Dental and Medical Counsel Blog

How To Strategically Sell a Dental Practice

June 6, 2018
Selling a Dental Practice - Dental Attorney

Once you have decided that you would like to sell your dental practice, there are a number of steps that you can take which will aid you in the success and compliance of the sale. You will undoubtedly want to get the most “bang for your buck” with the least hassle. Further, you will likely want to make the transfer as seamless as possible. With the ability to properly prepare in advance, you can easily make a sale and transfer your practice and be confident in those actions.

The Different Types of Transfers

One of the first things you will need to examine when considering a sale is the type of transfer you would like to make. There are four main approaches to a sale or transfer: a traditional transaction, a quiet transaction, an associateship purchase, and a partnership purchase. The most common of the four is a traditional transaction; this is done through highly visible steps such as alerting all staff members of the transfer, informing the patients and public, and letting the new owner meet the staff. Alternatively, a quiet transaction is quite the opposite; in such a transaction, the patients, staff, and public often find out about the sale much later. In the case of an associateship purchase, a buyer works with existing staff and patients, even working under an employment contract, and then later uses the traditional transaction to buy-out the practice. The remaining option is a partnership purchase, wherein a buyer comes in as a partner, works with existing staff and patients, and then buys-out the remainder of the practice.

Selecting Your Advisors

After choosing your preference for transferring your practice, you will need to develop a super-team that can help you make decisions throughout the process. You will need, at minimum, a four-person team with a variety of expertise to help cover all aspects of the sale: a certified public accountant (CPA), a dental attorney, a wealth management advisor, and a practice consultant. Firstly, a CPA will assist with all aspects of your personal and professional finances, while advising you on any tax implications of your sale. Next, a dental attorney will help you remain compliant throughout the sale process, tipping you off to any red flags or potential issues along the way. In addition, a wealth management advisor will assist you in managing any new funds that you will receive as a result of the sale. Lastly, a practice consultant will help fill in the gaps of maintaining the everyday activities of your practice while helping to develop any new protocols that need strengthening or polishing.   

Next Steps

When you have gathered your team of specialists and are ready to move forward, you can begin to focus on finances, advertising, and due diligence. You will first need to closely review all of your financial information, including your income, tax implications, and how each of these can relate to your negotiation process. Should you have any particular questions about these topics, your CPA and wealth management advisor will be able to assist you. Once you are comfortable with your finances, you will want to begin advertising. Confidentiality will need to be one of the most important parts of this process, in relation to both your employees and the public. You will need to determine who will know about the sale, when they will know about the sale, and how you will manage any potential fallout from employees and patients once they do find out. Brokers are a great asset for maintaining confidentiality during this process, through the implementation of a non-disclosure agreement. Your next step is to prepare for what will happen when you get responses to your ads. Primarily, you will want to conduct your due diligence by being prepared to answer questions, share certain financial information, and be available and responsive. By helping your potential buyers understand what they are getting into, you will also be protecting yourself in the long run.

8 Steps Steps to Focus on When Selling a Dental Practice

for saleThere are several other ways that you can prepare for the sale of your practice, and these actions can be summed up into eight steps. By entertaining the following steps, you can help eliminate compliance issues ahead of time.

First: Do not obtain any more debt related to your practice. You will need to balance any cash flow and equipment purchases without placing too much emphasis on one over the other. One exception to this is when you need to take an action that makes your practice more valuable, such as through modernizing your record-keeping system.

Second: Take a hard look at your team’s performance. While things might seem like they are going just fine, there is always room for improvement.

Third: Be familiar with last year’s tax return. You should examine your level of reported income and analyze your discretionary expenses; be prepared to consult your CPA and wealth management advisor, as needed.

Fourth: Maintain or increase your average new patient flow. Being able to demonstrate stability over time can be a game-changer for a potential buyer. 

Fifth: Update your office’s décor. By cleaning, rearranging, or redesigning your carpet, paint, and furniture, you can bring new life to a dated look.

Sixth: Keep an eye on your accounts receivable and show regular cashflow and stability. By monitoring these in advance, you can help to reassure any qualms of a potential buyer.

Seventh: Seek to increase your number of new patients and patients with varying socioeconomic levels.  This can assist in building a wider patient-base and kickstart new patient flow.

Eighth: Do not slack off simply because the sale is coming to a close. If you in any way drastically change your level of collections or exhibit any level of irresponsibility, potential buyers may become uncomfortable with the sale at the last minute.

Letter of Intent (LOI) and Purchase Agreement

Rest assured that the above eight steps are a great way to make a sale or transfer more effective, while additionally taking minimal effort. After taking the above efforts and following the eight steps, you will be ready to start working on the negotiation process. When heading towards negotiation, you should have several possible prices: your bottom line, your target price, and a dream price. Once you begin to receive offers, it is up to you to decide which of those seems realistic, and which one you will be willing to accept. When you have received a price you like, your next step will be to draft a Letter of Intent to send to that potential buyer. This letter will spell out a specific price, with a specific execution date for your buyer. After this document is executed, the next document in line will be a Purchase Agreement. In the purchase agreement, every aspect of the sale is listed, including financing, sale price, and sale date. You will also likely include information regarding the staff, the building, and the property. Additionally, you should also be aware of any non-competition clauses in your purchase agreement that could potentially prevent you from seeking employment elsewhere. Your dental attorney and practice consultant will be your key assets during this process.

Overall, your super-team of CPA, wealth management advisor, dental attorney, and practice consultant will be the ones to guide you through the compliance and sale process. Utilize them to your best advantage by asking questions when you have them, highlighting any concerns, as needed, and giving them your feedback. This sale will make a major impact on your life and your future, and being compliant is one of the best ways to make sure that the impact will be a positive one.

Let the dental transition experts at Dental & Medical Counsel help you with your transition. Contact us below to schedule a consultation with lead attorney Ali Oromchian.

 Contact Us Today for a Complimentary Consultation!

 

If you are considering selling a dental practice to a DSO, read  5 Things to Consider When Selling Your Practice to a DSO and Dental Practices that DSOs Value the Most.

On another note, if you're thinking about selling your commercial property and dental practice together, read Should You Sell Your Commercial Property and Dental Practice Together?

For more of an in-depth guide on how to sell a dental practice, view our page on The Comprehensive Guide to Selling a Dental Practice.

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