Selling your practice?

March 21, 2012

Creating a successful dental practice can take years of hard work. Your professional skills, relationships with patients and business ability surely assist in bringing the practice to the high level of professionalism necessary for determining if it is the appropriate time to sell it.

Creating a successful dental practice can take years of hard work. Your professional skills, relationships with patients and business ability surely assist in bringing the practice to the high level of professionalism necessary for determining if it is the appropriate time to sell it.

As the owner of the practice, you know what it has taken to reach this turning point in your life. You have an idea of what value to place on your practice but you are smart enough to know that a professional practice broker should be hired to maximize its sale price and quicken the pace of the transaction. You know that you must maintain the level of professionalism and earnings that your practice has historically enjoyed to get the best for yourself and the key people employed as your staff.

Where to look

You know how much effort you have put into developing your practice. So now you want the practice broker to do the same when marketing your practice for sale and when discussing its attributes with potential buyers.

Seek potential brokers with whom to list your practice through referrals from your peers, by reading professional journals, and other advisors with whom you work such as your CPA and attorney, if they work with a lot of dentists and have the background in assisting in the sale of dental practices. The final decision with whom to list your practice of course rests with you. Do your due diligence and be ready to sell your practice with the broker of your choice.

Follow these points

Here are some points to consider reviewing as a guide to assist you in this decision. These should be reviewed prior to agreeing to sign the listing agreement.

  • When interviewing the broker, find out if the broker has a national reputation and network for potential buyers. This will insure that you don’t find yourself listing with a broker who has only your immediate geographic area to offer you for possible contact with other dentists who may be interested in buying your practice. You certainly want a nationwide market for the sale of your practice and not just a limited local market.

  • Does your broker have a good understanding of the financing potential for your practice? Has the broker assisted other dentists in arranging financing or at least in connecting potential buyers with lenders who are ready to lend for the acquisition of a dental practice? This probably means that local banking connections are not worth much since the majority of the value of a dental practice is goodwill and local banks are not likely to advance money on this type of unsecured lending. Traditional banks want specific collateral that is easier to liquidate than the unsecured concept of goodwill being held, which realistically is only the dentist’s personal guarantee and willingness to cooperate in finding another dentist to take over the practice, in the event of a default.

  • Does the broker have at least a general understanding of the current tax laws and the types of business formats such as LLPs, LLCs, S Corporations, etc. in which your practice has been organized? This knowledge is very helpful when a possible buyer asks questions of your broker regarding the types of organizations and the positives and negatives of each for ideas about what type of organizational format to use for the acquisition. A practice broker may not be a CPA or an attorney but an experienced broker has enough of an understanding of business structures and a good general knowledge of the current tax laws to save you weeks of time in responding to questions without the need to contact a CPA or an attorney or you for every question that arises regarding these issues.

  • A good broker will suggest that you provide a formal valuation of your dental practice. Many dental practice brokers can perform this service, which will present a “fair market value” approach for your dental practice and show you the price that a willing buyer will pay. You may have an over-stated idea of what your practice is worth on the open market. Experienced brokers know the market place and understand what someone will pay and how it can be financed. Top brokers earn their commissions by achieving a sale price in close proximity to the practice valuation’s stated amount and know enough about tax configurations and business formats to assist greatly in closing the sale quickly.

Can you do more?

If all of the above points are considered and discussed with the broker and the answers are satisfactory, you have done just about all of the due diligence that you can do. Some might try to negotiate commission rates, shorten the term of the listing agreement or insist on release clauses within the agreement in the event that the dentist wants to cancel the agreement before the end of its term. A confident qualified broker will rarely budge from the terms and conditions stated in the agreement. That may sound stubborn but it is also a sign of the broker’s strength and confidence in his or her own ability to sell your practice.

Make a careful decision regarding which broker with whom you sign your listing agreement and assist the broker every way you can. Of course, assisting the broker does not mean interfering with the agreed upon marketing plan. A professional broker will contact you as frequently as possible when events are taking place and not merely contacting you for a notice to “chat.”  You and the broker are busy professionals and you are each doing your best to get the practice to closing as quickly as possible.

Once you have selected the best broker for your situation, you can be confident that steps will be taken to assure that you get the most out of the sale of the practice you have worked so hard to build.

Bruce Bryen is managing partner for Bryen & Bryen LLP, Certified Public Accountants. Based in New Jersey, Mr. Bryen specializes in deferred compensation such as retirement plans, income and estate tax planning, the determination of the proper organizational format, asset protection and structuring loapn ackages for presentation to financial institutions. Bruce is also experienced in providing litigation support services and has testified on numerous occasions as an expert witness. Contact him at 800-988-5674, ext. 112.