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| Selling Your Dental Practice |
The time has finally arrived. After several years of contemplation you have decided to retire from dentistry. OK! What do you do now? Well you have two options: sell the practice yourself or enlist the help of a dental practice broker. In either case you need an appraisal or rather the purchaser needs an appraisal for financing approval. Financial institutions are very picky about the appraisal company’s credentials. We regularly get calls from banks in Alberta requesting our services.
Now if you’re selling without the help of a broker, and you have a good appraisal, memorize it. Know everything about your practice, from how many new patients per month to being able to explain your income statements. Any hesitation or obfuscation to questions from prospective purchasers causes apprehension and often suspicion.
Next, place an advertisement in Oral Health, the Assoc. of Dentists of B.C. Newsletter and up on as many web sites as you can manage being sure to guarantee your anonymity. Don’t tell anyone, including your staff. The ads in Oral Health will cost about $90/month and figure 6 months to a year to sell your practice.
"....guarantee your anonymity"
Make up a precis of your appraisal and fax it to all known people in the industry but be careful who you confide in. It has been known to have certain people walk into your office and say to the staff, " I hear that the business is up for sale." This is a small industry and everyone likes to talk.
Prepare to spend a lot of time on the phone speaking with prospective purchasers and take a "patience pill", as many of their questions will seem self-explanatory or downright insulting. Remember, most often, that these are first time buyers and therefore have little understanding of what is required in buying and running a practice.
Once you have satisfied their initial enquiries, they will want to see the practice. Now you may say, "Oh no! My place needs painting. I really should do a renovation. Should I replace the carpet, paint the walls, repair the torn chair in operatory two, buy new plants, so the place looks good?" Hold on! Nope! Leave it as is. The physical aspect is relatively unimportant.
Some people with much to gain will try and tell you to do a major refit. A new buyer will almost certainly do one, with colours they like. Of course , make sure everything is tidy and neat and clean, including your private office. Most purchasers are more interested in the financial aspect of your practice, not how many plants you have. The educated buyer is usually looking for a specific type of practice, such as that of a retiring dentist with four ops in an area with great potential for growth. Every one of these prospective buyers will want to borrow one of your appraisals, of which you may have only two. Unless you have already spent some time with this dentist, don’t give them out indiscriminately. When you do, insist on its return within 10 days. That is sufficient time for their accountant to analyze the financial statements and for you to answer all of their questions and also time enough for them to get an OK on financing.
"...neat and tidy"
Sometimes the buyers get hung up with representatives of financial institutions who do not really have the authority to lend that amount of money. You know this is happening when they complain of having to resupply them with with all sorts of information. If they have been directed properly they will get financing within 24 hours. So finally, someone wants to make an offer. Hopefully they’ll have a lawyer who won’t re-invent the wheel and end up with a $10,000 – $15,000 legal bill. When that happens they feel justified in lowering their offering price. By the way we supply a standard offer that we will change at no charge. It’s all on our computers and can be e-mailed to all parties concerned. This can save a purchaser a substantial amount of money. Now that you have an offer, your lawyer and accountant will want to go over it thoroughly before you sign it.
"....financing in 24 hours"
This is a delicate time as there are many people and egos involved. Many a transaction falls through here. If and when an offer is signed by both parties, time is of the essence. The offer will have many conditions which have to be met by certain dates or the offer dies.
These may include a chart audit, corporate income tax statements and books, financing, associate agreements, lease assignment, cost-sharing agreements, meeting with staff, etc., etc.
Once you have a signed offer with all conditions removed, then you may tell your staff, not before. What if everything collapses? You have unnecessarily upset your team for naught. After the deal has closed then you can supply the buyer with a letter to be sent out to all of your patients, introducing the new dentist. Often the buyer will want you to remain on in a diminished capacity for 6 months to further assure them of the transference of goodwill.
"....what if everything collapses...."
If on the the other hand, you choose to enlist the help of a dental practice broker, choose us. No kidding, we’re the best! We invented this business in Canada 25 years ago and have appraised over 2000 practices and sold over 600.
Obviously I have a slight bias here, but in any case, choose someone who specializes in dental practice brokerage. If the broker is a dentist, that’s an added bonus. I can’t tell you how many times I’ve walked into a practice and have immediately been able to empathize with the dentist. Having practiced for 25 years gives me great insight into what a fellow dentist has gone through, what their motivation for selling might be, and what alternatives might be available other than the obvious.
