Do These Eight Things Right Now
If you’re considering selling your dental practice in the next three to five years, it’s important to get started now. To help maximize your sales price and minimize the taxes you owe, take the following steps today.
1. Establish a team
It’s critical to choose a team of advisors who can help you design a sales strategy that meets your needs, as well as the needs of your practice. Each of these team members should have experience in their respective fields and experience selling dental practices.
- Corporate attorney – An attorney will review all documents and help ensure everything is buttoned up from a legal perspective. Specialties in law are as distinct as specialties in dentistry, so, again, look specifically for a corporate focus and related experience.
- Accountant – A qualified accountant will help minimize your personal and business tax liability.
- Financial advisor – Make sure you choose a fiduciary advisor who will put your best interests first. Expect to pay a fee to this advisor, rather than a commission based on product sales. An advisor with experience guiding dentists through practice sales can help by:
- Negotiating various aspects of the sale of your practice
- Analyzing and protecting your net worth
- Preparing retirement income projections and developing a customized, tax-efficient retirement income strategy
- Managing the proceeds from your sale
During the three years leading up to your sale, you should expect to meet with your team at least two hours per year. Once you’ve identified a qualified buyer, you will likely meet with your team more frequently.
2. Keep working
In the years leading up to a practice sale, it’s common for dentists to work less and stop accepting new patients. However, this is a mistake that can decrease the value of your practice and, ultimately, the sales price you receive. It’s better to continue working and accepting new patients right up to the time you sell your practice. Strong patient retention and growth rates demonstrate practice health and bring comfort to buyers, which are both supportive of valuation.
3. Understand the tax ramifications
Various sales structures have different tax ramifications. Sales can be taxed as ordinary income or long-term capital gains (or, frequently, both) for you as the retiring dentist. Some components of the sale are deductible for the practice, while others are not. All sales price allocation options should be reviewed carefully with taxes in mind. Your team of professionals should be able to help you navigate a sale that provides a balance of tax breaks for you and the new practice owner.
4. Don’t forget the building
They say the most important thing in real estate is location, location, location, so carefully, carefully, carefully consider your practice real estate strategy. If you own your practice building, you’ll want to evaluate every aspect of its involvement in your practice sale. If you have a lease, you’ll want it extensively reviewed early in the sales process. Complex leasing arrangements, overly aggressive lease restrictions or even basic lease duration and pricing terms can have a meaningful impact on practice valuation and the success of your transition. Here again, a solid team of professionals can be an invaluable resource.
5. Evaluate the fees you charge
Your advisory team will help you conduct a fee analysis to determine how your fees compare with other practices in your area. If your fees are below average, it might be wise to gradually normalize them in the years leading up to your sale. This can help increase your income and enhance the value of your practice by demonstrating that you view your talents and contributions as competitive in a skilled marketplace.
6. Clean up
Potential buyers will want to see your facility and equipment. Similar to staging a home prior to listing, it’s important to make sure your building(s) and equipment are clean, up to date and well maintained. If your furnishings are looking a little dated, consider updating them. Does the green refrigerator in the break room, and the salad it contains, hail from the 1970s? It could be time for a new look. Add a fresh coat of paint to your waiting room and examination areas. Consider upgrading any outdated equipment (while not getting overly aggressive), and make sure existing equipment is clean and functioning.
7. Understand the timing
To maximize your practice’s sales price, we recommend beginning the process three to five years before your anticipated sell date. This is a growing wave, after all, and that term should provide ample time to improve your financials, determine a sales strategy, identify potential buyers and prepare both yourself and your employees for the transition.
8. Conduct a business valuation
Preparing a business valuation three to five years prior to the anticipated sale allows you to gain a sense of your practice’s current “health” and identify opportunities to improve upon it. Going forward, the business valuation can be easily updated on a quarterly or annual basis by your valuation professionals using the same formulas and methods. This allows you to see the impact of any changes and adjust your transition plan accordingly leading up to the sale.
If you’re beginning to think about selling your dental practice, Creative Planning Dental is here for you. We support dentists with a team of credentialed, educated, experienced and action-oriented advisors, including Certified Financial Planner™ practitioners, Certified Public Accountants, insurance specialists, attorneys and other professionals dedicated to helping you achieve your goals. For help selling your practice, or with any other financial matter, schedule a call with a member of our team.