself on what your most important transitions goals are leads to the best outcomes for all parties.
Choose a Specialized and Experienced Attorney
We recommend our clients work with an attorney who has experience with dental transitions. These are complicated transactions that require specialized knowledge, and working with an inexperienced attorney can be both costly and painful. This will help protect both parties and significantly increase the likelihood of a successful transition.
Work with Us to Determine Your Dental Practice Value
Whether you are looking to evaluate the value of your practice to sell, merge with another practice, determine value during a divorce, or write off a business loss, you need expert guidance to receive the best overall value.
We know the ins and outs of the market and help 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.
We will guide you every step of the way to ensure that your practice is appraised in the manner that best suits your personal situation. We also help market your practice to 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.