Practice transition is a significant step in the life of a dentist. You have accomplished many things in your life, including establishing a successful practice. Your professional life and achievements are bound up in your practice. And now, something begins creeping into your thoughts and eventually takes shape: retirement…selling your practice…moving on.
Questions build up as you contemplate the possibility and feasibility of retiring:
- When and how do I move from a practicing dentist to retirement?
- Am I ready for this?
- Who do I want to take over my practice?
- What do I have to do to bring about a successful transition?
- Who can help me?
- When should I get serious about this?
Questions like this can become overpowering and create a stalemate, making you feel unable to establish goals and act on them. But this need not be the case. Your transition from full-time professional life to retirement can be smooth and painless, and you can start right now to make it a reality. Consult an experienced, competent practice transition advisor to help you develop an organizational strategy, execute appropriate actions, and take the steps necessary to achieve the outcome you desire.
Transition errors do occur and can break a deal. They can have negative results on the selling dentist’s financial security, the buying dentist, and the future success of the practice. Avoid errors by taking positive steps, starting as early as three or four years out, to prepare for this momentous transition.
To achieve a smooth transition with a successful outcome, embrace these concepts.
- Conduct Pre-Transition Financial Planning – First and foremost, determine if you are financially and psychologically ready to begin the transition process. Can you financially afford to sell? Psychologically, plan ahead so that you will retire not only from something, but to something. Pursue some of those activities prior to retirement so that when the time comes, you can maintain your sense of importance and the quality of life to which you are accustomed.
- Engage in Early Planning For the Transition – Most dentists underestimate the time it will take to achieve a successful transition. You will need to make a number of decisions, such as your goal for the practice, how to recruit a purchasing candidate, and how to maintain a good relationship with the candidate before and during the closing process. If your practice is a partnership, you will need a buy-in agreement with a Letter of Intent that should include financial incentives to reward compliance and penalize a breach. Both you and the buyer must have confidence that the sale will go through. This early planning process may take as long as three or four years.
- Gather a Team to Provide Transition Planning – Don’t try to do it yourself. Going solo is not an option. Several aspects of every transition are sufficiently complicated to make third party assistance necessary. Build a team to help establish the value of your practice, set a realistic price, and handle related items such as tax implications, legal aspects, psychological implications, and compensation issues. Again, don’t try to do this alone.
- Keep Expectations Realistic – Unrealistic expectations can play a large part in causing a transition to fail. Both sellers and buyers sometimes have expectations that are outside the realm of reality. Most unrealistic expectations revolve around either the value of the practice or compensation. What is your practice really worth? Get an objective, realistic valuation before beginning the process, and then both you and the buyer should meet with the consultant to discuss your individual expectations. This will keep expectations realistic and clear.
- Define the Deal Up Front – To make sure you are dealing with reality, identify your overall goal for the transition and define the deal. Use the checklist below to assist with that. The items are enumerated for easy referral, but are not necessarily in sequential order as to the timing. Work with your consultant to establish an appropriate timetable. This list is not complete. Add items that come to mind as you read it.
a. Hire a professional transition consultant to assist with the deal
b. Make a firm commitment to establish this as the path you want to take
c. If your practice has more than one professional, engage the others
d. Commit to a thorough analysis of your financial condition, current income, and retirement income
e. Get a commitment from the buyer to obtain a thorough analysis of his or her financial condition, access to financing, and relationship with a financial institution
f. Make arrangements for a practice valuation
g. Agree on the valuation date
h. Gather the information necessary for the valuation
i. Determine the size and growth potential of the practice
j. Analyze your needs and expectations
k. Discuss the buyer’s needs and expectations
l. Determine the period of time you will continue to work after the sale, if at all
m. Determine if you want a pre-closing associateship
n. Define the length of time of the associateship
o. Engage the services of an attorney
p. Engage a broker if the facility and property are to be sold
q. Draw up a document containing the major considerations and conditions of the sale
r. Draw up a buy-in agreement with a Letter of Intent if your practice is a partnership
s. Draw up an associateship agreement, if appropriate
t. Set a date for signing the documents
- Negotiate a Fair Deal – Nothing will cause a deal to fail more quickly than if either party believes the agreement is unfair. The price, terms, conditions, demands, and compensation package all have to be reasonable and realistic. If either party perceives the package as excessive or too low, this can halt the process. A fair compensation package is vital to the success of a smooth transition. A professional transition advisor can assist in keeping the conditions fair and acceptable to both parties.
- Keep Your Practice Vital – Make every effort to keep your practice vital and productive. A declining practice will reduce not only your income, but also the overall value and the prospects for a sale. What should you do? Continue to pursue new patients, attract young patients, make fee increases standard every year, put a marketing plan in place, analyze the procedures that are most productive and capitalize on them, keep a high profile in the community, keep excellent records, maintain a consistent staff, make some upgrades to your facility, and control your overhead.
- Analyze Your Fee Schedule – Dentists are often hesitant to raise their fees. Not raising fees will reduce potential income and adversely affect the overall value of your practice. It would not bode well with patients if, upon the sale of the practice, the new owner finds it necessary to immediately raise fees. That may have a detrimental effect on current and future patients. Adjust your fees annually as a matter of course to assure optimal profitability and cash flow. Consult an accountant who knows the dental business and can analyze your fee schedule and recommend changes to assure maximum profitability.
- Stage Your Facility – Follow the lead of real estate agents who suggest a facelift when putting a home on the market, and consider updating your office décor. Take a walk through your office and view it from the vantage point of a potential buyer seeing it for the first time. It may be reasonably easy to give it a fresh look by painting a few rooms, having a thorough cleaning, replacing worn carpet, rearranging pictures, dusting or updating decorations, analyzing the types and age of magazines available, assuring there are sufficient supplies in the washrooms and all the mechanisms are working, removing filing charts and other clutter at the front desk, and making other appropriate changes.
- Update Your Equipment – New professionals find practices with updated technology and equipment attractive. Although many recent graduates may have never developed an x-ray, years of living with computers on their laps has made them comfortable with technology. Digital radiography, internet availability for patients, social media use, and operatories with inner oral cameras are attractive to potential buyers. But because maintaining and recruiting patients is the life blood of a practice, base any substantial equipment upgrades on a firm financial footing with a cost-benefit analysis showing how they will reduce costs and increase efficiency and productivity.
Conclusion
Plan, plan, and plan some more. Start early; build relationships with dental students; be a mentor; participate in an internship or externship program. Talk to dentists who have retired. Ask them what they learned from their experience; discuss what they would have done differently and who helped them along the way.
Set goals. Set a few immediate goals that you can accomplish in a short period of time. Set long-range goals identifying what needs to be accomplished, by whom, and when. Set checkpoints along the way to make sure you are staying on course. Your practice is a lifelong professional achievement that you will turn over to the next generation – what a privilege! Look forward to the next milestone in your life. With proper planning and by setting achievable goals, you can make a smooth transition from full-time dentistry to retirement.
Our dental practice consultants are expert professionals and experienced practice transition advisors. We are available to assist you. Give us a call.