As a dental practice owner, you know that owning your own practice can be lucrative. However, selling your practice is a natural step that can also produce a significant payout.
Whether you’re retiring, phasing out, opening a new dental practice, or moving on to other business ventures, selling your dental practice can provide an excellent return on your investment. However, you’ll want to approach the sale strategically to ensure that you reap the most benefits.
Here’s our “selling a dental practice checklist” to help you through your sale.
Stage 1: Planning To Sell
Selling your dental office isn’t a process you start on the same day you make the decision to sell. Instead, it requires careful planning.
Using the right planning strategies can set you up for success when you eventually initiate your sale. You can carefully consider your sale price, make changes to improve your market value, begin preparing your existing patient base for the transition, and take other measures to ease the process. You won’t feel tempted to rush through the sale, creating better outcomes overall.
You’ll also give yourself plenty of leeway if your practice takes more time to sell than you expected. Then, when the sale finalizes, you can have time to train the new owner and ensure that the staff feels comfortable before you step away or change roles.
Altogether, selling dentist practices shouldn’t be a fast process. Putting the necessary time and consideration into your dental practice sale will pay dividends.
Expect a 3-5 Year Process
The best time to begin planning for your sale is at least three to five years before you put your practice on the market. This timeline gives you ample time to increase your practice’s value, fix any issues that could impact valuation, and avoid rushing through the sale.
When you first start thinking about selling your dental practice, you should take time to discuss the idea with professionals. For instance, you may want to meet with a dental broker or dental CPA to examine your accounts receivable vs. payable. Now may not be the best time to sell, but waiting a few years could improve your payout.
Additionally, you can consider hiring a dental attorney to help you strategically approach the legal aspect of your dental practice transition.
Know What Type of Transaction To Pursue
During this period leading up to your sale, you can also carefully consider the type of transaction you would like to pursue. A few transactions you can consider include the following:
- Forming a partnership: Giving yourself several years to plan your sale can allow you time to create a partnership that transitions into a sale. If you already have a partner, you can gauge their interest in buying your practice a few years down the road. Alternatively, you can begin looking for partners now who may be interested in an eventual purchase.
- Creating a buy-in/buy-out agreement with an associate: Alongside forming a partnership, you can also consider creating a buy-in/buy-out agreement with a partner or another dental associate. These agreements are legally binding documents that discuss a buy-out when one partner decides to leave the practice.
- Selling to a private practice: Another dental practice in your area may be interested in absorbing or merging with your practice. Doing so can increase their patient base. This type of transaction can give you peace of mind that another qualified professional will be running the practice you poured years into.
- Selling to a dental support organization (DSO): If you’re interested in stepping away from dental practice ownership but still want to see patients, you can consider selling to a dental support organization (DSO). These organizations can handle the technical aspects of running a practice, giving you more free time.
Stage 2: Increasing and Determining Practice Valuation
You’re probably wondering: how much do dental practices sell for? Will selling your dental practice be profitable?
Your dental practice purchase price depends on numerous factors. When you give yourself three to five years to plan your dental practice sale, you will have plenty of time to evaluate your dental practice valuation, make improvements to raise its value, and determine the right listing price.
We highly recommend working with a dental practice broker during your valuation stage. Dental brokers have specialized knowledge and experience facilitating these types of sales. Your broker can ensure that you list your business at the right price and provide a range of other benefits to streamline your practice transition.
You can also consider working with an advisor from the American Dental Association (ADA). The ADA has a Practice Transitions Service that can make this process more successful as well.
If you’ve ever sold a house, you know that taking measures like painting the walls a neutral color, updating fixtures, and improving the curb appeal can help you increase your valuation. The same sentiments hold true for selling a dental practice.
You can take several steps to increase your practice value. A few significant ones include the following:
- Update office decorations: Replacing outdated decor with new, updated versions can make your dental practice look more expensive, increasing the value for potential buyers.
- Improve cash flow: Increase your practice’s current cash flow by removing unnecessary expenses, tightening late payment policies, raising fees, or promoting cosmetic dentistry services.
- Minimize liability: Reducing your practice’s risk of malpractice can also increase your valuation for a potential buyer.
