Selling a Dental Practice in a Distress Situation

Definition of distress - “Acute or extreme pain or anxiety, state of extreme necessity or misfortune, to compel by pain or force of circumstances“

Selling a dental practice in a distress situation is never easy or pleasant. It is laced with many difficult but related issues, i.e., maintaining staff, maintaining productivity and maintaining practice value.

When a distress situation (usually disability, death, or an extremely adverse financial condition) arises the first priority should be to “circle the wagons” and stabilize the productivity by securing a dentist capable of covering the practice. Possible sources could be younger dentists working in other offices in other geographical areas looking to supplement their income, or seeking out a dentist looking to associate in the practice for a short while with a longer term goal of ownership (this may not be very practical as it is a time consumptive process and therefore may not prevent a decline in productivity).  Perhaps even much more favorably, seek out an experienced dentist who has sold his/her practice,  still wants to work, and can cover the existing hours of the practice until a sale can be consummated.

Regarding the retention of experienced staff who are so valuable to patient relations and maintaining productivity, it is critical to provide reasonable assurances that a prudent buyer will want to retain staff and not make immediate changes in personnel or policy.

Next, if there hasn’t been a recent indication or range of value report of the dental practice done, then have one done immediately so that you have some idea of and evidence of the value of the practice and a reasonable basis for the asking price in a sale situation. This will also provide a potential buyer with valuable information when he/she is doing their own due diligence.

Whatever you do –do not close or shut down the practice. It can be costly and difficult. The value of the “goodwill” will plummet at best, and, in worst case, will disappear altogether.

While the overall goal is to realize the maximum value for the practice in this or any other type of sale situation, one should recognize  that the real value of the practice (distress or not)  is what  a buyer is willing to pay and that the price and other terms will be a negotiation.

Finally, assemble an experienced, dental- specific team of advisors who will work for you and advise you solely as your advocate and not the buyers. 

For more information, email Ellen Dorner or call her at (410) 616-2042. www.NLTransitions.com 

Important Steps for a Successful Dental Practice Sale

When planning to sell your dental practice, it is important to follow a few important steps to realize the most value from your practice. Implementing these steps from the beginning will make your practice sale significantly easier and more profitable.

1.       Continue to generate and maximize your gross collections.  It is easy to fall into the trap of declining revenues when you know that you are planning on selling your dental practice.  Unfortunately, that will also decrease the sales price of your practice. A prospective buyer wants to see a steady and growing practice when looking to purchase.  If it is declining then they become much more reticent and that will show in their offer and may even put them off to presenting an offer.  In addition, banks will use the down year in their calculations when determining whether they will approve a loan.

2.       If you are planning on selling in the next 2-3 years, continue to invest in modern dental equipment, or at least keep the equipment as up-to-date as possible.   A prospective buyer will offer less for the practice if they see that they will need to invest in new equipment early on in the process.  Buyers like to see that the dental practice they are purchasing is a practice that has kept up with the times.  It also lets them know that the patient base is used to a more modern and current practice, which is the practice philosophy of most buyers today.

3.       Your overhead numbers should be true and accurate.  If your overhead numbers include a lot of discretionary expenses, the buyer will see an inflated overhead and may be frightened off by the overhead percentage.  While a buyer will need to perform their own due diligence, you want that process to be as smooth and accurate as possible.  A buyer may not even get to the point of due diligence if they are frightened off by high overhead numbers. The sooner a buyer can have their due diligence performed, and not be impeded by removal of discretionary overhead numbers, the sooner you will be able to move on to a successful transition.

4.       If you are in a lease situation for your practice, it is important to have all the lease information available for the prospective buyer at the time they are engaging in the process.  A seller should be sure that their lease is transferable or assignable prior to selling the practice. If a buyer needs to negotiate a new lease with the landlord vs a transferrable lease with lease options they may be discouraged to buy the practice.  Having to negotiate a new lease will be more expensive for the buyer and they may not want to get involved in that situation.  It would be beneficial to have all that information ready for a prospective buyer when they are first showing interest in your practice.

5.       It goes without saying that the appearance of the office is of the utmost importance.  The first impression the buyer has is of the appearance of the practice.  Just like buying a house, maintaining “curb appeal” is critical.  Most buyers are willing to paint and make the practice “their own”, but they want to start with a good, clean canvas. Keeping the practice clean, well-organized and in top shape will bring a more positive offer from the buyer.

6.       Having data that is verifiable is crucial for a young buyer.  They will want to see practice management reports for demographics, fee schedules, participating insurance reports, A/R, and P & L statements.  Presenting this information in the beginning will keep the process moving in a positive direction and will keep the due diligence process moving along.

