Start Early When Planning Your Dental Practice Exit Strategy

May 23, 2016
Ed Rabinowitz

The sooner you start thinking about an your retirement and exit from practice, the more options you'll have, according to an expert in the field.

Do you know why people like eating at diners? It’s because the menus usually offer a wide array of options. And who doesn’t like options?

So when it comes to planning your dental practice exit strategy, starting that process as early as possible is essential to providing you with an assortment of options.

“We say it over and over, because the earlier the better,” says Kevin Fine, director of healthcare advisory services with the Florida-based accounting firm of Kaufman Rossin. “The longer we have to define certain plans, the more creative we can be. And we never want to be in the position of having to rush and take away from the next stage in their life.”

The problem is that too many dentists aren’t listening.

Importance of Planning

Fine says that, unfortunately, the majority of dentists he sees start to plan their practice exit strategy too late. They talk about retirement, but that’s all they do. And then the years roll by faster than anticipated, and all too quickly they find themselves deep in the fourth quarter with the clock winding down.

“We tell our clients all the time it’s never too early to plan,” Fine says. “We beat them in the head with that, literally.”

One of the advantages of planning early is the ability to develop both a short- and long-term strategy. And because an individual’s needs change, family requirements change, and overhead and different elements of a dental practice change, the retirement plan needs to change as well.

For example, what process you select for planning your dental practice exit strategy has a lot to do with your own personal goals and desires. If you have a solo practice you can bring in a junior dentist and transition them in over time. Or, can choose to sell to a larger group, and be part of that group for a couple of years and then exit. Or, you might simply choose to sell your practice completely and walk away.

“All three of those components and opportunities are based upon an individual’s needs,” Fine says. “That’s why we go back to that planning phase in the beginning and constant analysis, because everyone’s needs and wants are different.”

Key Considerations

Even though you may be planning to wind down your career, that doesn’t mean you should wind down your practice’s revenue. On the contrary, Fine says it’s important to show that your practice is always growing, always profitable. If profits diminish, so might the interest of a potential buyer. Likewise, so do your retirement options.

It’s also critical to make certain the practice is compliant with all regulations. That’s where the operating agreement comes into play, ensuring that all regulatory and legal requirements are in order. But there’s more.

“We also look at the component of a tax liability,” Fine says. “Is there a way we can diminish or create tax efficiency on all sides? There’s an entire process that needs to be followed. From our perspective, we do it the right way or we don’t do it at all.”

And then there are the practice’s records. Fine says he maintains an inventory of a practice’s assets, and allocation of the value of those assets. Having that information readily available is absolutely essential to move forward in an exit strategy.

“That’s something people will want to look at,” he says. “The more you’re prepared to present the information, the easier it is for everybody.”

There’s also the element of the dental practice staff. They may not be immediate family, but they become family. In a small or solo dental practice employees often have significant longevity. As such, there are times when exiting dentists tie these employees into the deal, requiring the purchaser to retain the employees.

“Someone could have been [employed at the practice] for 30 years, and now they’re faced with the prospect of not having a job,” Fine explains. “So, sometimes they become part of the deal, or the deal doesn’t go forward.”

Be Prepared

Fine says that being prepared is a critical component to the lifecycle of a dental practice. Therefore, planning for retirement, the earlier the better, should be part of the practice’s strategic plan.

“Nothing beats time,” he says. “I would rather have 15 or 20 years to plan the correct strategy for our clients than three or five years.”

That element of planning can make all the difference in dentists maintaining their same lifestyle post-retirement, or not.

“Maintain an active approach to how you want to walk away from your practice,” he stresses. “Even if it’s 20 years out, it doesn’t matter.”