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Issue #48 - 6.24.08
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Top Ten Things to Do Before Selling Your Practice
For those of you who are thinking about selling your practice in the next few years, here are some key points to consider when getting ready for that big event. Failure to do so may result in you getting a lower value or not being able to get a transaction that you can live with!
- Meet with your financial advisor. Can you really afford to sell your practice? You may be surprised. If you have never had a financial plan prepared, now is the time to have one done. Often we speak to potential sellers who are emotionally ready to sell, but financially unable to do so. You may find that you’ll have to put your plans on hold for a few more years or, conversely, feel quite confident that the practice sale proceeds will only enhance your retirement lifestyle.
- Discuss the tax ramifications of a sale with your accountant. If you are a “C” Corporation, for example, there are some obstacles that must be overcome. How will you allocate goodwill between the corporation and yourself? How tax efficient is the future sale? Getting answers from your accountant regarding what you’ll retain after a sale is critical when you make a decision to sell.
- Make sure you get a comprehensive Practice Valuation. If you use a broker, retain one who will prepare a formal valuation. Most brokers who prepare formal valuations will credit the valuation fee against the sales commission. Getting a free valuation is not serving your best interest. In our experience, just having a number appear on a financial spreadsheet does not do you justice when potential purchasers are trying to determine if they want to make the commitment to purchase your practice.
- Do not slow down or work fewer days. When you do this, often times you stop accepting new patients as well. This will hurt your practice’s value and make a purchaser less interested in buying a practice that is in a decline.
- If you have an associate, be sure that they have an EmploymentAgreement containing a restrictive covenant and non-solicitation clause. If you do not have an existing agreement, consult with your attorney; you may have the associate sign an Employment Agreement for additional compensation known as “consideration.” This will protect your practice’s value. Selling your practice without a covenant will be very detrimental.
- Take an honest look at your facility. You do not necessarily have to make any large capital expenditures, especially if you want to sell within a few years. However, you should make some cosmetic enhancements, if needed, such as fresh paint on the walls, new carpet, tile, new landscaping, etc. In other words, make the practice look more aesthetically appealing. First impressions are always critical to a purchaser.
- Purge any uncollectible accounts receivable and make every effort to collect those accounts that are past due over 90 days. If you fail to do this, it will become a sticking point in your negotiations.
- Fee increases. We suggest you get a fee analysis to determine where you stand within the fee percentile range in your area. If you are well below average and you still have a year or so to go before sale, do yourself a favor and increase your fees. Chances are your patients will accept the fee increase; you will increase your income, and possibly enhance the value of your practice.
- Hire an attorney who has dental experience. It can save you and the purchaser thousands of dollars. Ask your accountant or broker for referrals, because they work often with attorneys who have considerable dental experience.
- Finally, be realistic in your timing. Sometimes we get calls from doctors who want to sell their practice in six months or less! This is an almost impossible task for any broker. We tell prospective sellers to give a broker 9 to 12 months to sell a practice.
So in the end, a good deal of planning is necessary for you to really get your practice ready to be put on the market. Careful planning will give you the highest return and, most important, peace of mind.
Dr. Thomas L. Snyder, is Managing Partner of The Snyder Group, LLC, a nationwide practice transition and financial management consulting firm. With more than 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 be reached directly at 1-800-988-5674.
If you would like additional help, email Dr. Snyder at drsnyder@thedentistsnetwork.net.
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