   For more information, contact Ellen Dorner (410) 616-2042. www.NLTransitions.com 

Checklist of Items Needed for Dental Practice Sale

Are you starting to consider selling your dental practice?

Here is a useful checklist of some of the items you will need in order to begin the process.

For further details, email Ellen Dorner (a dental broker) or pick up the phone and call her at (800) 772-1065.

General Practice Dental Office in Laurel/Wheaton, MD for Sale

Well-established GP practice in high-rise professional bldg. with free parking. Adjacent to Wheaton Plaza Shopping Center. @2200 sf - 4 ops with high-end updated equipment, lab, staff lounge, private office for Dr. Grossing in excess of 800,000.  Great opportunity for growth due to re-development in Wheaton/Laurel area. Easy access to 95 and 495 and the red line of the Metrorail..  For more information contact Ellen Dorner at NL Transitions at 410-616-2042 / toll-free at 800-772-1065 or e-mail edorner@nltransitions.com.

The Letter Of Intent (LOI) – Does a Dentist Really Need It?

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

The easy answer is no, it is not necessarily needed.   In most states it is not a legally binding agreement anyway, so why go through the effort?

There are actually some very good reasons why having a LOI is crucial to every dental practice transaction, in spite of it not always being a legally binding agreement.  In my opinion, there really is no downside to having one.  Let’s discuss what a letter of intent is and what purposes it serves.

The primary purpose of the letter of intent is just as it’s titled, to lay out what one’s intent is as it relates to the transaction at hand. It should be a one or two page letter or memo detailing some of the major points of the transaction. In the case of a sale or purchase of a dental practice, some of these major points typically identify: what’s being purchased, the parties involved, the price, the timing of the payment, the structure of the transaction, exclusions, covenant details, seller’s compensation and general terms, buyer contingencies, time frames for acceptance of offer and due diligence, deposit requirements, etc.

As mentioned above, since the majority of these letters are NOT necessarily legally binding and may be somewhat boiler-plate, they shouldn’t cost too much in the way of professional fees to put one together. While you may not need to have an attorney involved to draft and submit a letter of intent, we do suggest you have attorney look over it before submitting it to the other party. If you can hammer out the meat of the transaction BEFORE engaging your attorney you may save money and a lot of headaches having your attorneys iron out these issues.

The letter should be a way for the parties to document what they believe has been discussed as it pertains to the major points. It serves as a way to let the seller know your intent to purchase the dental practice is serious enough to make a written offer and should give them some level of confidence that you’ll be committed to the transaction.

It is customary for the seller to require a deposit with the signed letter of intent. The amounts can vary, however, it’s usually in the range of $5,000. Many times the deposit is non-refundable so if the buyer walks away from the transaction, the seller is covered for any professional fees they’ve incurred to entertain the offer. If a seller requires a substantial deposit then the seller may also have to commit to a penalty if they walk away.

The drawback of NOT having a LOI is that without consensus on the main points, the two parties can wind up going back and forth, or worse, the attorneys or other professionals go back and forth on the main points and the parties wind up spending more in professional fees than they have to. Do yourself a favor and minimize your stress level, start with a LOI BEFORE jumping right to the legal agreements. 

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

Maximize Your Chances of Selling Your Dental Practice and Your Sales Price – Part 2

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

In Part 1 (5 Ways to Improve the Selling Price of a Dental Practice), we dealt with issues within your dental office you can “clean up”. However, if those items are already completed, what else can a seller do to enhance the value of their dental practice and increase the chances of selling?

Here are five more things a dentist should or should not do prior to putting their dental practice up for sale:

1.       Don’t coast - This is one of the worst things a dentist can do prior to selling their dental practice. It decreases dentistry production, thereby decreasing practice revenue, which buyers AND bankers do NOT like.  If you want or need to cut back on hours or procedures, consider hiring an associate to help you out. Just be sure you protect the practice with a legal agreement and proper covenants.

2.       Don’t reduce your hygiene hours - THIS is the worst thing a seller can do prior to selling their practice. Not only are you reducing your dental practice revenue, you’re potentially losing patients as well. Reduced hygiene hours also leads to reduced dentistry, a horrible idea if you want to get the most value out of the practice you’ve spent 25+ years building. Keep in mind, if you reduce the hygiene hours, your hygienists may be forced to work elsewhere and inadvertently have patients follow them as well.

