The Profitability Factor in Selling a Practice
Let me begin by explaining that last year, my office had the best production numbers ever. We also had the best collections ever. By far, our numbers exceeded anything we had done before.
Without this high profitability, a buyer will not be able to convince a bank to lend him or her the money to purchase your practice. Older practitioners may have thought that today’s high dental school debt did not affect them. It does, unless you are willing to significantly reduce the sale price of your practice so the buyer qualifies for a loan. By significantly, I mean at least $100,000 off your asking price but probably much, much more.
As I discussed my surprise (no, better said: shock) with my broker, I came to realize something important. You need to work at getting your practice so successful that you don’t want to sell it because it is generating so much income for you. When you get to that point, you know that is the time to sell. Yes, ironically, the day you don’t want to sell your practice is the best time to sell it.
During these conversations, I remembered when I was trying to buy my office all those years ago. I, as the buyer, had a difficult time qualifying for a practice loan. In fact, the practice I was finally able to purchase was the third office on which I had placed an offer. The first two deals ended up falling through. For a long time, I believed the problem was with my qualifications. After a few years in practice, I came to realize that the practices I was looking at were not profitable enough. That is the reason why banks refused to finance those purchases. The banks were protecting their investment. They wanted to make sure that I, as the new practice owner, could draw a salary and pay back the loan. Several years later, the tables are turned. Now, it’s your turn to make sure whomever takes over your practice can draw a salary, make the office note and pay off those expensive school loans.
So, for now, I’m off to the daily grind. I’m going make my practice so profitable that I don’t want to sell it — so that I’ll know the time has come to sell it.