Interview more than one broker. Try to get a feel for this person. Do you have rapport? Are they straightforward? Are they honest in their appraisals? We have many banks across Canada requesting our appraisals. Why? Because some brokers ask what the dentist needs to get for their practice and then works backwards from there. Cooking the appraisal otherwards. Don’t do it! This often results in consistent "low ball" offers. Truth always wins in the end. If no one has faith in the appraisal, you’ve wasted your money.
Next, work harder. I know, that’s why you’re selling. You can’t work harder. If you can, at least keep up production. Buyers are always looking for a reason to decrease the price of your practice. It’s not because they are unscrupulous. They’re scared. They are first time owners and everything about this keeps them sleepless at nights. Consequently, any aberrations in production, warrants close inspection. Other than that, sit back and let your broker handle everything. They will spend hours on the phone, educating young purchasers about ownership of a dental practice. They will defuse any possible roadblocks early on. When negotiations are under way, they are the ones who will keep everyone on track. They are the mediators between the 2 dentists, 2 –3 lawyers, 2 –3 accountants and often 2 spouses. Sometimes in the final hours, we have phones on each ear. Don’t ever underestimate our abilities to keep negotiations between the "ditches".
Well, congratulations! If you’ve saved enough money during your career, you may be able to retire. But hold on, there’s a whole world out there that can use your many varied talents. So go do it!
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| ROI Expands in British Columbia |
Sylvia Wilson is the latest to join our company. Sylvia has spent the last 30 years very close to dentistry beginning with supporting her dental student husband and later working in his dental office. She has raised 3 children and completed courses to the third level in the Certified General Accountant program. She is currently completing her Real Estate licencing requirements. She looks forward to assisting British Columbia dentists with the services they may require. Please feel free to drop by and say hello to her at our booth at the Convention.
Welcome aboard , Sylvia.
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| Selling A Share Means Banking On The Future |
by Timothy A. Brown
It has always been our philosophy that you should only sell a practice when you are ready to sell it all. If you want to continue in the practice, do so as an associate of the purchaser. Selling a share or portion can be more of a burden than a blessing due to the high failure rate of partnerships in general.
Some dentists would prefer to sell 50 per cent of their practice, then enter into some type of partnership or cost-share agreement with the new owner, with the hope of selling the remainder of their share in the future.
While this practise is not uncommon, we caution clients about the pitfalls of partnerships. In our opinion, cost-sharing makes more sense. Essentially, this means that your gross billings and net incomes are kept separate and you agree to share only in the cost of the day-to-day operations.
"....pitfalls of partnerships."
An equity partnership, on the other hand, means that each dentist shares both in the other’s profits and overhead. This is where the trouble begins, particularly if one grosses more than the other. For example, as your partner, say I produced $40,000 per month and you produced $30,000; Why should you get one-half of the monthly profit when I generated more of it? Human nature! Ignore it at your peril!
Watch out for partners — and if you have one, keep your financial matters as separate as possible. Sharing costs is easier than sharing revenues and profits.
If you are selling half of your practice, we strongly recommend that you set your asking price 20 per cent higher than one-half of its appraised value. For example, if your practice has been appraised at $400,000, half of that is $200,000; add a 20 per cent premium and your asking price should be at least $ 240,000. There are two reasons for this premium. First it reflects the risk. What risk you say? The risk that the remaining interest you own may be difficult to sell in the future.
What if the individual you sold the first half to finds that they are busy enough in five years and decides not to purchase the remainder. What if they say, "I’ve just finished paying off the first debt and don’t want to get into debt again. I’m really happy the way things are, why change it?" Now you have one-half of the assets for sale and your goodwill at its then current value which will be discounted further. Why? Buyers perception! Young purchasers are really apprehensive about cost-sharing arrangements. You are trying to sell some kind of partnership to a new third party. What if your partner complicates things? Remember, they have advisors too (lawyers, accountants, spouses, dental dealers, relatives , etc). Do you not think that they may want to influence who buys your part?
When you sell the first half you can provide for a formula to determine the value in five years. You can also include terms in the agreement when you sell the first half stating that your remaining interest must be purchased in five years.
You can predetermine price but what if practice values change over time. You could agree that the buy-out price would be subject to a new appraisal. But what if, for whatever reason, they find a legal loophole to get out of the deal? What if they just won’t cooperate? Now you have the problem of a partner that could really complicate the sale to a third party.
"....what if practice values change over time?"
Mentorship is the second reason to ask for a premium. You are going to teach, train and assist the new owner in building his or her portion of the practice, thereby increasing its overall value. The value of what you can teach the purchaser is tremendous and you should be rewarded for this.
