Volume 34: How Do I Prepare My Practice For Sale? Part 3

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Part III – One to Three Years Before Planned Sale

With only one to three years before a planned sale we are coming down to the wire. There is limited time to maneuver. You have definitely come to the point when a valuation is prepared – assuming you have not done so in the past few years. Where are the weaknesses in the practice? Can they be corrected to reflect the changes in the financial statements that will be used to prepare the final valuation to sell the practice? Remember, three years of financial statements are generally the norm unless in very special circumstances it’s one or two years. This means you are in control of how your practice is presented in the valuation.

One should make every attempt to keep the practice production stable or growing – a feature definitely preferred by purchasers. Cost control is also needed as the value is based not on billings but on net normalized profit and patient count. In many situations, where there are low billings per patient, the use of a staff bonus system targeting certain results may be very beneficial to encourage your administrative staff to be more diligent in having patients book and keep their appointments. Increasing their hourly rate carries no guarantee other than increasing costs – thus reducing your net normalized profit. Money may not be the limiting factor for your staff. Your front desk people may not be capable of doing better. They may need coaching or replacing. Every situation is unique.

Cosmetic changes are available and may be needed in order to present your practice in a favourable light. You should treat these as the final changes before it is time to sell. Choose your colours wisely. Major changes to your leaseholds may not have enough additional value in the final valuation to cover the costs involved.

Try putting on a purchaser’s hat and look at your practice. Too often vendors look at all the old “dead” files and think there is opportunity in them because the staff is always going into them to reactivate files from the past. Ideally, if your staff can proactively revive some of the old files, do it now. But if the staff is only reacting to returning patients to pull the file forward, the purchaser would see little value in those charts.

Most purchasers like to see a good dental hygiene management program in place. A motivated hygienist will not only reward the patient but also your bottom line and thus the value of your practice. If you do not have the time or inclination to better train your hygienists there are excellent practice management courses available.

Even if you haven’t used an accountant in the past, now is the time to set up a system of annual financial statements for your practice. The last three years financial statements is all you need for the valuation. What happened before that is not important. Purchaser’s accountants like to see another accountant’s prepared financial statements. It strengthens the reliability of your accounting numbers.

OVERVIEW: The one to three year mark is getting too late to put much money into capital items. Focus on increasing billings and cost control for those three years prior to the sale of the practice. This is especially important if your overhead is high. Remember, both patients and profit drive the value of the practice.

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