A COMPREHENSIVE GUIDE TO SELLING A DENTAL PRACTICE

Table of Contents

  • Introduction
  • Start the Planning Process
  • Practice Valuation
  • Consider a Broker or Professional Assistance
  • Market the Sale and Identify Buyer
  • Letter of Intent
  • Final Negotiations and Asset Purchase Agreement
  • Seller Introduces Buyer to the Landlord
  • Closing Tasks Before Closing Date
  • Transition and Transfer of Ownership

Introduction

Selling a dental practice can be a complicated and emotional endeavor, as you most likely spent years investing and operating your practice to the best of your ability. Though the process may seem daunting, we are here for you every step of the way! By considering the steps we have lined out below, you will be on your way to the next step of your journey, whether it be, focusing on your other practice(s), a new career path, or retirement.

Before you start the planning process, you should consider a number of factors while also asking yourself some questions below:

  • Do you hope to sell your practice within the next three to five years or sooner?
  • Identify what you are trying to achieve:

As you consider the answers to these questions, you can move further along in the planning process.

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Start the Planning Process

Three to Five Years Away

If you're still three to five years from selling your practice, you're at an advantage as it is in your best interest to correct issues that negatively affect your practice's value. 

Some ways to increase the value of your practice include:

Transaction Type

If you still a few years from selling your practice, determine whether if you would like to:

If you plan to sell sooner than three to five years, consider:

Additionally, if you are thinking about selling to a DSO, read our article on Dental Practices that DSOs Value the Most.

After considering the options above, your next step is to conduct a practice valuation.

Practice Valuation

Collection of Documents

Now that you have a transition strategy in place, your next step is to gather the necessary documents in preparation of conducting a practice valuation and determining the market value of your practice.

The documents needed in its original copies, include:

  • Tax returns for the last three calendar years
  • Year-to-date profit and loss statement and balance sheet
  • Lease agreement
  • Employee pay and benefits
  • All licenses and insurance
  • Loan documents
  • Equipment list

Practice Valuation

Along with the documents indicated above, you will need to conduct a thorough practice valuation to see what your practice is worth. 

The three valuation methods to choose from are:

  • Income-based valuation
  • Market-based valuation
  • Net asset valuation

For more information on these three methods of valuation, read our blog on How to Value a Dental Practice.

Upon valuing your dental practice, your next step is to consider hiring a broker or another professional to assist with your sale.

Consider a Broker or Professional Assistance

After getting your practice valued, you should consider hiring a broker or another professional for assistance on the sale of your practice.

Among the things to discuss with your advisor are:

  • The appraised value
  • Determining a fair asking price
  • Listing the practice for sale

It is often noted that what you may pay in commission, will more than pay for itself as a broker or professional will help attract more qualified buyers sooner or you may even receive a bid closer to your original asking price.

Your next step is to market the sale of your practice.

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Market the Sale and Identify Buyer

Market the Sale in a Confidential Manner

Upon conducting a practice valuation and considering hiring a broker or another professional to assist you, your next step in the sale process is to start marketing the sale in a confidential manner. 

Ways you can market your sale:

  • Advertisements
  • Online listings
  • Association websites

Identify the Buyer

Once you start marketing your practice and responding to inquiries, you may want to schedule a meeting with your potential buyer to see if it would be a good fit, both from a financial and practice management perspective. As you would want your patients and staff to be in good hands once you step away from the practice. 

Now that you have identified your buyer, your next step is to draft and submit a letter of intent (LOI).

Letter of Intent

Why is it Important?

The Letter of Intent (LOI) is important because it details the buyer's interest and sets out some of the basic business terms. 

To learn more about LOIs, consider reading our blog, Key Things to Consider When Drafting a Letter of Intent.

While these terms are non-binding, the document ensures that you and the buyer are on the same page, and once you agree to the LOI, your next of business is to negotiate and agree to the Asset Purchase Agreement (APA).

Final Negotiations and Asset Purchase Agreement

What Should Be Included in the APA?

Now that both you and the buyer have agreed to terms in the LOI, your next step is to negotiate and agree to the most important document involved in the sale, the Asset Purchase Agreement (APA).

Some items to consider in the APA include:

  • Purchase price and closing date
  • Assets included in the sale, such as:
    • Dental instruments
    • Furniture and equipment
    • The website, phone number, and social media sites
  • Accounts receivable, if included
  • The property, if applicable
  • Handling of the transition process
  • Retreatment
  • Details regarding practice staff
  • Restrictive covenants
  • Warranties and representations
  • List of contingencies 
  • Employment agreement, if you decide to stay on

The APA serves as a legally binding document that details the terms of the sale and lays out ways to protect both parties.

For more of an in-depth read on purchase agreements, read our blog, Purchase Agreements: More than Meets the Eye.

After agreeing to the APA, the next step is to introduce the buyer to your landlord, assuming there was no real estate involved in the transaction.

Seller Introduces Buyer to the Landlord

Commercial Real Estate

Unless you own the property and plan on selling it along with the dental practice, your next step is to introduce the buyer to your landlord. In fact, it will be up to the buyer to negotiate an assignment of the existing lease or negotiate a new lease with the landlord. It is also imperative to protect confidentiality by finding the right time to introduce the buyer to your landlord while not jeopardizing the closing date.

For more information on selling your commercial property and your practice, read our blog on Should You Sell Your Commercial Property and Dental Practice Together?

Upon introducing the buyer to your landlord, your next order is to ensure the details of the transition are completed before the closing date.

Closing Tasks Before Closing Date

Before the closing date of your practice sale, there a few final tasks you need to complete. These include:

  • Transferring or establishing service provider accounts such as utilities, phones, etc.
  • Making payroll and benefit arrangements
  • PPO credentialing
  • Ensuring the lender receives documentation to fund the buyer's loan on the intended closing date

You're almost there! Before you completely walk away from the practice you spent years building, there a few last-minute items such as the transition and transfer of ownership.

Transition and Transfer of Ownership

Final Steps

Among the last remaining items to take care of to ensure a smooth transition, is making sure the final loan documentation is completed. One such item is proof of satisfaction of unpaid prior liens.

Lastly, protecting the goodwill of the practice is essential and that includes communicating the transition to your team members, while also training your team to communicate this transition in a positive light to your patients. It is recommended that you also send letters to your patients communicating the change as well. The goodwill of the practice is important because it maximizes patient retention after the sale.

For more information on making the announcement of your sale, read our blog, Communicating Dental Practice Transitions to Your Team and Patients.

Takeaways

Selling a practice may not be easy from an emotional standpoint, but as they say, when one door closes, another one opens. Enjoy the next step in your journey, wherever that might be! 

Feel free to contact us at any time - before, during, or after the sales process. Best of luck to you!

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