3.       Review your dental office policies and systems – Long before you sell, make sure you have excellent operating systems and policies in place. If you’re not collecting a patient’s portion of the fee at the time of their visit, make that change now. If you don’t take credit cards, start taking them. If you’re not running daily, weekly and monthly management reports, start doing so. Invest in your dental practice if you have to by hiring the proper consultants to assist you in implementing the necessary protocols that your practice may be lacking. That investment will absolutely be recouped in a higher sales price.

4.       Track your referrals to specialists- At least one year, and preferably two years, prior to a sale, begin tracking the procedures you refer out each day/week and be prepared to provide your broker with good, accurate information for the prospective buyers. We’re seeing a younger generation of dentists who are getting educated and trained on procedures that many older doctors are referring out. If you can show a buyer the additional revenue potential with these additional procedures, they’re more likely to pay a premium for the dental practice.

5.       DON’T add or eliminate any PPOs prior to the sale of your dental practice - This can backfire terribly.  If you eliminate any PPOs you will probably begin to see fewer patients. Even if the collections stay about the same, it’s typically going to be a short term thing. You’ll likely see a loss of patients as well as a loss of production. When a dental practice decides to eliminate PPOs, there’s a transition period where you’ll have more openings in the schedule as patients cancel their re-care appointments and\ or follow-up work dentistry. If you add PPOs shortly before you prepare to sell, you may NOT get the influx of patients you wanted. In addition, some of your existing patients may actually participate with the new PPO and will be paying less for their treatment, which will show in your production and collection numbers.

This is why it is so critical to think and plan WAY ahead of actually putting your dental practice up for sale. There are always opportunities to enhance your “house” to make it more marketable and more valuable.

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

Maximize Your Chances of Selling Your Dental Practice and Your Sales Price – Part 1

 5 Ways to Improve the Selling Price of a Dental Practice

When someone wants to sell their home, what is the first thing that comes to mind? Typically they will start by improving curb appeal, cleaning out the clutter and making sure it is spotless,  and making it more appealing to the masses. Sellers of dental practices need to think the same way. Here are five ways a dentist can clean their house before they put their dental practice up for sale:

1. Clean up you practice management software – check for old uncollectible balances and write them off. If any of the accounts are collectible, get on them, offer discounts to collect them and clean up the accounts receivables. Check the procedures that the hygienist gets credit for and make sure those are accurate. Be sure your fee schedule is up to date, even those procedures you haven’t performed in ten years. Eliminate, if you can, any provider codes like a hygienist that hasn’t been there in five years or a dentist, i.e. associate and/or original owner provider codes that are still lingering in the system.

2. Clean-up your other record keeping – Make sure expenses are coded properly and discretionary expenses are easily identified. Remove any expense accounts you haven’t used in five years. Have the records filed away in an organized manner so they are quickly accessed when requested by a potential dental practice buyer. Have an organized filing system for your accounts payable invoices and your dental patient charts. This will make it easier on you when the information is requested or when asked questions to support certain expenses etc. It will also make it easier on the buyer for their due diligence.

3. Clean up your office – get rid of the clutter lying on the desk in the reception area and get rid of the “stuff” lying on counters in your lab and kitchen area. Spruce up the reception area and the operatories with up to date décor and a fresh coat of paint, if necessary. Look for opportunities to replace old, outdated pictures with newer, relevant artwork. Be sure the private offices are tidy and without clutter and get the carpets or flooring cleaned. Simple things… you’re not looking to spend a ton of money, hopefully. Make sure the outside is as appealing as you can make it depending on your control over the location of your dental practice.

4. Clean up your staff - make sure their compensation is reasonable and you separate regular wages with discretionary bonuses. Remind them how generous you’re being to them and that the new owner may not be in a position to be as generous to them. If you’re providing unusually generous paid vacation, sick, and holiday pay and year-end holiday bonuses, make sure they understand these are discretionary fringe benefits you’ve been able to afford to show your appreciation of them.

5. Clean up your other overhead – keep in mind you should have been doing this anyway and well before you decide to sell your dental practice. Make sure you only buy the things you need and be sure to price shop. Make sure your staff remains vigilant about spending to control overhead. Evaluate some of your services like telephone, gas & electric, internet or cable, your insurance needs and make sure you’re not overspending. Be an excellent CFO….profits drive value and the more profits your practice shows the more value you’re likely to get.

I am certain there are other areas of your dental practice you can clean up, just as would do when selling your home. Many of the items will be easy and inexpensive fixes, however, they will go a long way in making your dental practice that much more attractive to a prospective buyer.

To review your specific situation, email Ellen Dorner or call her at (800) 772-1065. Here is our Dental Practice Sales website.