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Issue #10 - 1.2.07
Planning Your Exit Strategy:
Key Questions to Address - Part II
Phase Two: Getting Close to the Finish Line
In this month’s column we’ll address those issues that will apply to those readers considering retirement. As you near retirement, your goals come closer to view. Now is the time to prepare for the final lap — the sale of your practice. Many practitioners consider using the services of a dental practice broker as opposed to orchestrating the sale of their practice by themselves. Here’s what you should know before signing on the dotted line with a dental practice broker.
How long will it take to sell my practice?
Most brokers can sell healthy practices within three to six months. In rural areas or small towns, it may take one year or more or perhaps not at all! This fact is directly related to the supply of purchasers who are willing to live in various geographic areas. Your practice location can be a major factor in timing a broker relationship. Most brokers will not sign a contract for less than a year due to preparation time for marketing and valuations. Plan accordingly.
What will it cost me to use a broker?
Commissions vary by region, however, many brokers charge a flat commission of 10% of the sale price. Some brokers use a sliding scale, which allows higher priced practices to be sold at a lower commission. In markets where there are several brokers competing for your business commissions will be lower, for example, 7% to 8% of the sale price.
What’s the difference between brokers?
All brokers have developed a database of potential purchasers who stay in contact with them regarding practices available for sale in the areas they serve. Be sure your broker has local area knowledge, and an understanding of the community demographics as well as other aspects of the region that are important to potential buyers. This knowledge can facilitate the sale. Brokers also have relationships with dental lenders. This can become important if funding a transaction is difficult. As long as underwriting requirements are met, an established, experienced broker can help get a loan approved more quickly and perhaps negotiate better interest rates and loan terms than if the purchaser tries to do it alone.
What’s the difference between exclusive and non-exclusive listings?
Some brokers will only work with their clients on an “exclusive” basis. This means that once the Listing Agreement is signed, the broker is entitled to a full commission whether they have found the purchaser or not! Therefore, before you sign an Exclusive Listing Agreement, and if you know possible candidates who may be interested in purchasing your practice, make sure they are listed on the Listing Agreement as an Exclusion. In this way, you are not obligated to pay a brokerage commission if one of these candidates purchases your practice. Some brokers will offer you a Non-Exclusive Listing Agreement, which means you are not obligated to pay a brokerage commission if you find the purchaser through your efforts or professional contacts. Brokers who use Non-Exclusive Listing Agreements usually charge a flat fee or a reduced commission for them to assist you in finalizing the transaction, when you identify the candidate.
Who decides the purchase price?
Some brokers prepare formal practice valuations using three or four methods to determine the value of your practice, and its future economic potential. Other brokers use a market approach, which identifies what the broker feels is the fair market value of your practice in your area. Since dental practices should be sold on their own merits, and not penalized by a “market value” mentality, a formal valuation is a more thorough, accurate assessment of practice worth, and future earnings in setting a sale price. Potential buyers serious about buying a profitable practice often appreciate a more thorough valuation, and will likely appreciate utilizing the information contained in the valuation when reaching a decision. While it is important to know the market trends in your area, it is also important to understand how your sale may be a better deal for a potential buyer. Knowledge is power.
As you contemplate retirement, know that your forethought and planning will only fortify the goals you set as you exit the practice of dentistry. Timing your retirement is important, and knowing when it’s time to retire is equally so. With the right information and advice, you’ll create a roadmap that will lead you toward a successful outcome.
Dr. Thomas L. Snyder, is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With over 75 years of experience in the field, The Snyder Group can provide you a full range of services relating to practice transition matters and retirement planning. They can also be reached directly at 1.800.988.5674.
If you would like additional help regarding implementing an associate into your practice, email Dr. Snyder at Drsnyder@thedentistsnetwork.net.
Interested in having Dr. Snyder speak to your dental society or study club? Click Here.