At some point you may be faced with the fact that you must sell your dental practice. We recognize that this may be like selling your only child and it is an extremely personal topic. Some illnesses and injuries are going to be too severe to recover from. This doesn’t mean that you won’t get better. It does mean that you will be forced to sell you practice before it looses further value. The average long-term disability lasts approximately 3 years. You may be back to work in a few years. Only you will be able to make the final decision.
Dental practices are living entities, and they involve the personal lives of your family, staff, and patients. The intrinsic value of a dental practice is highest when it is viable and functioning. If you are disabled or working fewer hours due to illness, its sale price will decrease accordingly. Month by month your practice will lose value. Be aware of this fact and make well planned logical decisions. Practice sales don’t need to be complicated, but they do need to be planned.
We hope that you can continue to practice, but understand this is not always the case. We are not the experts in practice sale, but can give you some ideas to consider. Since we don’t have a dog in this fight, we can hopefully be impartial and fair in our views. Be smart and consider use of a professional broker/practice appraiser. Practice sales can successfully be sold without their use, but only with sincere effort and planning. Again it’s up to you, and research your options.
Before we go any further, understand that you may get better at some point. Some injuries or illnesses may take years to recover from, and your rehabilitation should be your highest priority. You started a practice before. You can do it again. Whether it means buying an existing practice or starting from scratch, you know how to do it. This will give you a tremendous advantage should you decide at some point to resume dental practice. Just this fact alone should help you sleep well at night and give you hope for the future.
Every dental practice has value and we can divide it into several broad categories.
- The depreciated value of the current supplies and equipment.
- The calculated value of the accounts receivable minus uncollectable percentages.
- The intrinsic value of the practice. “GOODWILL”
- The appraised value of the facility/office. IF OFFERED FOR SALE.
Either conduct your own inventory and depreciation schedule for your current equipment and dental supplies; or have it appraised independently. Keep accurate daily records of your accounts receivable. If you have significant lab bills payable or other expenses not paid they will need to be deducted from the total.
The gorilla in the room is what is the intrinsic practice value? There are hundreds of formulas out there. You will need to decide. The simplest solution is to use one year’s net income averaged over the past 3-5 years. This is a start and only a general suggestion. Take your time and make a decision that works for you and your prospective buyer. Discuss your sale with a broker. Most will give free appraisals and advice. Be aware they want your money and be cautious of making decisions too quickly. Of course, if you are in the hospital your spouse may be tempted to sell quickly. Your prepared PRACTICE CONTINUITY PLAN will make decisions easier and in accordance with your wishes. See our posting.Activate your Practice Continuity Plan
Many new dentists have little financial history and you may consider financing the sale yourself. This has some risks and advantages. By carefully screening your buyer, your risk is minimized. Of course, they may fail. Consider have them assigning a life insurance policy to you until the sale is completed. You will gain addition income in this type of sale based on the terms; to include loan length and agreed upon interest rates. This approach has definite advantages. Until recently, dental practices were one of the rarest type of business failures. This is changing, therefore protect yourself and make smart decisions.
Here is a sample video from one of the hundreds of dental practice brokers out there. Remember there is cost for the convenience and it will be expensive. If you are severely injured or ill, you may want to consider professional help. Understand that you can advertise on the net or get a buyer via your state dental association. Check out the ADA website for some information on practice sales.
No matter which route you choose. Either use of a broker or independent sale, you will need a quality attorney to draw up the sale agreement. Be very selective and ask for references. Once the sale is completed, you are done and can’t go back. Understand your buyer may be concerned you will recover and return to work. Protective covenants are common and should be agreed upon by all parties.
Use this article as a starting point. There have been books written on the topic and your diligent investigation of the issues will pay off. Ask lots of questions and don’t take no for an answer. Remember you are looking out for you family and future.
Once you start down the sale path don’t forget that transition is the next step to survival. You may get better, but even if you don’t; you have value. It doesn’t matter whether you look into education, consulting, or volunteer work; get moving. Your past experience is a valuable resource and can be used to enrich your life and the lives of your family. Look to our posting on transition for ideas.DENTAL PRACTICE TRANSITION
WE ARE DENTISTS HELPING OTHER DENTISTS, WE CARE.