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How can you tell when it's time to sell?
29 Sep 2014 - Simon Palmer - Seller: Timing/ Retirement

A dental practice will usually be one of a dentist’s most valuable assets and the money from its sale should make a huge difference in the lifestyle and choices that are available to the vendor post-sale. As with the sale of any asset, if you want to maximise your results, timing is everything.

It stands to reason that you won’t get the same money for your practice at every stage of its existence. Businesses aren’t stagnant. They have peaks and troughs, periods of growth, periods of stability and periods of decline. The market for dental practices is not stagnant either. It has periods of excess supply and periods of excess demand.

The trick to maximising the value of the sale of your practice is being aware of the peaks and troughs in your business, and the coming factors that will impact the supply and demand for dental practices, so that you are selling at the best time, to yield the best results.

So what should you look out for? How will you know when it is the best time to sell your practice?

Below are some indicators that could tell you if an optimal time may be on the horizon:

Personal

  • Age. I know many dentists over 60 who love their work and have no plans to slow down. Even if this is the case, if you are over 60, it may be time for you to start looking into an exit plan. The best results for practice sales come when you have time to carefully plan, consider options and often have the ability to stay on post-sale, even if it is in a part-time capacity.
  • Health. Dentistry is a surprisingly hard profession on a practitioner’s body. Dentists have high rates of back and hand problems, eye strain, and depression. The most common response to this is for the dentist to cut back their hours temporarily, until the symptoms are more manageable. Over time, this cut-back in hours will lead to a decrease in production and profit, unless you counteract it by increasing the hours of another dentist in your practice. If you are about to reduce your hours for health reasons, or you have already done so and haven’t counteracted the effect this will have on your practice, it might be a good time to look into selling your practice.
  • Fatigue. A dentist’s practice usually goes through a period of growth in the early stages of their career, as they inject youthful energy and enthusiasm into their practice, while working hard to build a patient-base. They will make themselves more available for their patients than at any other stage in their career. As the years pass, fatigue can often creep in, as the owner puts in fewer weeks per year, less hours per week and less energy when he is at work. The passion he once brought to the business and practice is replaced with complacency and, in some cases, neglect. The practice growth slows until the practice production and value begin to plateau, and later decline. By the time many dentists who have become weary of dentistry decide to sell and retire, their practice is worth significantly less than it was at its peak. If you know that fatigue is creeping into your practice, it may be time to look at ways of reinvigorating your interest, bringing in some new, younger associates, or selling your practice before its worth as a business is compromised.

Practice

  • Lack of Reinvestment. There are some practice owners who have proudly told me, “I have no debts on the practice and all of my equipment is depreciated”. While this may have increased your bank balance in the short term, what it usually also means is that you haven’t reinvested in the practice in a long time. All businesses need reinvestment on a regular basis in order to seem current and attractive to the public. Shopping centres like Westfield usually have mandatory regular renovations as part of the leases of all their tenants for this exact reason. While shopping centres are mainly concerned with aesthetics, dentists need to reinvest in their practice’s aesthetics, equipment, materials, as well as their own clinical skills. In many patients’ minds, a modern practice’s appearance also speaks to modern standards of hygiene, cleanliness and how up-to-date the practice is with the latest procedures, techniques and materials. If you haven’t reinvested in your practice’s aesthetics, equipment and your own clinical skills in some time, the chances are that the above-mentioned fatigue may have started to set in.
  • Plateaued production Your production doesn’t need to be going down for your business to be going backwards. The fundamental costs associated with doing business, like rent, outgoings (water, electricity) staffing, equipment, materials, insurance, etc, are always rising. Unless your practice’s gross is increasing accordingly… you are going backwards. If: the production figures in your practice have plateaued over the past few years; you are waiting for them to improve, thinking that you had a winning formula 5 years ago, you’ve seen boom and busts before, so you just need to ride out the storm; you are not being proactive with turning your figures around, but have a solid plan to do so…then you may want to consider that your practice may have its best years behind it. It may be time to sell.

National and Local Industry Indicators

  • Interest rates. People spend more on large purchases (like dental practices) when interest rates are low.
  • Government spending. Some recent examples of this include:
  • The closure of the chronic disease denntal scheme (CDDS) influenced the attractiveness of practices highly dependent upon this scheme.
  • The federally funded Child Dental Benefits Scheme (CDBS) increased buyer interest in practices located near schools and day care centres in areas likely to access this scheme.
  • The CDBS replacement has many speculating on how the government plans to service the many more eligible patients within the public system. Some predict government vouchers could be issued for use in the private sector. If true, this would mean further interest in practices located near schools and day care centres.
  • The federally funded Dental Relocation and Infrastructure Support Scheme (DRISS) has been designed to help establish dentists in a regional and/or rural community. DRISS includes relocation grants and the opportunity to apply for infrastructure grants to help pay for equipment and fit-out of dental facilities. This has increased interest in regional and rural practices for sale.
  • Growing competition. The growing numbers of dentists per capita in Australia and the widely-reported oversupply of dentists will probably lead to increased competition for dental services in most places, which will make achieving growing production numbers more difficult in the future.

As with any major decision, timing is everything. Recognising the signs that it may be the right time to sell means looking for indicators in yourself, your business, the wider industry and the economy. Keeping your finger on the pulse of these factors and acting accordingly will mean a significant difference to your return on investment in your practice and your post-sale lifestyle.

 

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