By Spencer Wesley, Realtor®, Dental Practice Broker
Intro: As a dental practice owner, retirement brings the added complexity of having to sell your practice. Here are some tips to help you get the most value out of your practice while laying the groundwork for a smooth transition.
When you own a dental practice, the day-to-day work of running your business can be consuming enough without having to worry about retirement planning. But given the added complexities of selling your practice, it’s even more important to plan ahead. Fortunately, there are steps you can take now to lay the groundwork for a smooth transition whenever you decide to retire.
#1 – Get Your Bookkeeping in Order
When it’s time to sell your practice, the valuation will be based on information generated by your bookkeeping, such as revenue and cash flow. Any work or income that isn’t captured in your bookkeeping can’t count towards the sale of your practice. Prospective buyers will want to look back at least one to two years, during which time your books should be accurate and up to date.
#2 – Invest in Your Hygiene Department
It’s always a good idea to maximize your hygiene department but it’s especially important when you’re thinking about selling. A productive hygiene department increases revenue by doing things like increasing your periodontal percentage and your practice case acceptance, all of which can bump up the value of your practice. During the valuation process, the current year is weighted more heavily than previous years, so whenever you decide to sell, be sure your hygiene department is operating at peak performance.
#3 – Increase Insurance Reimbursements by Negotiating PPO Agreements
For most practices, insurance claims represent a significant percentage of practice income, but over the last decade, insurance companies have become more aggressive about finding ways to lower reimbursements. One strategy is to make PPO agreements so complex that most dental practices don’t even know what they’re agreeing to. As a result, contracts are full of loopholes that advantage insurers and lower fee schedules for providers. Practices can level the playing field by working with a firm that has the expertise to negotiate with insurers to get a better deal. Look for a firm that has proven results, Like PPO Advisors. Higher reimbursements from PPOs will increase revenue and make your practice more valuable.
#4 – Get Clean Terms on Sale Agreement
I can’t emphasize this strongly enough – when selling your practice, the best deal is one that lets you ride off into the sunset without any strings attached. I see practice owners, lured by a big pay day down the road, agree to terms that require them to continue working as an employee for a set amount of time. They don’t think about what it’ll be like to have to meet production quotas and answer to someone else. I’ve even seen deals where the practice owner didn’t meet production requirements and walked away with nothing. A clean break is the best option.
#5 – Prepare Financially for Retirement
One of the advantages of owning a business is the many options it gives you to save for retirement and build wealth. To take advantage of these, work with your personal financial advisor to make sure you have a plan and are working towards your financial goals. The sooner you can start, the better positioned you’ll be to have the kind of retirement you want. Good planning also reduces pressure to get more out of the sale of your practice than it may be worth.
#6 – Prepare Mentally and Emotionally
It’s important to give serious thought to what you will be retiring to. What comes next? How will you fill your time? I find when talking to practice owners, if they’re quick to talk about things like traveling, or spending time with their spouse and grandkids, it’s usually a sign that they’re ready to retire. If they spend most of their time talking about the future of their practice, and making sure it’s in the right hands, they’re not quite ready to walk away. Either is okay, but before you put the wheels in motion to sell your practice, it’s worth taking the time to evaluate what’s right for you.
#7 – Get a Professional Team
Selling your dental practice is a high stakes operation. You’ve got a lot invested in it and it represents a sizeable asset. Selling a business is far more complicated than selling a house, and not many of us choose to do that on our own. I recommend working with a professional team who have experience and can guide you through successfully.
If you have questions about steps you can take to prepare for your eventual transition to retirement, contact us at Engage Ownership Transitioning. We can help you make a plan, so that whenever you’re ready to retire it’ll be a smooth transition.