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Articles

The Professional Advisory

  1. Is it Time to Move?
  2. Staging A Dental Practice
  3. The High Cost of Dying
  4. Deal-Busters
  5. Patients - Attract and Retain
  6. Should I Stay or Should I Go?
  7. Is There a Buyer for Every Practice?
  8. Good, Better, Best - The Market has Spoken
  9. Smooth-Sale-ing
  10. Buying Time
  11. Patients, Patience, Patients
  12. A Real Patient
  13. Why Do a Practice Valuation? I'm not Selling
  14. Irrational Exuberance or The New Normal?
  15. Do dental equipment and dental technology affect a practice value?
  16. Finding and Being a Mentor
  17. Bigger is Better
  18. Daves Top Ten List for Buyers (Vendors should read this too!)
  19. How Well Do You Know Your Practice?
  20. Dave
  21. What will happen to dental practice Values in the next 10 years?
  22. Your Premises Lease is an Important Asset
  23. What are Associates Thinking?
  24. There is Life Outside the GTA
  25. When Is the Right Time to Sell My Dental Practice?
  26. Mergers are a Viable Option
  27. Is Your Associate an Asset or a Liability?
  28. Has your Practice Facility Kept Up With Your Billings?
  29. The 100 per cent of Gross Myth
  30. The Past, The Present and The Future
  31. Caveat Emptor
  32. Overpaid Long Term Staff
  33. Selling your Practice in Stages
  34. A Potential Pitfall of Selling Shares
  35. Value in Your Practice Through Balance
  36. Only Trusted Staff Can Defraud You
  37. To Own or Not to Own Practice Real Estate? That is the Question.
  38. Coping With A Large Patient Base
  39. Successful Dental Practice Transitions
  40. Taking Care of Business
  41. The Investing Dentist Phenomenon
  42. Two areas to focus upon that could negatively impact the value of your practice
  43. Organize your Debt in Order to Sell your Practice
  44. Having a Better Team
  45. How Do I Prepare My Practice For Sale
  46. How Do I Prepare My Practice For Sale? Part 3
  47. How Do I Prepare My Practice For Sale? Part 2
  48. How Do I Prepare My Practice For Sale? Part 1
  49. Advice to My Son or Daughter Graduating from Dental School
  50. Transition - What to Expect
  51. Discussion on Digital X-Rays
  52. Partnerships and Shotguns
  53. Strategic Planning - How to Get Started
  54. Calling All Vendors - Practices have Gone Up in Value
  55. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
  56. Matrimonial Practice Valuations
  57. Purchaser's Guide to Affording a Practice
  58. Location Improvements Throughout Your Career
  59. Small Practice Valuations
  60. Partnerships – The Best and The Worst
  61. Changing Location When the Opportunity Comes Along
  62. Visual Presentation of Your Practice
  63. Presentation of Charts
  64. Your Premises Lease Can Be Your Worst Enemy
  65. How to Select an Appraiser for Your Practice
  66. How Are Your Billing Ratios?
  67. It Pays to Invest in Your Tangible Assets
  68. The Importance of Separate Financial Statements
  69. Five Time Frame Levels to Sell a Practice
  70. 12 Suggestions to Safeguard Computer Data
  71. How to Buy a Visible Practice
  72. Why is there a shortage of good practices today?
  73. The Importance of Equipment in the Purchase of a Practice
  74. The Balanced Practice
  75. Will My Practice Be Saleable in The Future?
  76. Buyer Be Aware
  77. Excess Profit - The Second Key
  78. Patients and Profits are the Keys
  79. Plan Ahead

Volume 47: Selling your Practice in Stages

Download the PDF version now!

Over the last few months many of our clients have pondered the idea of whether they should sell their practice in stages or all at once. There are many factors to consider when making this decision and every situation is different. However, there are some common issues that will apply and that is what I will focus on in this article.

Prior to deciding if you should sell your practice in stages, the first question to answer is; are you really ready to sell? There are many motivating factors to this decision such as financial, health, time and stress but no one but you can really tell you whether you are ready to sell or not. When you are ready, you will know.

If you have decided the time is right, then the next question is, should I sell it all or in stages? If your intention is to retire upon completion of the sale then the answer is obvious - you sell it all. If on the other hand, you would like to continue to practice for more than two years then you must decide if you want to retain an ownership interest or become in associate for the buyer. In order to stay, there must be enough work for both you and the buyer. The buyer will want to fill up his or her schedule first, which requires approximately 1,300 active patients. If there are enough patients for both of you to be busy, then it is possible to stay.

If you stay and decide to maintain some ownership, you will be required to become partners with the person who buys part of your practice. I’m sure you know of many very successful partnerships in dentistry. Most of these are with partners that are similar in age and philosophy. These partnerships were formed to facilitate the long term goals of both parties. Unfortunately, even these fail.

How much will you sell? If it is any less than 50 per cent, you effectively just have an associate who has some equity. You still have control and all the responsibility that goes along with it. It is really not a major change. Most buyers who will consider a partial purchase will not want to buy less than 50 per cent as they will want control over the future direction of the practice.

For illustrative purposes, let’s assume you sell 51 per cent. The deal closes, and two months later the buyer (your new partner) announces that he/she is upgrading your old computer system and adding digital radiography to the office. The total cost for these changes is $130,000 and you are on the hook for your 49 per cent. Are you going to be happy about that? Is that where you wanted $63,700 of your retirement nest egg to go? A few months later the buyer decides that your receptionist of 25 years just can’t keep up with this new technology and besides she is still booking all the best patients with you and only giving him/her the tough patients to deal with. He/she is going to let her go and you are going to pay 49 per cent of her substantial severance package. Besides the emotional strain that this change will cause you, it will also be very expensive. These are just a couple of examples of what might happen if you sell your practice in stages.

The next challenge will come when you are ready to sell the balance of the practice. Let’s assume your practice was worth $1,000,000 and therefore you sold the first 51 percent for $510,000. It is now four years later and besides the computers, digital x-rays and new receptionist, the buyer has added an associate who has taken extensive orthodontic and endodontic courses to work Fridays and Saturdays. The revenue of the practice has doubled and the bottom line has even more than doubled. You are looking forward to receiving your 49 per cent of a practice that will be worth at least twice as much as it was four years ago. You should be getting close to $1,000,000! The buyer gets a lawyer to draft the offer to buy you out of the partnership and offers you $490,000. You are dismayed but he/she says the growth in the value of the practice is all due to his/her efforts and he/she has no intention of paying you for “my goodwill”. You are not in a good bargaining position. You have cut back your hours, do not want to buy him/her out, and don’t have the energy or resources for a long drawn out battle.

In the end you would have been better to sell it all at the beginning, take the $1,000,000 and invest it wisely, while letting the new owner come in and make whatever changes he wants as you are an associate, earning 45 percent and immensely enjoying the last few years of practice.

David Lind is a Principal in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices. He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at: david.lind@ppsales.com

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