Assemble a ‘Deal Team’ Now to Help Create a Roadmap

Key Takeaways:
  • Assemble a “deal team” of trusted advisors (CPA, wealth advisor, laywer, banker) early to guide planning, tax implications and timeline for selling your dental practice.
  • Maintain full-time engagement and strong patient relationships before the sale. Slowing down can reduce practice value and selling price.
  • Clean up your patient lists, review equipment and technology and align staff salaries to present an accurate, efficient and attractive practice to potential buyers.

If you are looking down the road at retiring and selling your dental practice in three to five years, you may be able to unlock significant value in the interim, potentially boosting the price you can get for your practice.

The good news is most of the strategies for improving your practice are cost-free or low cost, primarily focused on continuing the strong practice management strategies you already have in place and adding a bit of strategic planning with the help of key trusted advisors.

One of the most important things to remember is: Do not slow down before the sale. Your full-time involvement is needed to ensure that your practice remains strong until the sale is made.

Following are some key issues and strategies for you to consider as you formulate the plan to sell your dental practice:

Assemble Your ‘Deal Team’

One of the most important early steps you can take two or three years before selling your practice is to assemble your “deal team.” Talk to your CPA, wealth advisor, lawyer, and banker about your plans. They are great resources who often know potential buyers in your market.

Your deal team can help you with deal planning, tax implications for the sale, and your personal estate planning. (Remember, your estate plan will change significantly after you sell the practice.) They will also help set expectations as to the selling price you can get for your practice.

If, during the three- to five-year ramp up to the sale you question whether you should invest in an expensive new piece of equipment, your deal team can help run the numbers and determine whether the equipment will enhance the value of your practice or just be another expense.

Finally, your deal team advisors can help establish the timeline for selling your practice. This may not sound like it, but it is one of the most crucial factors you will deal with. Having a timeline can keep you focused on the objectives that need to be accomplished on the way to your sale. Timelines are great accountability tools.

Keep Firing on All Pistons

All businesses need to strengthen their customer relationships as they ramp up a business transaction, but health care providers — including dentists — have unique considerations. The relationships with their patients are personal and based on trust built over many years. Ensuring patient retention as you plan for a sale adds value to the practice that can strengthen the selling price you are able to command.

Consequently, this is not the time to slow down. You need to keep firing on all pistons as you work toward retirement, so your patient list remains strong. Many healthcare professionals plan to slow down and work part-time for two or three years before selling their practices. But they need to do the exact opposite. If you work part-time, you could potentially lose patients who are not willing to wait longer for appointments. Moreover, patients who know you are planning to retire and do not know who might replace you are likely to leave.

Consequently, slowing down to part-time before selling your practice will lower the value of the practice and, hence, the selling price. Buyers want to know that the most valuable asset in your practice — your patient list — is strong and has not been declining. They want a patient base that is already comfortable with your office location, your staff, and the dental technology you have.

If you want to slow down to part-time, consider doing it after the sale. If you can continue working for a brief time, say, one to two years, and help transition the practice and your patients to the new dentist.

Update Active Patient List

If you have patients who have not had an appointment in five years, but they are still “active” in your practice management system, that can indicate a  concern to a buyer of how many patients they will be taking on immediately or have to spend marketing dollars to bring into the practice. When you enter the due diligence phase of negotiations with a buyer, they are going to want to see your patient list. If you present a patient list with 1,000 names, and then after the sale the buyer finds that only 750 of them are active patients, there is going to be a frustration point.

Clean up the data in your patient list so it is an accurate representation of the value of your practice. Ideally, your patient list is updated regularly, and perhaps updates are automatic, depending on the practice management platform you use. Additionally, run reports showing patient retention rates and data such as how many patients are members of each of the major dental insurance plans you accept.

Remember, your patient list is your most important business asset, so accuracy matters.

Review Your Equipment

Outdated or inferior dental equipment will compel a downward adjustment to the purchase prices of your practice. If you do not want to invest in updating the equipment at this point, that is understandable, but it will result in a new dentist having to make that investment, and that expenditure will come out of the purchase price.

On the other hand, if you have invested in updated equipment along the way and you can show a potential buyer a turn-key dental practice that will require little, if any, capital expenditures on new equipment, you can be confident in asking a strong purchase price.

Review Your Practice Management and Accounting Technology

It may not bring the bang for your buck that new dental equipment or X-ray machines might bring, but the technology platforms you use to manage your practice will make a difference in the ease with which a new dentist can take over.

Given that transitions to new platforms often come with headaches, it may be better for you to continue working with your current platform even if it is a bit outdated. Ideally, you would disclose the potential buyer about the age of your practice management platform.

On the other hand, if you are keeping patient records or practice management metrics on paper, then you need to upgrade before selling!

Review Salary Alignment

A thorough review of your expenses, with the help of your accountant, is an important step as you prepare to sell your practice. One of the most sensitive areas to examine is salary alignment. This considers the question of whether the salaries you are paying for your staff align with their duties, responsibilities, and skill levels.

If you have staff members who are overpaid or underutilized, the buyer will have to deal with that after the deal is closed. Making sure staff are properly paid and filling roles that are essential to the practice is an effective way to help ensure they will continue to be employed by the practice after the transition.

Talk to your staff about their efficiency and communicate productivity goals to them. Set goals for each staff role — associates, hygienists, dental assistants, office staff, etc. For instance, when the dental assistants are not busy with patients, are they helping make phone calls to reschedule appointments, or are they looking at inventory and ordering supplies?

These are things noticed when a new dentist visits to observe the practice and will help support the selling price you are asking for. Ensuring efficiency and productivity will help improve your current profitability.

Questions?

If you are planning to sell your dental practice in the next three to five years, now is the time to plan, make improvements to the practice and meet with your deal team to create a roadmap. Connect with the Adams Brown dental advisor.