What should you consider when selling your practice? A practice sale checklist
Dr. Bernard Dolansky B.A, DDS, MS, Cert.Endo is past President of the Ottawa Dental Society, the Ontario Dental Association, the Canadian Dental Association, and the Dentistry Canada Fund. As a partner at Tier Three Brokerage, he uses his experience to assist dentists with transition planning; practice purchase and sale; evaluations; associateships; retirement planning; and partnership arrangements.
If we start from the premise that most dentists will only buy or sell a practice once in their careers, then an interesting question arises. Lets substitute “buy or sell a practice with “construct a three unit bridge” and make that first statement into: most dentists will only construct a three unit bridge once in their careers.
If that were the case how many of us would bother to learn the myriad procedures and techniques involved in making a three unit bridge and certainly none of us would be any good at it. Sounds absurd, doesn’t it, as the philosophers would say, a reducto ad absurdum. Yet many dentists do make the buy/sell decision in regard to their practices with little or no training or expert input.
The point is that the decision and follow through of selling a practice should not be a do it yourself project. At the very least it should involve an experienced lawyer and accountant, and I would add an experienced practice transition consultant. With a definite emphasis on the word “experienced”. The buying and selling of dental practices is different than purchasing most other businesses and you will save much time, money, and heartache if your professional advisors have done it before, many times before.
There is a check-list of items that need to be considered in a dental practice sale:
1. Corporate Structure
Most provinces allow dentists to set up Professional Corporations and many have done so. There are tax and other advantages to selling the shares of a PC rather than the assets of a dental practice. There are also, in some cases, disadvantages. Some dentists have also established technical services or hygiene corporations. There are a whole complex of issues that go into making the correct decisions on this subject and it is certainly an area that requires the input of the appropriate professionals and experts.
The staff of a dental office probably represents one of its most valuable assets but from a legal and fiscal aspect they can also represent very real liabilities. The presence or absence of staff contracts is always a factor as is the question of whether staff works for a corporation or the individual dentist. Advice from a lawyer experienced in labour law is required.
Whether you own or lease your premises, a lot of the value of your practice is bound up with its location and its lease hold improvements. The legal document, a lease, that allows possession of those premises is a very key factor in both the value and transition of a dental practice. Depending on the provisions in that lease, there is the potential to hinder a sale, or in some worst cases, negate a sale. These are complex documents loaded with legalese so experienced advice is required. If you own your premises then there are a whole other set of factors and decisions that arise when it comes time to sell.
4. Equipment leases
Simply put, you can’t sell what you don’t own, and leased equipment is actually owned by the leasing company. The best way to deal with equipment leases at time of sale depends on whether there are penalties for early termination of the lease and how much time remains on the lease. Experienced accounting help is required.
Do your associate dentists or hygienists have contracts? Are there non compete clauses in those contracts? Are the contracts assignable? These are important questions for the purchaser and therefore they need to be dealt with by the seller.
Are you making a true effort to collect your insurance co-pays? Because if you are not, then a savvy buyer may want to be indemnified against your illegality.
7. The Process
How much do you know about the practice purchase or sale process? You need to become knowledgeable about practice appraisals and the market for practices in your area so that you don’t receive less than full value whether you are buying or selling. Are you aware of the time lines, actual selling process, and the legal process in transitioning a practice? An experienced consultant or other professional can be an invaluable guide through this complex process.
All of these factors take time: time to learn about them; time to find and get the right advice; time to deal with them; and, if necessary, time to change them so that maximum value is achieved.
The purpose of this article is to raise relevant issues and questions and to fully explore each one of the eight items on this list would require a separate article of its own. But there are good answers for all of these topics and there are people who have the knowledge and resources to save dentists a lot of their own resources of time, money and angst in buying or selling a dental practice. There is a reason that we have specialists in our own profession of dentistry and there is also a reason that specialists in practice transitions exist.