Prepare To Retire Well Before You Want to Retire!

By Margaret Boyce-Cooley
Director, Burkhart’s Practice Support Team

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If you have even had a fleeting thought of retiring in the next ten years, don’t wait to prepare. We regularly hear from doctors that their one regret is not taking the steps they needed to early enough to ensure a smooth, financially rewarding transition for their practice. There is a great deal of preparation required before taking this big step. Failure to plan can create a lower value than you would like to get for your practice, or make it difficult to complete the transaction at all. Dental practices are in transition with regard to ownership; more corporate entities and DMSOs are emerging that will look critically at practice purchasing options. This is coupled with additional dental school graduates who will also be preparing for practice ownership. With this surge in the number of potential buyers comes an increase in the demand for quality practice acquisition opportunities.

What will make your practice more appealing to these unique buyers? Are you poised to take advantage of the marketplace in the next few years? Keep these twelve recommendations in mind as you consider your options:

1. Meet with your financial advisor. Can you afford to sell the practice? You need to be both financially and emotionally ready to sell.

2. Get your books in order. While you might understand them, someone coming in from the outside might not. If you don’t have an accountant, it may be time to hire someone to handle this task for you. All of the financial information surrounding your business needs to be in a format that is easy to understand; this way, your business can be easily valued, and interested buyers can see what they need to make a decision.

3. Discuss the tax impact of a practice sale with your accountant or financial planner. If you are a professional corporation, there are special considerations. Ask your accountant to project your after-tax picture once you are ready to sell.

4. If you have an associate, make sure you have a signed employment agreement that contains an enforceable restrictive covenant as well as a non-solicitation clause. Not having an agreement can negatively impact your practice’s value; if you don’t have one, consult an attorney for guidance.

5. Get a comprehensive practice valuation. Many brokers will credit the valuation fee to a future sales commission. Don’t just settle for a “ballpark” number derived from a mystical formula (production and collections for the past three years, multiplied by the number of active patients, divided by the middle number in your ADA license)-the fee charged for a professional, comprehensive valuation will be worth every penny.

6. It can be tempting to “coast” into retirement, but don’t let yourself slow down or work fewer days. Aggressively encourage new patients into the practice. Buyers are less inclined to buy practices that show a decrease in revenue over the last few years, especially in the pending market.

7. Active patient count and new patient flow are extremely important to buyers in evaluating the health and goodwill of a practice. We have heard that, on average, patients switch dentists every seven years. Therefore, an easy way to determine if your patient base is growing or declining is to divide your number of active patients (seen in recare in the past 18 months) by seven, and compare the result to the number of new patients you have seen in the past year. If the number of active patients leaving your practice each year is larger than the number of annual new patients, then your patient base is shrinking and should be evaluated further.

8. Assess your facility. Consider making some aesthetic enhancements if necessary. First impressions are important to patients and prospective buyers. Practices that do not have a positive “curb appeal” when buyers walk in the door can lose value and take longer to sell.

9. Because most buyers have been practicing for fewer than five years, they would prefer to utilize newer equipment and digital technologies in their practices. The practices that have digital radiography and chair-side computers tend to sell quicker and at a higher price than their counterparts. The more time you have until the practice sale, the easier it will be to get a sufficient return on investment from purchasing new equipment. We recommend that you upgrade your equipment three to five years prior to selling your practice.

10. Write off any uncollectible accounts and work to get the over 90 day Accounts Receivable down to 10% or less. If you don’t, this can become a tricky part of negotiations in the sale of the practice.

11. Consider fee increases. If your fees are well below average, increase them. Patients will accept the fee increase (despite what your team might think) and you will increase your income, as well as improve the value of the practice.

12. Cash flow is powerful in a practice sale. Start by ensuring that your major expense categories (staff payroll, dental supplies, and lab fees) are within industry norms. We have seen high staff overhead negatively impact practice sales. Next, make sure that you are doing everything possible to enhance practice revenue, increase case acceptance, attract new patients, and retain your existing patient base.

Clearly, there are many steps to be taken to ensure you get the most out of your practice transition. Planning is key! We encourage you to take a step toward assessing your practice’s readiness for transition with Burkhart’s Practice View service. Contact your account manager for details.

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