May 4, 2021

Selling Your Dental Practice 101

By Spencer Wesley

If you’re among the 77% of dentists who own their practices, this is a message for you. The day will come when you need to sell your practice, which by then will represent a valuable asset in your retirement portfolio. As a practice broker, we’ve facilitated hundreds of these transactions, and we’d like to share with you a few of the lessons we’ve learned over the years.

Lesson 1: Get More Than One Buyer at the Table

If you’re only talking to one potential buyer, your ability to negotiate is severely limited. Having multiple buyers give you leverage to negotiate better terms as you define them. Let’s say Buyer A made an offer below your asking price but promises to give you a clean break, whereas Buyer B is willing to meet your price but with more strings attached. Now you have the ability to come back with counteroffers – ask Buyer A for more money, or Buyer B for better terms. The bottom line is that it takes more than one buyer to create a market, which is what you’ll need if you want to get the full value out of your practice.

Lesson 2: Be Wary of the Earn Out

We’ve all heard the horror stories of earnout periods not working out. To explain, I’ll tell you a true story. A dentist I know who was ready to retire wanted to sell his practice, which was valued at less than $1 million. He met a smooth talker who bought him a nice steak dinner and told him that his practice was really worth $1.4 million. He offered the dentist an Earn Out that included $600,000 up front, with rest of the money to be paid after the dentist met specified production goals, which meant delaying his retirement among other things in the Employment Contract you are going to be party to. When was the last time this dentist was an employee? But the dentist saw dollar signs, signed the papers and things went downhill from there. If you agree to a deal that involves an Earn Out, be sure you understand exactly what you’re committing to and what the penalties are if you don’t meet the set targets. In my experience, practice owners are happiest when they can make a clean break. However, if a group partnership is intriguing, then let’s utilize our experience to optimize the transition terms. The devil is in the details!

Lesson 3: A Failed Sale Will Cost You

Let’s say you reach an agreement to sell your practice and both parties are happy with the terms. Then, for reasons that have nothing to do with you, the sale falls through during the legal and due diligence process. When you go to put your practice back on the market you may find it’s now worth less than it was the first time you went to sell it. People – bankers, lawyers, buyers – will question why the first deal didn’t close and there will be a whiff in the air that something is wrong with your business. It may not be fair but that is the perception you will be up against if Deal #1 fails.

Lesson 4: Experience Matters

Selling a practice is a complex endeavor that most dentists will only engage in once – when it’s time to sell their own practice. That lack of experience often results in getting less value out of the practice due to innocent missteps and rookie mistakes. As a firm that has developed systems and protocols derived from hundreds of dental transitions, the accumulated expertise leads to a smoother process with better outcomes for the selling dentist. The Seller is the hero; I’m the guide to a successful dental business transition.

At Engage Advisors, we work hard to make sure dentists get the full value from their practice when it’s time to sell. To learn more about how we can help you get the deal you want, give me a call today on 708-447-7095 or email me at spencer@EngageAdvisors.com.