Selling Your Practice: Part 2

  • by Andy Alas, DDS
  • Jun 14, 2018, 10:47 AM

Let's prepare for your practice sale. 

Your broker will conduct a review of your practice and determine if it is generating enough income to make it worth selling. Not all practices are profitable enough to sell. They will require an exhaustive review of your numbers. During this time, you must provide financial information from the last three years, including tax returns, quarterly statements, payroll reports and bank statements for the last 36 months. On nights and weekends, you will spend time looking over every report your accountant sends; every payroll report, lease, equipment contract, tax report and vendor list. The process takes a considerable amount of time, but it must be done. If you leave this work to a spouse or staff member, your practice sale may never proceed. This is the phase where many practice sales falter.

Do not get overwhelmed by this arduous task. Realize that this is a critical part of the process, as the buyer's bank will need this information to make a decision as to whether your practice is profitable enough to justify offering a loan. That is why it is wise to do all of this before your practice enters the market. Preparing in advance will allow you to be ready to proceed once you find your buyer. If you don't, your potential buyer must wait for you to collect all of this data and, may potentially choose to purchase a different practice.

Your practice must not be just profitable enough to provide a potential buyer an income; it must be profitable enough to repay a loan of several hundred thousand dollars. You should be able to convince a bank that your practice is worth the risk that both the bank and buyer will assume.

Your potential buyer will receive copies of all of your financial documents. This is why when you start interviewing potential new owners, you must find someone who you both like and trust. They will have access to your tax returns, social security number, expense patterns and other private information. In short, they will have complete access to your financial history. 

While you prepare these documents, you will have the luxury of time and privacy. This process will take several weeks or months. You have no deadlines except for those you place on yourself, and you still control who knows about your plans to sell your practice. Keep in mind that the longer you take to compile the required information, the longer it will be before you are able to sell your practice.  

When this work is complete, it is time to place your practice for sale. Once your practice is released on the marketplace, you surrender control of who knows your practice is for sale. Your dental labs, your supply company representatives and other dentists in your community will learn about your sale. Just like a home sale, your office listing is placed online, and anyone can see it. 

It is imperative to let your staff know of your plans before the practice is for sale. This is very important. This decision will affect their livelihood too, so anticipate the possible emotional responses that such a major change can elicit — tears, anxiety or anger. You owe it to your staff to make sure that they not only hear the news from you, but that you also give them a few days to process it. If you do not, you risk sabotaging your practice sale before it even begins.

When you finish collecting financial data and informing your friends, staff and family, prepare to start meeting some prospective buyers. The next step will be considering the possible outcomes for your practice once someone else is in command.

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