Volume 32: How Do I Prepare My Practice For Sale? Part 1

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Time marches on, circumstances change and nothing is forever. Sooner or later you are faced with the inevitable question, How Do I Prepare My Practice For Sale? To help construct a game plan that best fits your needs the "preparation plans" will be discussed in a series of four articles according to time frame:

Part 1: Eight to ten years from selling time (Volume #32)
Part 2: Four to seven years away (Volume #33)
Part 3: One to three years away (Volume #34)
Part 4: Sell the practice now (Volume #35)

Part 1: Eight to Ten Years Before Planned Sale

In this category you have time to plan. It all starts with a valuation which should specify the current value as well as identifying areas of weakness in your practice such as: a) over staffing, b) location, c) old, tired facility, d) building lease risks.

Assessing weaknesses

  1. Identify your true staff requirements and get yourself onside over time. If you are paying thirty per cent of your gross billings as wages you are paying too much. This will be seen as a weakness in your practice as the purchaser will most likely be hiring all your staff. The extra expense will also reduce your profit and thus your practice value.
    Too often staff requirements are set by the staff. I have seen a practice billing $600,000 and having two receptionists. A good rule of thumb is one star receptionist for up to $900,000 billing – and you want a star in this position. This assumes that you are only open 40 hours per week or less. Larger practices can be structured around an office manager and this will be discussed in a future article.
  2. Is your facility what one would call “contemporary” with good visibility and easy access? Second floor with no visibility, a hole in the wall for the receptionist and no elevator is not where it is at today. If you find yourself in this position you should consider moving. You have time to amortize the cost to your practice and would have good value when you put your practice up for sale eight to ten years down the road. Any facility with a contemporary design will have eye appeal to a purchaser.
  3. When was the last time you did a major overhaul of your practice facility? As in location (above) any renovations can be amortized over the next eight to ten years. Adjusting room sizes and colour schemes can truly improve not only your practice but also your attitude. Your patients will notice.
  4. Three times recently we had situations where the landlord informed the dentist that the lease was not going to be renewed owing to major renovations. This made the practice un-saleable. The forced move meant that not only was there a cost of relocation but it also caused a delay factor in order to show the purchaser that the patients moved with the practice.

In one of the above situations it was a smaller medical /dental building in which a retailer bought the building and wanted the main floor immediately, and ultimately to occupy the entire building. The medical doctors moved out leaving only the dentist and one other professional. Patients were forced come into the building through the back door. The dentist should have moved when the doctors moved out. Now what choices does the dentist have? The dentist could pay for renovations for a new location if one was available, purchase another practice in the area and move the practice into the purchased premises or sell to a local dentist and move with the patients. The dentist did not want to practice too much longer and I recommended selling and moving with the patients. You can see from this last example, a lease does not always protect you.

If you are eight to ten years away from selling your practice, now is the time to plan. There is a comfort feeling of having a more attractive facility to work in and it will be more appealing to the purchaser. Since you are looking eight to ten years away, your facility and equipment are going to age in that time period. One must take this into consideration – an eighteen year old chair and unit today will be nearly thirty years old when you decide to retire. This does not have the best image for the purchaser. The purchaser is adding up the cost of the practice plus $35,000 to $50,000 for each old operatory. Turn key purchases sell better than older facilities.

If you have missed the eight to ten year planning period, the four to seven year recovery period will be discussed in the next issue.

The Professional Advisory

  1. One Year Later

  2. Dealing with Unsolicited Offers

  3. Covid-19 Practice Sales Update

  4. When is the Right Time to Sell Your Practice and Why?

  5. Partnership Pitfalls

  6. The Real Cost of a Dental Practice Set-up

  7. Smaller Practice Realities

  8. Dental Market Update - 2019

  9. Creating Your Own Most Valuable Practice (MVP)

  10. Small Practice Economics

  11. The Market is Very Efficient

  12. How Can Dental Practice Values be Rising and Declining?

  13. Hygiene as a Value Driver

  14. The Value of a Good Team

  15. Is it Time to Move?

  16. Staging A Dental Practice

  17. The High Cost of Dying

  18. Deal-Busters

  19. Patients - Attract and Retain

  20. Should I Stay or Should I Go?

  21. Is There a Buyer for Every Practice?

  22. Good, Better, Best - The Market has Spoken

  23. Smooth-Sale-ing

  24. Buying Time

  25. Patients, Patience, Patients

  26. A Real Patient

  27. Why Do a Practice Valuation? I'm not Selling

  28. Irrational Exuberance or The New Normal?

  29. Do dental equipment and dental technology affect a practice value?

  30. Finding and Being a Mentor

  31. Bigger is Better

  32. Dave's Top Ten List for Buyers (Vendors should read this too!)

  33. How Well Do You Know Your Practice?

  34. Dave's Top Ten List for Vendors

  35. What will happen to dental practice Values in the next 10 years?

  36. Your Premises Lease is an Important Asset

  37. What are Associates Thinking?

  38. There is Life Outside the GTA

  39. When Is the Right Time to Sell My Dental Practice?

  40. Mergers are a Viable Option

  41. Is Your Associate an Asset or a Liability?

  42. Has your Practice Facility Kept Up With Your Billings?

  43. The 100 per cent of Gross Myth

  44. The Past, The Present and The Future

  45. Caveat Emptor

  46. Overpaid Long Term Staff

  47. Selling your Practice in Stages

  48. A Potential Pitfall of Selling Shares

  49. Value in Your Practice Through Balance

  50. Only Trusted Staff Can Defraud You

  51. To Own or Not to Own Practice Real Estate? That is the Question.

  52. Coping With A Large Patient Base

  53. Successful Dental Practice Transitions

  54. Taking Care of Business

  55. The Investing Dentist Phenomenon

  56. Two areas to focus upon that could negatively impact the value of your practice

  57. Organize your Debt in Order to Sell your Practice

  58. Having a Better Team

  59. How Do I Prepare My Practice For Sale

  60. How Do I Prepare My Practice For Sale? Part 3

  61. How Do I Prepare My Practice For Sale? Part 2

  62. How Do I Prepare My Practice For Sale? Part 1

  63. Advice to My Son or Daughter Graduating from Dental School

  64. Transition - What to Expect

  65. Discussion on Digital X-Rays

  66. Partnerships and Shotguns

  67. Strategic Planning - How to Get Started

  68. Calling All Vendors - Practices have Gone Up in Value

  69. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates

  70. Matrimonial Practice Valuations

  71. Purchaser's Guide to Affording a Practice

  72. Location Improvements Throughout Your Career

  73. Small Practice Valuations

  74. Partnerships – The Best and The Worst

  75. Changing Location When the Opportunity Comes Along

  76. Visual Presentation of Your Practice

  77. Presentation of Charts

  78. Your Premises Lease Can Be Your Worst Enemy

  79. How to Select an Appraiser for Your Practice

  80. How Are Your Billing Ratios?

  81. It Pays to Invest in Your Tangible Assets

  82. The Importance of Separate Financial Statements

  83. Five Time Frame Levels to Sell a Practice

  84. 12 Suggestions to Safeguard Computer Data

  85. How to Buy a Visible Practice

  86. Why is there a shortage of good practices today?

  87. The Importance of Equipment in the Purchase of a Practice

  88. The Balanced Practice

  89. Will My Practice Be Saleable in The Future?

  90. Buyer Be Aware

  91. Excess Profit - The Second Key

  92. Patients and Profits are the Keys

  93. Plan Ahead