- Increase new patients: When a qualified buyer purchases an existing dental practice, they often absorb the patient records. Adding new patients now can boost the patient load for your prospective buyer, increasing valuation. (Review the Dental Healthcare Business Insights Report for information about the new patient boom).
- Update equipment and software: You can also invest in high-quality dental equipment and software now to increase your valuation. For instance, you can consider Dental Software by Weave to automate many of your marketing strategies and improve patient communications.
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Collecting All the Appropriate Documents
When you get closer to putting your dental practice on the market, you can gather all of the appropriate documents an appraiser will use to determine your valuation. These documents may include all of the following:
- Tax documents
- Profit and loss statements
- Lease agreements
- Employee pay/benefits
- Licenses and insurance
- Loan documents
- Equipment lists
Some of these documents may be challenging to locate, so give yourself ample time.
Appraisers use a few different methods to determine the valuation of a professional corporation or company. Different methods may leave you with different valuations. As such, we recommend taking an average of all the valuations your appraiser provides.
The three main valuation methods in the dental industry include the following:
- Income-based valuation: Valuing the business based on your expected net income and cash flow over a specified period
- Market-based valuation: Valuing the company by comparing it to other, similar dental practices that have sold recently
- Net asset valuation: Valuing the business by adding your total assets and subtracting your liabilities
Stage 3: Identifying a Buyer
Once you’ve completed the above stages, it will be time to start looking for your buyer. Identifying a qualified buyer is a crucial step in the sales process. You have a reputation to uphold amongst your patients, staff, and community, and your buyer can make or break that reputation.
Ideally, you want to find a purchaser with experience running a dental practice. Maybe they currently own an existing practice and are looking to expand. Alternatively, maybe there is a staff member at your practice looking to step up their role.
As you know, a dental practice owner is often a qualified dentist who practices within the office. As such, you may want to sell the practice to another dental professional.
Whoever you choose as your buyer, be sure to consider their qualifications and intentions — not just their financial offer.
Dental practices are niche offerings. You probably don’t have dozens of people knocking on your door ready to buy your practice. Unless you have a specific partner or practice owner in mind as your buyer, you’ll need to put a little work into marketing your sale.
You can advertise your sale through:
- Print ads, such as in your local newspaper
- Online listings
- Dental association websites, such as the ADA
We recommend utilizing each of these advertising methods to reach the most potential buyers. In your listing, be sure to indicate:
- Whether you own or lease the building
- Your estimated patient load
- Your staff member count
- Your potential new role in the dental practice, if any
- The qualifications you’re looking for in a potential buyer
Being upfront about these criteria can help you narrow down the perfect buyer.
Stage 4: Writing Your Letter of Intent
A letter of intent is one of the first formal steps in your selling process. This step comes after you have identified a buyer who is a good fit for the purchase and you have discussed the sale with them. While it isn’t legally binding, it can ensure that you and the buyer are on the same page before creating an official purchase agreement.
The letter of intent includes specific information about the sale, such as the:
- Purchase price
- Assets included in the sale
- Payment and financing information
- Closing date
- Due diligence
You can add other terms to the letter as needed. Your dental practice should be off the market during the letter of intent.
Stage 5: Negotiating an Asset Purchase Agreement (APA)
An asset purchase agreement (APA) goes into greater detail than the letter of intent, laying out every element of the transaction.
Working with a dental broker or attorney is crucial during this stage. You want to ensure that this legal transfer of ownership and sale goes smoothly and avoid overlooking any loopholes or mistakes in the transaction.
Ideally, your legal team will craft the APA for you to ensure that it is legally binding. If they don’t, you should at least invite them to review it before signing it.
Stage 6: Completing the Finishing Touches
Finally, you can complete a few final tasks to transition your dental practice ownership. These tasks can vary depending on your specific practice, but they may include:
- Informing your patients about the sale and how it will impact their experience
- Transferring services like utilities and phones
- PPO credentialing any new staff
- Introducing the new owner to your existing staff
Altogether, selling your dental practice can be a worthwhile process. If you’re looking to enhance patient communications to increase your valuation, request your free Weave demo today