Selling a Dental Practice - what to do to get ready.
20 Sep 2012 - Phillip Palmer, Simon Palmer - Seller: Preparation

Many dentists put their practices on the market, thinking it will take ages before they actually need to think about the details of the sale. However if you haven’t done your preparation before listing, interested parties can respond quite quickly with offers and requests for information and catch you on the back foot.
The more time you spend on preparation, the less stressful the whole process will be and the more likely you will be to have a smooth sale process that has predictable timelines.
So what can you do to get ready?

Decide the type of exit you will have
There are several different models of exits you can make as a seller of a practice and the model you offer a buyer will influence who and how many parties are interested. The two most common models are:

  1. The “walk-in-walk-out” model of sale is when a seller wants to stop working in the practice as soon as possible post sale.
  2. The “seller-stays-on” model occurs when the seller is willing to stay on in some capacity in the practice as an employee (Part or Full-Time) post sale. This occurs usually when the seller would like to practice dentistry for a period of time but without the burdens that come with ownership. This model can be a win-win to both parties as it usually means a reduced patient attrition (from that which would normally happen when a long-standing practitioner sells and exits) and ongoing income for both parties.
    Your decision in this matter will depend on a number of factors:
    • Are there enough patients and treatment rooms to allow you both to practice?
    • Can you handover leadership and management to someone else whilst you still work there?

Documentation you need
Documents that you will need to locate and have at the ready include:

  • Profit and Loss statements (preferably for the past 3 years);
  • Depreciation schedule;
  • BAS statements and tax returns for the past year.
  • Photos of the practice;
  • Fee schedule;
  • Leases for all dental equipment;
  • Leases on the premises;
  • Employee agreements for all staff;
  • A list of equipment of note;
  • Floor plan;

Get your advisory team in place and ready-
You will need a lawyer experienced in practice sales who will be the one to prepare contracts for the sale of your practice. There are special clauses necessary in a dental practice sale document which are not standard to the sale of other businesses, which means that it would be infinitely easier to use a lawyer who has done many of these in the past. Get advice as to an experienced lawyer.

Get started with this sooner rather than later as your lawyer may not be available at the last minute and drafting documentation often takes much longer than most people think.
He can leave blank details like timetables, purchase price and name until this information is available. The reason you would do this is to minimise the time period between agreeing with a purchaser and exchange of contracts. Once you have agreed on a price and timeline you want to complete the transaction as quickly as possible -in case the buyer has a change of heart, circumstances or options.

Accountant
Discuss the tax ramifications of a practice sale with your accountant. How will you allocate your sale price between goodwill and equipment? How tax-efficient will your future sale be?

Asking Price
Obviously you will need to establish an asking price that isn’t out of step with the marketplace. Setting the price too low can lead to a lesser financial result for you. Setting it too high can deter potential buyers, and leave your practice on the market for too long. Consider getting a market appraisal from a company that specialises in dental practice appraisals to help.

Make the practice as attractive as possible
Normally, before you would put a car on the market to sell, you would wash it, fix up any defects, etc. You would do the same if you were selling your house. Wouldn’t it make sense to do the same with your dental practice?
We often become blind to our own mess, or the incremental dating of our practice. While practices will be bought based upon figures like turnover and profitability, there is an emotional component to the buying decision as well. Spending a few thousand dollars on a repaint and refit of some of the living areas (waiting room, corridors, office, bathroom) of the practice can make a big difference to whether a buyer can see him/herself working there every day. 

 

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