During World War II, Japanese aviator pilots (called “Kamikaze” pilots) were known to have been sent on missions with no fuel in the tank reserved for the return journey. They were infamous for exhausting all of their resources on route to, and sacrificing themselves in collision with their target.
Practice owners face a Kamikaze exit when they have the surprisingly common — and dangerous — perception: “I’ll think about selling the practice when I’m ready to retire”. They leave exit planning until they are physically, emotionally or motivationally spent — and have limited fuel left in the tank for their exit. They face their practice sale like their pilot namesakes faced their target…with limited options and an inevitable suboptimal result.
What they don’t realise is that achieving the best possible outcome (not just a sale, but a strong price, good terms, and a smooth transition) takes a time commitment before, during and after the actual transaction.
When you are wanting to sell, what do you need the fuel in the tank for?
Phase 1: Pre-sale
During this phase the practice owner needs to assess the business and make an action plan if elements of the practice need to be fixed before they decide to sell.
A few of the very many examples of very fixable mistakes that you can identify at this stage include:
- Poor recent results. The price achievable for the sale of your practice will be primarily based upon the financial results that you have achieved in your most recent year or two. If you have taken significantly more time off in your final year than in the years preceding them, such that the most recent results look compromised, it may not be the best time to sell. However, if you have “fuel in the tank”, you may want to consider putting off selling until the most recent results are a good representation of what your practice is.
- Having a short time left on your lease, such that it seems to a buyer that you have no security. A buyer will want/ need at least 5, preferably 10, years of security left on the lease at the point of sale.
- Having unclear financials with vague expense categories, expenses misallocated, unidentifiable personal and one-off expenses, such that no one can easily read a clear understanding of the financial return.
Time needed: The duration of time that a practice owner needs in this phase will vary enormously from practice to practice, depending upon the state of the practice and its documentation once assessment begins. It is best to do this early, in case time is needed to get the right sale result.
Phase 2: The Sale Process
The sale process is far more involved than most people anticipate.
- In the beginning, it involves a lot of information gathering, collating and presentation into a prospectus or information memorandum.
- Then the discreet promotion to buyers including their signing of confidentiality agreements and showing them through the practice on evenings and weekends, so as to not disturb the patients and staff.
- There is the answering of copious questions about your set up, operations and financials, before negotiating competing bids, and ensuring that the winning bid has the finance to complete the offer that they have made.
- From there, the process goes into the back and forth between the vendor, buyers, their lawyers and landlord’s lawyers
- After that, finally, there is the coordinated transfer of staff, IP, supplier contracts, passwords, etc. so that the practice transfers with continuity of operations.
Time needed: The sale process for an attractive general practice in metropolitan areas typically takes around four to six months from start to finish. This can be longer in regional and rural areas or with specialised practices sales.
Phase 3: Post-sale
It derisks a practice sale for the buyer when the principal dentist agrees to a post-sale commitment working clinically, assisting with patient retention, goodwill transfer and team stability.
As such many buyers will pay more for (or only be interested in) practices where the principal agrees to a post-sale commitment. The duration and premium paid for a post-sale commitment can vary from practice to practice from 6 months to several years.
Dentists who are “done” and unwilling or unable to commit post-sale (have no fuel left in the tank) see buyers lose interest or reduce their offer.
Time needed: Minimum 6 - 12 months. However, some corporate deals will ask for several years’ commitment post sale.
Conclusion
A successful dental career should never end in a crash landing at the finish line. When a dental practice owner approaches exit planning with some time up their sleeve, they can ensure that they exit their practice on their own terms, maximise the value of their life’s work and transition into retirement with confidence — not urgency.
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