Do you think you are ready to call it quits? Are you ready to retire your drill? Are you ready to move on to the next chapter in your life? Deciding to sell your practice and getting ready to sell your practice are quite different. Here are some tips to make the process of selling your practice a little easier on you.
Do you have an advisory team? An advisory team consists of a CPA (Certified Public Accountant), a CVA (Certified Valuations Analyst), an Attorney, and a Practice Acquisitions Broker to handle the transaction. Yes, you could go out on your own and try to sell your practice to the guy down the hall, but think about this: what would you say if you had a patient come in and tell you they watched a YouTube video on how to do a root canal and did it themselves? Don’t you think Tom Hanks in the movie Castaway would have loved to have a dentist stranded with him on that island? Yes, you may “think” you are saving a buck or two by doing it yourself, but what is your time worth? You eventually will find you need assistance from an expert. So loop them in in the beginning and get their advice, it will save you a lot of headaches and most of all, money in the long run.
Now that you have assembled your team, you will need to know what your practice is worth. So engage your CVA to conduct your practice valuation. The most common and industry accepted valuations are the income-based valuation methods- either capitalized earnings or discounted cash flows. These methods are the best ways to accurately establish the fair market value of the majority of dental practices.
Now the valuation is complete. Are you happy with the outcome or not? Our advice to our clients is to think about what you want for the practice or even what you need and if the outcome of the valuation looks good to you then we are all set to move forward. If the outcome isn’t so great, you can always work with us on a plan over the next couple of years to increase the practice’s value.
So your valuation is at the amount you want. Now it’s time to market the practice. The more people who hear about the practice, the more chances you have of selling it. Brokers have a much easier time getting the details of your opportunity in front of as many dentists as possible. Find a broker that is hungry and will work hard for you. Cast a large net for the greatest interest.
You will start gaining interest in your practice from potential buyers. Your broker should pre-qualify them before scheduling time with you to see the practice. You don’t want to waste your time meeting with people who cannot qualify for financing. Minimizing the traffic helps with maintaining confidentiality and preventing staff and the community of finding out about the sale before you are ready.
Once you have someone you like, you should obtain a Letter of Intent or Offer Letter. Our very own late Norton Hindley called this an “Abridged Terms to Sale”. This agreement (which is non-binding) is a document that should spell out major agreed upon items that will later make up the Purchase Agreement. You don’t want to spend months going through due diligence only to find that you are at odds about purchasing Accounts Receivables in the last hour.
When receiving a Letter of Intent, you will have some options on how to move forward. You can either: accept the terms of the offer given to you; counteroffer and negotiate; or completely decline the offer. Remember that declining an offer without a counter may give the prospect reason to believe you didn’t want them to purchase the practice at any price. So consider your response thoroughly before proceeding with it.
When both of you have decided on things such as an employment agreement, the use of the practice name, a non-compete, and other key issues, there should be earnest money deposited through the broker’s trust account that would apply to closing costs and, if applicable, a down payment. This is when due diligence should start. Your prospective buyer will probably ask for a number of documents and information to review. These items such as tax returns, patient numbers, a breakdown of staff compensation should be made available at the time of request. So be prepared for these requests. A good broker will have given you a checklist of items in advance for your review and preparation.
Finally, the biggest tip we have for you is about communication and responsiveness. Having information available, being organized, and responsive is important in a smooth sale process. We’ve all heard that time kills all deals. The more time that passes between the request for information and the delivery of information the chances the deal falls apart greatly increases.
Are you ready to sell your practice? Please let us help you with all the details. You’ll be happy you did.
