For many of our clients, the value of their dental practice is a significant part of their net worth, as well as an asset that if sold can generate retirement income. I have always believed a dentist must plan for the sale of his or her practice starting three to five years before they are ready to sell. Here are some ideas on things you should be doing to prepare your practice for sale:
- If you are five years from retirement and you do not own digital X-ray equipment, you should seriously consider installing it in your dental office. As a dental practice broker, I am told by most young dentists looking at buying practices that they cannot practice without this equipment. A buyer might discount the price he or she would offer to compensate for the fact that they have to buy this equipment in order to practice.
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- You should engage the services of a dental-specific attorney to review your office lease. There are many pitfalls in dental office leases that make the practice in some cases impossible to transfer unless taken care of prior to the sale.
- Many business owners (dentists included) take write-offs for items that might be considered more personal in nature but have some connection to the business. Examples would be things like travel, entertainment and items in categories like promotional and office expense. While you might have won the battle for many years, if your taxable profit shown on a tax return is low in the last two to three years of practice, the buyers could discount their asking price and the banks will not give you credit for these expenses in calculating what they would lend to a buyer. Right, wrong or otherwise, buyers sometimes equate what the bank will lend to what the practice is worth, which is not correct. My advice is to clean up your profit and loss statement for the last two to three years of your practice ownership.
- Sit down with your financial advisor and make sure you have the financial ability to retire. Keep in mind that when you retire, certain items that were paid through your practice — such as health insurance and automobile expenses – will no longer be and will have to be factored into your retirement income needs projection. This planning should be done at least five years before you are planning to sell.
- If your practice revenues have been flat or declining, three to five years prior to sale you should consider using the services of either a dental management consultant and/or a dental marketing company to boost revenue and profit. Buyers like practices that have upward revenues and profits and you will through use of the consultant make sure that your practice systems and procedures are up to date and working at optimum efficiency.
- Within a year before selling, make sure you have new paint and carpet, and that the office looks modern and presentable. Strong lighting will make the practice look better. Think about what your agent has told you when you have sold your home.
- Finally, consider contacting a dental transitions specialist in the area to assess your practice value and to give you an idea as to what you can expect as to practice value and get his or her take on what other things you should do regarding the potential sale.
Taking these steps will make for a more efficient and profitable practice transition.
Art Wiederman is a CPA and managing partner of Wiederman and Chamberlain, a CPA firm that works with about 250 dentists in Tustin, California. He is a frequent lecturer at local, state and national dental meetings and is a founding member of the Academy of Dental CPAs (ADCPA), which comprises 26 dental CPA firms across the country, servicing more than 9,000 dentists.
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