April 8, 2024

What Every Dentist Should Know Before Selling Their Practice

By Spencer Wesley, Realtor®, Dental Practice Broker

As someone who has consulted with hundreds of dentists transitioning in and out of practice ownership, I’ve learned some invaluable lessons about what can lead to a successful sale as well as what can sink a deal. If you’re thinking about selling your practice, here’s some advice that can help ensure you have a smooth transition that comfortably launches you into retirement.

1. Corporate DSO Offer – What to Watch Out for

If you get an offer for your dental practice that seems too good to be true, it probably is. With the rise of corporate dentistry fueled by private equity funds, some practice owners have received purchase offers that far exceed the valuation of their practice. It may feel like you won the lottery, but these deals always come with a catch, and it could be one that puts the owner’s financial well-being, and potentially their retirement at risk.

The deal might look something like this:

  • While the purchase price is high, the buyer will only pay a portion of the money up front, with the remainder contingent on the seller fulfilling certain requirements.
  • The agreement requires the seller to continue working at the practice as an employee for a specified time – typically 3-5 years.
  • During that time, the seller, now working as an employee, will probably need to meet revenue goals that are spelled out in the agreement.
  • If the seller doesn’t meet production targets over the duration of the contract or fails to fulfill some other aspect of the agreement, they may be required to forfeit any additional payments.
  • Some contracts can even include a claw back provision, forcing the seller to return payments if terms of the agreement are not fully met.

It’s tempting to overlook the details of a deal when someone offers you a lot of money, but it’s a big risk. If you receive an offer that your local bank or an investment bank with industry experience wouldn’t be willing to finance, that should serve as a red flag that there could be a problem with the deal

2. Keep Your Deal Quiet

One of my top priorities when working with dental practice owners is to keep all deals quiet. There is no benefit to letting your staff know that you’re looking to sell, and the risks are substantial. You may not intend to let your staff know, but if you’re working with a dental practice buyer who isn’t prioritizing discretion, it’s easy for word to get out.

If your staff know you’re planning to leave, they might try to beat you to it, which can hurt the value of your practice. I’ve seen situations where a deal was not kept quiet and key staff chose to exit, which undermined operations and led to the deal falling apart. Once a deal falls through, the value of the practice is diminished. Fair or not, the business will be viewed as damaged goods by future potential buyers.

3. Keep Your Hygienist Happy

While we’re talking about staff, here’s another suggestion. If you’re thinking about selling, give your hygienist a raise, because keeping your hygienist happy is one way to ensure your practice retains its value. Given the current workforce shortage, your hygienist has options. It’s not that hard for them to find a new job that pays more. A well-timed raise or bonus is a good investment in the value of your practice.

4. Work with a Team of Experienced Professionals

You’ve spent your career building a dental practice and you only get one shot at selling it. To be successful, work with people who know how to do it. That means working with a financial institution that knows what a good deal looks like. Don’t ask your cousin who’s a divorce lawyer to look over the contract – work with an attorney who regularly reviews practice sale contracts for dentists and knows what to watch out for. And it all starts by hiring a dental practice broker who knows how to assemble a team, execute a deal, and who will always protect your interests. When you try to do it on your own, you could risk losing the equity you’ve spent decades building.

If you’re considering selling your practice, give us a call us at Engage Ownership Transitions. We can answer all your questions, help you assemble an experienced team, and serve as your guide to a smooth transition to retirement.