Buying or selling a dental practice is one of those once or twice in a lifetime events, and it’s crucial to get this right. Today I’ll be writing about some important things to consider before you buy or sell a dental practice.
My friend Matt Porter has been a long-time partner at a firm called Menlo Transitions which actually specializes in buying and selling dental practices. He had some great advice to offer on the Thriving Dentist Podcast.
One of the biggest misnomers about this is “I’m going to sell my dental practice with retirement”. The best time to think about selling your practice is actually three to five years after buying it. You’ll never have trouble selling a practice that already has a great system in place, has a great team, is profitable, has great technology. So, it’s important to prepare for the sale in the very beginning by making sure you have a great marketable practice.
2. Don’t incur any additional practice related debt
The value of your practice primarily consists of your profitability or your cash flow and patient relationships, not on tangible equipment. The only exception for this is things like upgrading to digital. You should limit the additional investment especially on equipment 3 to 4 years before selling because you’re really not going to get that value.
3. Honest accounting
I can’t stress how important it is to get your books in order and make sure your accounting records are consistent. Most often there are practices where the tax returns revenue doesn’t match the actual collections from the practice. Most often these are cash payments made by patients that magically don’t get reported.
4. Start tracking your referrals
Buyers really like to know the quantity of referrals and the amount of production that you’re referring out to specialists. There are many general dentists coming out of school these days who are so capable clinically, that they can do so many procedures that retiring doctors might not be capable or want to do. You need to be able to give a number to how many referrals you send out, and quantify it.
5. Don’t coast to the finish line
Taking more vacations and reducing work days, leads to lower collections. Regardless of whatever reasonable explanation you can give, buyers are concerned with decreased revenue and typically if banks and lenders see that your collections and revenue is declining by 10% or more during the last couple of years, they’ll require you the seller to carry back or to participate in financing of that sale.
Whether you want to buy a practice or sell your practice in the future, now is the time to start preparing for that purchase or sale. I hope these strategies come in useful for all of you in choosing to sell or buy a great dental practice.