There’s More to Selling Your Dental Practice Than the Price

Here is a post from Tim Lott, CPA, CVA and Ellen Dorner of NL Transitions, a Dental Brokerage firm.

Far too many times when dentists are preparing to sell their dental practice, they are focused mainly on the price and may wind up overlooking many other issues surrounding the practice sale that are just as important, some even more important than the price. That is not to say the price is NOT important, because it is; however, there are so many other aspects of the transaction.  Sometimes you need to know when to give on one issue so you can profit or benefit from another issue.

The following are some examples of different components of the dental practice sale where the seller can benefit.

• How are you handling the assets that you are including in the sale? How is the price going to be allocated among those assets?

o As a seller, do you know how the allocation is going to impact the income tax picture in the year of the sale?  It is important to have an income tax projection done to determine how one allocation may differ from another in terms of the income taxes you will pay.  If there’s an allocation that works better for you, compromising on the price may be necessary for you to benefit from that allocation.

• If you plan to stay and work for the buyer as an associate, how will you be compensated?

o Would you prefer to be treated as an employee or an independent contractor? What professional expenses do you want the new owner to cover?  These are all negotiable points and if you’re planning on staying on for at least a year, the compensation you receive might actually be more valuable to you then standing firm on a higher price.

• Will you be selling the accounts receivables to the buyer in addition to other dental practice assets?

o If so, how will they be valued?  If you’ve compromised on the price of the other assets, you might be in a better position to use that as your negotiating chip for a more favorable price on the accounts receivables.

• Do you currently own the real estate where your dental practice is located and if so, will you be selling it or renting to the new owner?

o Again, if you’ve compromised in other areas of the transaction, you’ll want to remind the buyer of the compromises you’ve made in those areas so the price of the real estate or monthly rent works more in your favor. The annual increases and/or expenses can be passed through to the buyer within the lease agreement.

So as you can see, there so many other areas that get negotiated during a practice sale.  If you are solely focused on the price of the practice, you may wind up losing a good buyer when, in actuality, the difference in the price may be made up in other areas of the transaction.  It is important to look at the ENTIRE picture and plan accordingly.

Have a range in mind for the price you’ll accept for the practice.  Also have a range that you’ll accept as compensation, a range for the value of the receivables and if you own the real estate, a range for the sales price or annual rent.  When you approach the transaction with a global view instead of just concentrating on the price, you’ll have a much better chance of success in not only selling the practice, but getting what you want from the ENTIRE package.

For more information about your situation, email Ellen Dorner or call her at (800) 772-1065. Visit our website at www.NLTransitions.com .

Dental Case Study: Selling the Real Estate with the Charts

Here is a guest blog from Ellen Dorner, Managing Director of Dental Practice Sales

Dr. A is a 62 year-old GP that is in the process of transitioning out of his practice.  Dr. A owns his own building in a small office park with good parking, good visibility and in a very stable area.

When Dr. A decided he was ready to transition out of practice, he also decided that he would sell the building at the same time.  With all the good things about his building location, the sale has not gone as easily as he thought it would.  He has had several interested buyers for his practice, all of which are young dentists just starting out.  And while they would love to eventually own their own building, the decision to do so now has been a difficult one.  With @ $200,000 in school loans still outstanding, the additional cost of a building purchase along with the practice has become too daunting.

This seems to be the situation with many dentists who own their real estate.  The buildings were purchased with the notion that real estate always goes up and is a great investment.  And while commercial real estate has taken a hit over the last few years, the decision to own was not necessarily a bad one at the time.  The glitch is that in transitioning a practice with the real estate to a young dentist just starting out is proving to be too much for them to handle at this point in their career.

A better idea may be to lease the building with an option to buy the real estate at a later date.  The critical piece to this situation is to be sure that all terms are in the lease – who will value the real estate, the terms of the eventual purchase and the timing of the purchase.

As in any part of the transition, it is critical to have trusted advisors to walk you through this process.  You are the dental expert, don’t hesitate to rely on other experts for this important transition in your life.

To discuss your situation, email Ellen or call her at (800) 772-1065.