Most dentists reading this article today aren’t ready to sell their practice. In fact, it’s probably the furthest thing from their minds. But it shouldn’t be, epecially if you expect to ride off into the sunset into a great retirement one day.
One of the biggest mistakes that dentists make when heading into retirement is waiting until a year or two before they are ready to sell before they begin preparing their practice. That may work with a residence. But if you wait to prepare your practice until you’re ready to sell, you have already decreased its value.
The key is to start early. If you’re considering selling your practice in the next five years, there are different steps you must take and business issues you need to understand. I recently had the privilege of lecturing at the ADA Big Idea Conference on this subject. This article details some of the thoughts I shared with that group.
Take Steps Now to Build Value in Your Practice
Rather than consider building value in their practice prior to the sale, most dentists concentrate most of their energies on simply selling it. They do not realize that they are losing 10%, 20%, or even 30% of the sale price value by not preparing properly for the sale or, in most cases, not preparing at all. This leads to a decrease in the overall practice value.
Keep in mind that most practices do not sell for the value established in the valuation. They sell for a percentage of that value, often 30% or 40% less. If you believe you’re going to sell your practice within the next five years, here’s what you should be doing.
At the five-year mark:
- Get a financial plan. The financial plan should be done by a professional who can gauge whether your practice is in a good position for sale in five years and how much that sale has to be to ensure your financial independence. Keep in mind that financial planners can only prognosticate how much you will need based on today’s information. Taxes, Social Security benefits, interest rates, and other factors are all subject to national and global influences.
- Invest in excellent management systems. You may think you should begin hoarding money and spending as little as possible, but this would be a big mistake. Many general dentists allow their practice to decline by 30% to 40% in the final three years of ownership because they don’t want to invest in the practice and are mentally moving toward retirement. These practices end up deteriorating in many areas, ranging from office decor to technology to marketing. If you invest the time, effort, and money to implement excellent systems, you will streamline your practice and inevitably raise practice production. This will help to increase the value of your practice in just a few years.
At the three-year mark, you must look at your practice through a more critical lens by getting a true business practice analysis. This is a deep analysis to determine the strengths, weaknesses, opportunities, and threats of your practice and which of these areas need to be addressed to increase its value for a sale. This comprehensive onsite observation includes accessing additional data, interviewing, and assessing practice performance. Performing a practice analysis helps avoid getting late in the game of selling your practice and missing a huge opportunity.
Finally, at the two-year mark, make a retirement plan. Some doctors want to sell their practice and walk away immediately. Others would like to stay on as associates full or part time. Still others would like to sell part of the practice, getting paid for some of their equity but retaining the rest. These are all viable choices depending on the lifestyle decisions that a doctor makes.
Many dentists who are looking to sell their practice do things they should not, including letting the practice decline and not investing in growth. By following the steps explained above, dentists preparing in advance for the sale of their practice can build significant value. This leads to a higher sale price, which may be necessary to allow them to retire comfortably and without worry for their financial future.
Dr. Levin is the CEO and founder of Levin Group, a leading practice management consulting firm that has worked with over 30,000 practices to increase production. A recognized expert on dental practice management and marketing, he has written 67 books and more than 4,000 articles and regularly presents seminars in the United States and around the world. To contact Dr. Levin or to join the 40,000 dental professionals who receive his Practice Production Tip of the Day, visit levingroup.com or email email@example.com.