Most dentists have a sharp focus on the oral health of their patients. Somewhere after that comes the fiscal health of their practices. Planning for retirement is often something that dentists focus on very little.
One of the most important retirement assets for many dentists is their practice. The Business Enterprise Institute estimates that approximately 79% of business owners want to exit their businesses during the next 10 years, yet only about 15% have spoken with an advisor about their plan to accomplish that exit.
As a financial advisor who helps business owners, including many who are in the medical field, I’ve seen how failing to address exit plans can make the difference between retiring on your own terms or having to make significant lifestyle reductions after you retire.
Ideally, you’ll want to begin planning for your exit as early as you possibly can. As they say, begin with the end in mind.
Here are some tips on how to maximize the potential value of your practice.
Clean up your books
For many business owners, there is little difference between personal and business checkbooks. Many times, the business is paying kids’ school tuition, summer vacations, even social club membership dues. While many, if not all, are not true “business expenses,” such actions can make your dental practice appear less profitable, and therefore less attractive, to would-be buyers. In addition, improperly muddying personal and business expenses can create accounting messes that can be expensive to fix.
Implement solid processes and procedures
Most dentists have not had any formal business training and prefer to simply focus on treating their patients. Having systems in place will allow the business to run smoothly and predictably. It also allows for a better transition to a buyer. Developing procedures that clearly define and streamline operations can go far in ensuring your business will run better, now and after you’ve left. Having well-defined systems may also allow for a higher valuation of the practice.
Identify key employees and create cross-training programs
Identify your key employees. Are they committed to the success of the practice? Create retention programs that are designed to encourage people to stay with your practice. Having stability with key employees adds value to your practice and is attractive to a buyer. Consider cross training your team in case someone chooses to leave when you do. Again, this will allow for the business to run more smoothly and will provide redundancy.
Identify potential buyers early
Don’t assume that you will simply sell your practice when you’re ready to retire for the amount that you think is fair. Finding the right buyer may take longer than expected. Understanding the type of buyer for your practice may make a difference in how you plan to sell the practice. For example, do you plan to sell to a stranger, an employee, a partner, or a family member? You may need to plan differently depending on the kind of buyer you hope to attract.
For example, if you plan to sell your practice to a family member, you may want to establish a funding mechanism now to allow for that purchase. Selling your practice to a relative can involve issues you may not have thought of. If like most business owners you’d like to sell it for the maximum value, doing so may help your wallet but saddle your relative with debt that could make it harder for the new business to succeed.
Your best buyer may be an associate. This person already knows a great deal about the business, such as how it is run, its fiscal health, and the personal quirks of the staff. The person may also already have relationships with your vendors, lenders, and most importantly, your patients.
Maybe you’d prefer to sell to a stranger. Doing so might involve using a business broker to find interested and appropriate buyers. Some dental schools or residency programs may even be able to help find new and soon-to-be graduates who are interested in buying existing practices.
Just as you would with other buyers, you’ll need to know the details—how much you need to clear from the sale, how you will be paid, and how the exit will take place. Depending on the buyer and the terms of your deal, you may be required to stay on part-time or full-time for weeks or even months to ease the transition.
Also, sales don’t always mean the buyer hands the seller a check for the full amount. A buyer may need to pay in installments. If so, you’ll need to have planned for how this might impact your finances.
There’s no single best way to exit your practice. What’s important is that you plan for it. Run your business like a business. Manage your books and create processes and controls that will allow the business to function when another dentist takes the helm. A prospective buyer is not concerned about the blood, sweat, and tears you have in the business; instead, a buyer is focused on future cash flows. Can the business continue to make money once the seller departs? The more you can do now to ensure that this can happen, the better your chance of getting the maximum value for your practice.
So, I ask, would you buy your own practice at top dollar?
Financial advisor Jay Langford, CFP®, ChFC®, is founder of Langford Capital Partners. For more information about him and his firm, visit LangfordCP.com
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 4200 Cypress Street, Ste 700, Tampa, FL 33607, (813) 289-3632. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Langford Capital Partners, LLC, is not an affiliate or subsidiary of PAS or Guardian.