There is a myriad of reasons you may start thinking about selling your dental or medical practice. Perhaps you want to spend more time with your family or traveling. Maybe you are nearing retirement and want to ensure the continuity of your business. Or you may have had just enough of all the responsibilities that come with being a business owner.
One of the easiest mistakes to make when you are in the consideration phase is thinking that selling your practice is purely a financial decision. However, in many cases, instead of being straightforward, it is complex and nuanced and warrants the appropriate level of thought and evaluation.
This may seem like a silly question to ask yourself because you are going to sell an asset to make money. However, you need to understand if you are in a place financially where you can discontinue working after monetizing your practice through a sale.
Having an intentional conversation about this with your accountant and a financial planner is essential. They can help you evaluate your personal financial situation and your practice to see if you can afford the sale now or if waiting a couple of years is a better course of action. Remember, your ability to work inside your practice is the secret sauce that results in the best cast flow. Once you sell, that cash flow will no longer exist.
If you cannot afford to part with your practice at this time, one of the things we can do at SDT is to create a plan to provide guidance for the practice owner about what they need to do to be ready to sell in the future. Nothing creates resentment and frustration quicker than dreaming about selling your practice and coming to the realization that you cannot afford it.
Being proactive and starting to work toward selling your practice a few years before you are ready to sell will leave you feeling more satisfied and content with the remaining years you choose to work.
Typically, as you start working toward selling your practice, much of the emphasis is on the financial aspect of the decision. When this happens, the emotional component tied to selling your practice gets downplayed and doesn't always receive the attention it deserves. For the better part of 30 years, and even before you were a practice owner, you were Dr. [insert your name]. Being a physician or dentist is inextricably tied to your identity, and it is not always easy to transition away from that.
It is vital to ensure that you have the ability to sell your practice and maintain your emotional well-being. Hobbies are one way to help transition out of practice and into your next life chapter. Having something to look forward to and keep you engaged can make it easier to step away. From a financial planning perspective, you will want to have planned for that hobby in your retirement budget.
Another option for someone not quite ready to leave their practice altogether but who doesn't want the entire burden of running it alone is to consider a partnership with a younger doctor. This may allow you to extend your career's longevity in a way that meets your needs as they evolve away from the practice.
It is crucial to understand what you do not want to commit to, will not do, or want to do as you move forward with selling your practice. Generally, this is specific to those who decide to continue to work after the deal closes. You will need to be very clear about how much or how little you plan to work and what you want your role to be in the practice, and both parties involved need to agree to this for it to work.
When you are contemplating a sale to a private equity group, knowing what you want can be even more critical. You will need to understand what you are willing to accept in cash and what you are willing to take in stocks. Furthermore, knowing how much you want to work, your salary requirements, and your willingness to take on responsibilities. Also, when you work for a private equity group, the standard vacation time may only be two weeks. Is that enough, or do you require more? There are other considerations when you look at it from a private sale context.
Enter the process knowing where you are and are unwilling to compromise and be prepared to let the other party know what matters most to you.
Valuations can and should be used as a powerful driver of how you manage your business. They can be done at any time and are a valuable way to view the bigger picture. The purpose of a valuation is to track the effectiveness of your strategic decision-making process and provide the ability to track performance in terms of the estimated change in value, not just in revenue.
It is helpful to do a valuation as part of the analysis of a dental or medical practice, whether you are planning to sell to measure the health of your practice. In addition, valuations can be done in preparation for selling a practice to investors, merging with another group, or if adding/removing a partner.
If you are planning to sell to a family member, a practice valuation is imperative. It is not only necessary to substantiate the practice value in case you are audited, but in most inter-family transfers, the parents (the sellers) think they charged too little and the children (the buyers) think they paid too much unless you have independent validation of the value.
Another helpful option is to ask your accountant to do an EBITDA of your business. To spell that out, EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It is a measure of a practice's overall financial performance or a measure of profitability.
The sale of a medical or dental practice can create stress and friction for both the seller and the buyer; and, someone's feelings may get hurt. Even though it is a business transaction, it is easy to take it personally as there can be many emotions at play.
This next piece of advice may border on the touchy-feely. As someone who has practiced law in the past, I have found that people who engage in people are typically compassionate and considerate of other people's feelings. These traits can lend themselves to being more successful in negotiations and perhaps even more important in maintaining positive relationships both pre and post-sale.
But, how do you not take things personally and continue to show compassion and consideration?
One of the best ways to stay positive throughout this process, it to put yourself into the buyer's shoes, specifically if it is an individual. I encourage you to take into consideration what concerns they have and have an honest conversation about it. Think about the support and information that you would have appreciated when you were in their shoes.
Big decisions are labeled that for a reason. Generally, they require more thought, introspection, evaluation, and time. Selling your practice is one of those decisions that can be stressful and create anxiety when made under duress or pressure. When given the proper time and thought, the decision can be rewarding and lead you to start the next chapter of your life. It is also helpful to partner with experts who can help guide you through the process and take some of the burdens.
Spaugh Dameron Tenny can assist you as you start to think about selling your practice and planning for the future. Our team of financial planners offers a consultative approach to understand your objectives and then advise you of what makes the most sense for your specific situation, whether it is for your practice, your personal life, or both. We understand how these intersect and work seamlessly with your legal and accounting teams to executive your strategy.
Learn how we can guide your financial strategy for your practice. Contact us to set up an initial consultation with an SDT Advisor.
Entrepreneurship runs in Andrew's blood. In November of 2021, he launched - Practice Executive, LLC. It is a boutique firm specializing in Practice Transaction Consulting, Growth Forecasting, Key Performance Indicators, Tax Optimization, Real Estate and Associate Analysis, and Entity Structure & Transition Planning for practices. A tax attorney by training, Andrew is also a CPA and a CFP®, and has a passion for sharing his knowledge with doctors all over the country.
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For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists across the U.S. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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