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6 Essential Strategies for Successfully Preparing to Sell Your Dental Practice
Posted by Sylvia Lagerquist, CPA
Uncertainty in the American healthcare sector is a near-constant reality for today’s providers. The pressures associated with practice management, challenges in securing insurance reimbursement and shifts in the nature of today’s patient populations are leading many newly minted dentists to avoid starting their own independent practices, in favor of other options.
For dentists specifically, it’s important to keep in mind that building a profitable practice and building a sellable practice are not the same thing: A typical general dentist whose annual revenues are in the $650K range can clear approximately $250K for discretionary income if overhead is low and operations are lean, based upon an operating overhead around 60%. However, you may need or want to invest much of that income back into the practice today if you want to be prepared to sell it tomorrow.
Here are six strategies to consider as you begin planning for the future of your dental practice:
1. Selling Well Before You Plan to Exit
The first strategy to examine is whether to sell well in advance of when you intend to actually exit the practice and retire. A robust and diversified dental practice with a strong patient volume, healthy financials and a well-managed overall operation may offer lots of appeal to potential buyers, but that possibility drops dramatically if the key practitioner in the practice is about to leave as well. It takes months, if not years, to successfully transition patients to a new practitioner and your goal (and that of your buyer) would be for those patients to transition to another practitioner successfully inside your practice.
2. Building the Team Before Selling the Practice
That leads us to the second consideration, which is the size and staffing structure of the practice. The more comprehensive and less individual-dependent a dental practice is, the healthier it is — plain and simple. Solo practitioners or single-owner practices who employ one full-time dentist supported by other part-time or contract personnel are at particular risk. That’s why it may be essential to grow the practice before selling it. Organic growth — both in terms of adding patients and adding personnel — is a powerful method of building lasting value in the practice as a business asset and strengthening its sellabillty. Make sure that your practice is positioned to operate smoothly with multiple dentists, plus a diverse range of dental hygienists and other personnel.
3. Merging or Acquiring to Achieve Critical Mass
Alongside building the dental practice organically, another option is to merge with or acquire another practice. This is particularly attractive if you already work closely with one or more other independent practitioners in your specialty, and there is an existing foundation for a common approach to patient care and practice operations. Generally, it is best to merge with a similarly-sized group so that you don’t get lost in the merger and lose the level of control that led you to build an independent practice in the first place.
4. Seeking Specialization
Practicing primarily general dentistry affords you the benefits of working with a wide variety of patients and ensures that your services will always be needed and valued in the community. However, building a more specialized practice may be a preferred route to building value in the practice itself.
Whether you build your expertise in a technical specialty such as oral and maxillofacial surgery or periodontics, a customer focus such as pediatric or geriatric dentistry, or a subspecialty of practice such as cosmetic dentistry, the more you focus your practice on meeting the needs of a specific patient population or mastering certain tools and techniques, the more your practice will stand as a unique business with an established and loyal customer base that is unlikely to decamp during or after an ownership transition.
5. Expanding Ownership to Other Dentists
Many independent dental practices struggle to recruit and retain younger dentists who are constantly being lured by larger groups and other options. However, you can offer two things that large practices can’t: the opportunity to work more flexibly with patients, and the opportunity to own a piece of the practice as a business.
The benefits of ownership may not be easy to explain at first, but a robust commitment to building an ownership pathway for emerging and mid-career dentists is essential to the long-term growth and success of today’s independent practices.
In addition to overcoming the challenges associated with a practice being too dependent upon one practitioner, the multi-generational ownership model provides a valuable additional option, which is that older dentists can retire by selling their shares of the practice to younger ones over time, thus ensuring that the practice can continue as a going concern while the more senior generation is able to successfully exit.
6. Don’t Sell, Just Shut Down (But Keep Working)
There is another option to consider, which may be relevant if the location, structure, size and value of the practice make it extremely difficult to sell. Depending upon the owning dentist’s personal financial strategy, shutting down a practice without selling it could be the best option.
This is particularly true if you have built strong financial value in other assets over time. For example, if you own the building your practice is located in, or if you have invested heavily (and successfully) in stocks, bonds and other financial instruments, you might legitimately conclude that your personal financial future is truly based on your non-practice assets.
You can also take this approach if the practice has little value (due to factors such as competition, poor location and shifts in the patient population), but you still have a reasonable active career runway in front of you prior to retirement. You could close the practice, join another practice as an independent dentist, but bring (and perhaps sell) your patient base in the process. This may allow you to generate some cash now while providing you with more time to strengthen your own retirement portfolio as well.
One thing is absolutely clear: Determining how, when and under what conditions to sell your dental practice is a complex question, one that you should only answer in partnership with a team of experts. This team should include your Certified Public Accountant (CPA), your personal financial planner, and a business attorney with expertise in medical and dental practice law. You may also want to consult with a business broker or investment banker who specializes in the healthcare space as well.
The earlier you begin preparations and the stronger your transition team, the better your results will ultimately be.
Image Credit: Herry Lawford (Flickr @ Creative Commons)
One response to “6 Essential Strategies for Successfully Preparing to Sell Your Dental Practice”
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Thanks for the tip about building your team with multiple dentists before selling the practice to increase the value of the business. By having several employed personnel, you can prove that your business is thriving and has a viable market for investors. If I ever plan on selling a dental office, I would make sure it has the best value for potential buyers to maximize profit while securing the future of the employees.