When is the Right Time to Sell Your Dental Practice?
At some point during your career, you may wonder if owning a practice is your preferred long-term path or if you should pursue a position at a corporate practice. If you have already built your own practice from the ground up
, many factors – both monetary and personal – should be considered when deciding to sell your dental practice.
Whether money or personal time is the deciding factor may vary by dentist, but both aspects may influence the choice to sell your dental practice.
Monetary Considerations Before You Sell Your Dental Practice
From a business standpoint, many dentists may view selling a dental practice as more of a monetary decision. Market data might indicate that the practice has reached its peak value and the selling price outweighs the expected income for the foreseeable future. Conversely, some dentists might experience an inflow of new clientele and view income as more valuable than the current price.
While several monetary factors could influence your decision to sell your dental practice, here are some of the important ones to consider:
The “economic value” of the practice – which differs from the market value
– represents the costs related to replacing the property with another asset. This is an important value to review and understand because it could impact your future financial security if you sell your dental practice.
For example, suppose your practice generates $2 million in annual gross revenue and retains a consistent 40% net profit margin. Your net profit each year would be $800,000, or $2 million x 0.40.
To replace your asset (the dental practice), you would require a new asset that generates $800,000 in annual revenue.
Your dental practice’s value is often separated into two components as follows:
- Appraised value. This is the value assigned by a licensed professional who considers all the factors that contribute to the value of your practice, such as the real estate property, facilities, and number of patients.
- Market value. This is the typical price paid for an asset at any given time. A dental practice's market value is about 40-65% of its annual revenue but could be significantly more or less.
The replacement income is related to the economic value. Assuming the same $2 million in gross revenue and a net practice value of 65%, the pretax value of the practice is $1.3 million, or $2,000,000 x 0.65.
Assuming a total tax rate of 35% on the sale (this percentage will vary based on several factors
), the post-tax sale value is $845,000, or $1.3 million x 0.65.
In today’s interest rate environment, and assuming you could invest that $845,000 in an investment yielding 5 percent annually, your annual replacement income would then be $42,250.
Personal Considerations Before You Sell Your Dental Practice
From a personal standpoint, some dentists find a certain joy in the business management side of things.
Others, meanwhile, may feel disengaged from anything other than practicing their craft. Many dentists embrace the long hours associated with practice management, while some prefer added time at home with their families.
Some of the personal considerations include:
It Might Be Time to Retire
The reason might be as simple as retirement. You may have achieved your career goals, made enough money to cover your plans, and now want to begin the next chapter of your life.
You Might Be Missing Out on Family Time
Managing your own practice often requires a lot of your time -- both inside and outside the office. This could put a strain on your personal life and might force you to rethink and review your work-life balance
Managing Your Own Practice Might be Tiresome
You went to school to become a dentist, not necessarily a business manager. However, the skills required to deliver top-notch patient care — such as analytical and critical thinking, deductive reasoning, and high-level problem solving — typically stretch beyond the medical fields. These are also some of the skills necessary to run a successful business, and as a result, many dentists find themselves capable of running their own practices.
This does not necessarily mean, however, that they prefer to do so.
What to Do If You Are Planning to Sell Your Practice
Deciding to sell your dental practice can be difficult. There are many factors to consider and pros and cons to weigh. If you decide to sell your practice, here are some of the first steps you could take:
Start the Process Early
Selling a dental practice does not happen overnight. It can be a lengthy and involved process, particularly if the finances have little margin for error.
Some practice owners have plenty of money to absorb a subpar selling price. Others, however, may need to run analyses on their estimated retirement expenses, retirement income, savings, and cash on hand to determine if a sale is feasible in the current market. This often determines whether you can sell your dental practice.
A new owner may also look to bring along their entire staff, meaning that your current employees will need to pursue new opportunities. You can facilitate their transition by alerting them early on to your decision to sell.
Renovate and Update the Facilities
Creating a cost-effective transition that allows the purchaser to move in without incurring significant renovation or equipment replacement costs could be an attractive selling point. Any potential buyer may provide a low offer if the facilities require a major upgrade.
Keep in mind, however, that completing improvements and updates at one time could be both logistically and financially unrealistic. Your better option might be to make changes gradually once you have finalized a selling timetable.
Expect Lingering Responsibilities
As the original owner, you may be asked to stay on temporarily after you sell your dental practice. It might be in a limited capacity or a part-time role, but this arrangement is somewhat common for many businesses. It helps to facilitate the transition, promote continuity, and prevent any business interruptions, a common one being the possible loss of current patients after an ownership switch.
Find the Right Coverage for Whatever Decision You Make
Whether you continue to own and manage your own office or perhaps look to sell and join a corporate practice, Dentist’s Advantage can work with you to choose the right coverage for your decision.
Get a quote today.