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Volume 55: When Is the Right Time to Sell My Dental Practice?

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Yes, it’s true, that due to a combination of factors, the values of dental practices are on the rise. As a result, we are often asked the question, “When is the right time to sell my dental practice?”, and, “Have we hit a ceiling on these values?” While the answer may be as simple as “Sell it when you want to retire”, I think that the true question that we are asked, is When Is the Right Time to Sell My Dental Practice for the highest price that also provides me with the flexibility to  commence the next stage of my career.

The response to that question is complex and must take into consideration many factors, including net worth, health, family, economics, demographics, the future, and many practice performance factors (No, age is usually not a factor!).

The most important consideration is your personal situation. Surprisingly most decisions are more about lifestyle factors than financial considerations. Selling your practice doesn’t necessarily mean retiring from dentistry. When we are helping a dentist decide what decision to make, we ask many questions about their personal situation, dentistry, and their practice. When a dentist responds that they love dentistry, their patients, and staff, then it’s clearly not time to sell! If the response is; they love dentistry, their patients and staff, but don’t want the management headaches and want the flexibility to slow down, then options arise. These options may include selling and associating back with the new owner dentist, adding an associate, merging their practice, hiring a manager, or simply reducing hours, with the understanding that the value of the practice will decline. When dentists respond that they don’t like practicing anymore, the staff and patients are a hassle, that they are tired, etc. – then do yourself and your patients a favour and sell!

While the concept of selling and associating back is growing in popularity, and for many it is a fantastic way to transition into retirement, it is not always the best financial solution. We recently were part a sale where this occurred, and here are the financial implications. The practice produced approximately $715k per year in revenues, and the dentist was earning $323k pre-tax income. He sold his practice for $730k and agreed to remain as an associate for five years earning 45 per cent associate compensation. In this example, his new wages would drop to $189k for the same production. If we compare the financial implications after five years (without taxes, fees, etc.), and can invest the proceeds of the sale at three per cent per year, and assuming that the practice value stays the same, here are the results:

Sell

Don’t Sell

Earn $189K/year

$   945K

Earn $323K/year

$1,615K

Invest $730K @ 3%

$   848K

Practice Value

$   730K

5 year total

$1,793K

5 year total

$2,345K

This was not a financially motivated transaction, but it made sense because the dentist did not want to continue to own and manage his practice.

The above strategy is also increasing demand for the practices where dentists want to remain as an associate. In some instances, the price paid for a practice if a dentist is willing to stay on, can be higher as typically these purchasers have other practices, and can reduce costs through operational efficiencies, (bulk buying, shared resources, etc.), by bringing in additional services (specialists, implants, additional technology, etc.), and don’t forget, you are a very valuable associate.

Another factor to be considered is the convergence of economic and demographic forces. It is clear that our dentist population is aging, and due to two major recent economic downturns that have affected net worth, some dentists are being forced to delay retirement. By some estimates, 34 per cent of Ontario dentists graduated in 1982 or earlier, making them approximately 55 years old and over. At some point, these dentists will want to sell their practices, and depending on the location, etc., the increased supply may put pressure on the supply demand forces in the market and may in fact bring practice values down.

Irrespective of when you decide to sell your practice, you will be faced with competition from other sellers. This fact makes it extremely important to ensure that you prepare your practice for sale well in advance of the listing. The factors that create value include; a stable revenue stream, good profit margin, solid long term premises lease, good hygiene program, good recall patient base, a decent asset base, etc. The preparation for sale and your retirement planning can be started as much as 5-10 years before you actually sell.  

To maximize the value of your practice, start focusing on your practice well in advance of the selling decision. The start of this planning phase may involve performing a comprehensive valuation of your practice, and working with your other financial advisors to create a long term plan. In a typical valuation there will be enough information for you to identify issues and opportunities to work on to improve value. Subsequent simple updates can be completed every two years to measure the results of the changes you have made.

In summary, the decision to sell should be based on your own personal situation. You will know when the time is right. The most important part of this process is that you start as early as possible to understand the market, and take the necessary steps to maintain a strong healthy practice. That way, irrespective of market forces and competitive pressures, your practice will be ready to be marketed and its value will be maximized.

Colin Ross is a Partner 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:colin.ross@ppsales.com

 

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

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