Dental Practice Broker Articles
The Art, Science and Emotion of a Dental Practice Sale – Part Two
By Rick Willeford, CPA – The Willeford Group
Exploring the uncharted waters of selling a dental practice will plunge you into a whole new world of:
People—including lookers, buyers, dental practice brokers, consultants, spouses, lawyers and accountants. Yours as well as the other party’s! All of these can consume incredible amounts of time and money. And most of them communicate in languages totally alien to what most dental practice owners are accustomed to.
Concepts—including reconstructed financial statements, return on investment, consulting agreements, discretionary income and taxable income vs. cash flow, to name a few.
Dichotomies—such as the need to selectively distribute yet maintain the confidentiality of highly sensitive practice information. And to let the marketplace know of your practice availability while concealing your intentions from your patient base, your team, fellow practitioners and referring sources.
Some pre-sale considerations must include:
- Very specific definitions of your personal goals. (If the sale of your dental practice won’t allow you to achieve the results you seek, you need to either reconsider the sale or restructure the practice until it can.)
- Organizing your dental practice’s financial and management information from multiple sources into a form that can be utilized to determine its “Fair Market Value”—and to build a compelling narrative to support that value in the mind of the prospective buyer.
- Actual determination of the “Fair Market Value” using approved industry valuation standards.
- Determination of the relationship of the “Fair Market Value” to the current dental practice marketplace.
- Understanding the terms and conditions that might reasonably be obtained in the dental practice marketplace.
- Finally, relating “Fair Market Value,” terms and conditions of sale and the realities of the current market to your predetermined goals and time frame.
False starts or wrong turns can be very destructive to both your wallet and psyche. You have perhaps known the angst of sitting around and trying to sell an inanimate object like your home. Well, can you imagine the stress of selling your dental practice—your life’s work? Prospects and their dental practice brokers poking and prodding and questioning—and challenging—everything about your pride and joy?!?
It is not fair to your buyer and to everyone around you to start down the path toward a sale lightly. Sadly, we know of too many cases where the seller got cold feet at the altar and left his suitor standing in the aisle. In the worst case, that can even lead to legal repercussions. So you need to take a personal inventory, financially as well as psychologically, to see if you are in good shape for the journey.
Without specific goals in mind for your post sale energies—and the financial wherewithal to support them, you probably are not ready to sell, but rather ready to begin the planning process and your education about the selling experience.
If you do not specifically define your personal goals in relation your dental practice for sale, the result can easily be a financial disaster. (We all know of a number of dentists who sold, but who are then suddenly working again within a few years….) Why sell your practice to attain someone else’s goals (those of the buyer, or an attorney, accountant or dental practice broker)? Although it makes little sense, relatively few dental practice owners approach and plan the sale of what is usually their most valuable possession from their perspective and their needs.
You dramatically increase the odds for success if you and your team:
- Control the conditions of the dental practice sale;
- Structure the transaction to attain your goals and objectives (assuming that your practice has the capacity to attract a buyer at the price required to attain your goals);
- Create a specific and thorough plan of action to accomplish those objectives; and
- Implement and monitor that plan from inception to completion.
If and when you decide to consummate a transaction, you will have then made your decision with the full knowledge that you really got the “highest price that the market would allow, in the shortest period of time, with the least interruption to your practice and personal life.” (When you boil it all down, isn’t this what you are trying to accomplish?)
Pricing to Sell
In the most simplistic view, all dental practices for sale consist of systems, assets and people combined to generate cash flow which in combination create the “saleable value”. Accepting that definition, there are no two practices alike. Each has its unique benefits, problems and value.
Value, like beauty, is in the eye of the beholder. What’s it worth? To whom? Under what terms and conditions?
Practically speaking, a dental practice buyer wants to buy a dental practice that has enough cash flow to pay themselves a reasonable wage and to service the debt of buying the practice. Concepts aside, the market will ultimately determine the value of your practice! What you may want for the practice is really meaningless. A careful valuation of the benefits and assets, tangible and intangible, hidden and visible, and the accurate communication of those values in terms comprehensible and acceptable to the buyer and his dental practice brokers are essential to a successful dental practice transition.
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