Selling a dental practice with multiple locations (e.g., 3-5 offices) is quite different from selling an independent practice. You need to not only have healthy balance sheets and buttoned-up financial reports, but also demonstrate the growth potential of the business.
Here’s how to successfully exit a multi-location dental practice.
1. Identify and Quantify Exit Objectives
To effectively manage the many moving parts in a sale, you should establish clear goals, priorities, and benchmarks to guide the process. Set an exit date, determine the current value of your practice, and see if your goals are realistic. This will also help you understand the tax implications of selling your business and what you can do to gain tax advantages. Ideally, you’d start this planning process two to five years before the target exit date.
2. Assemble Your Dream Team
To design and execute a successful exit strategy, you need experts familiar with the dental mergers and acquisitions (M&A) environment to guide you through the process. These professionals include dental attorney, dental CPA, practice broker, investment advisor, insurance advisor, and practice consultant.
They can help you quantify how much you need to get out of the sale (e.g., the cash you need to retire) and identify the resources you have at your disposal. They’ll perform a gap analysis to show how to grow your practice valuation to meet your objectives.
3. Maximize and Protect Your Practice Valuation
While you focus on growth, don’t forget to protect and preserve the value of your assets and practice. Set up non-compete agreements with associates and key employees and identify value drivers in your practice. Also, look for opportunities to minimize taxes, lower overhead, and maximize cash flow. Meanwhile, develop an asset protection plan and conduct an insurance review to cover all your bases.
4. Grow Your Cash Flow
Your cash flow is one of the key metrics potential buyers will evaluate. Focus on growing your patient base, maximizing treatment plan acceptance, and delivering a patient-first experience to build a solid reputation. Also, update your fee schedules regularly and negotiate with insurance companies to optimize your revenue.
Additionally, implement systems and processes to increase your collections rate. For example, use dental practice management software to take online payments, send e-statements, and automate invoice reminders. You can also use our Billing module to reduce billing efforts by 40% and our Revenue Discovery module to increase productions.
5. Weigh Your Options
You can sell your practice outright to an outside party or transfer it to an insider, such as an associate. Consider the pros and cons of each option to help you make the right decision. In an outright sale, you get an immediate cash payment. This option gives you a quick exit with fewer financial risks. However, you have to invest some upfront efforts into getting all the pieces in order.
Meanwhile, transferring your practice to an insider gives you a longer runway (e.g., 3-5 years) to orchestrate the transition. You can also offer a buy-in option to motivate and retain key associates. While there’s more trust between the buying and selling parties, you should still be diligent about planning every aspect of the transition. For example, reach an agreement of how the practice will be valued, how you’d define performance standards, and how you’d exit the deal if things don’t work out.
6. Develop a Contingency Plan
While nobody wants the unexpected to happen, you must consider how to handle the exit in the event of premature death or incapacitation and have a plan to ensure practice continuity until the sale is complete.
A contingency plan helps ensure that your family will receive maximum value for your interest, preserve your employees' jobs, and deliver uninterrupted care to your patients. For example, you can create a buy-sell agreement in which you'd use life and disability insurance products to fund the completion of the sale or pay for an associate to keep running the practice until it’s sold.
Planning an exit and looking forward to your next chapter is exciting. By following the appropriate steps to make sure your i’s are dotted and t’s are crossed, you can have peace of mind as you orchestrate a smooth transition that’ll benefit everyone involved in the process.
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