Many owners believe that splitting the business into two will result in two bigger practices. In particular, dentists believe they will refer less cases out and attract new patients in, resulting in much higher grosses. You may end up with the same size practice all over again. Several years ago, we sold half a practice to a young dentist. At the time, the entire office was grossing $500,000. Now, both dentists are grossing over $500,000 each.
However, one problem has occurred: the younger partner is so busy he will not purchase the other half. This leaves the retiring dentist with no choice but to find a third party to buy out his share, opening the door to potential strife.
In a nutshell, we suggest caution when selling a portion of your practice. Be aware and focused on the purchaser’s long term interests and not on the cash at hand. Better yet, sell the practice as a whole and remain as an associate. But no matter what you choose to do, appraisers and brokers can be of assistance to review the deal and the documents for "practical issues," not legal.
Timothy A. Brown is C.E.O. and President of ROI Corporation. He can be reached at (905) 820-4145, by e-mail at timothy@roicorp.com.
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| ROI Corporation Seminars |
If any study club or component society wishes to see our presentation, please call. I love to travel to all areas of the province. The presentation includes information on demographics, selling your practice, associateships, appraisal concepts and misconceptions, actual open market sales figures, transition strategies, cost sharing, and patient count methodology. My last presentation was with the Oral Surgery Study Club at the College in January.
I require either a digital projector or an overhead projector and a screen and several weeks notice. Phone and check as I am constantly travelling about the province and can often drop in and do the presentation.
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| Canaden and Dental Internet Sites |
Canadian Dentists E-Mail Network
www.canaden.com
There are now over 2100 dentists on the Canaden network . Topics recently have included handpieces, imaging software, amalgam questions, scanning for the first time, consent forms & debit cards. Please join up for both canaden & bcden. They’re free!
Know of a dentist in Alberta or Maritimes well known to his or her confreres with impeccable credentials and who is looking for a change? ROI Corporation is actively seeking such an individual to represent us there. Please call John Wilson at 604-932-5380.
Selling your practice?
ROI Corporation wants your listings. There are a multitude of ready & willing buyers out there. Your practice is posted on our website immediately enabling us to more effectively market your practice by our team of professionals across Canada
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| Issues to Consider When Purchasing a Dental Practice - Part |
This article is for those who have decided that it’s time to look at purchasing a practice. The issues discussed will also be of interest to those selling in the future.
The purchase of a dental practice is a time consuming and demanding process for a young dentist due to the complexity of the transaction. The buyer must make some basic decisions prior to commencing their investigations. Firstly it is important to determine your geographic limits. You must be within 30 minutes from home because of children, other family and friends. Many dentists are limited in their ability to relocate and this has prevented many from looking at the thriving practices for sale outside of the lower mainland. The sooner you commit to an area, the more precise your search will be. Driving all over the province looking at practices is very time consuming and frustrating when comparing.
Set your sights on one or two areas and stick to your plan.
Other decisions are:
How much debt are you prepared to incur? $200,000, $300,000, $500,000 or more? Many young dentists have student loans, car loans, new families, mortgages, etc., and are reluctant to borrow a large sum of money at this stage in their career. Some lenders are also reluctant to lend that much.
How many days or hours per week do you want to work? Some practices work reduced hours which may be more suitable if you have other obligations such as parenting or an Associatship. Other practices will require you to work 50-60 hours per week plus weekends and evenings. Think these issues through carefully. If you buy more than you can handle, you may watch your practice become smaller over time or worst yet, suffer burnout
What treatments can you perform competently (Endo, Ortho, Perio, C&B, Implants) and what must you refer out? Do not over estimate your skills!
Do you prefer to work out of one or two operatories? How many hygiene appointments can you check per day? How fast are you? What is your top daily production?
Will you be expanding your practice in the future to include other services, dentists or specialists? If you desire to own a large practice, think well ahead. Relocating is very expensive and has on more than one occasion caused a serious disruption to practice income.
Part II, next issue.
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| Canaden Booth #1317 |
For all of those Canaden members out there, the ROI Corporation booth will be the official Canaden sign in and sign-up booth. For all of you who don’t yet belong, there will be a laptop present so you can sign up right there. There also will be fellow dentists present who will be glad to explain the fantastic opportunities that Canaden has to offer. We’ll be able to call up a typical day on the network and you may even wish to ask your own question over the net and receive an answer before the day is out.
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| Upcoming Events |
| Date |
Event |
| March 9 – 11, 2000 |
CDA/Pacific Dental Conference |
| April 18, 2000 |
Vancouver & D. D. S. – Dental Insurance Plans |
| March 6 |
Victoria & D.D.S. – Value Added Aesthetic Dentistry |
| May 9-13, 2000 |
ODA Spring Convention |
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