On the list

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2001

If you’re considering selling your practice, you should prepare for the sale. Here, the experts give their tips on how to run your practice so that it’s ready to go when you are. Amanda Lohan reports.

Many dentists dream of retiring ‘one day’, but often it is not until they wake up (one day) and decide that time has come and they finally decide to do something about it. Simon Palmer of Dentist Job Search (DJS), a specialist dental employment and practice sale service, says that preparation is essential for sustaining the momentum required to finalise a sale. “It’s concerning to the buyer when the financials are not readily available—however it is surprisingly common for potential buyers to have to wait for the accountant to finish with the financials,” he says. The problem with these sorts of delays, says Palmer, is that the buyer ends up losing interest, finding other options, or simply backing away believing that the vendor is not serious about selling.

“Buying new equipment four or five years out from sale will ensure you get good capital returns.” – Graham Middleton, The Synstrat Group

While financial details will be the buyers’ primary concern, the aesthetics will also play a major role in securing a sale. “It’s like selling a house or apartment… it’s an emotional decision as well as a financial one,” says Palmer. “When they walk through they are trying to imagine the feeling they will get when working there.” If it has been a long time since the practice was refit, Palmer advises spending a couple of thousand dollars on a coat of paint and some new furniture. Particular attention should then be paid to the areas that will be used the most or that will impact on the first impression, such as the reception and waiting areas.

Your exit strategy from your practice should begin at least a year-and-a-half prior to listing it for sale.
Your exit strategy from your practice should begin at least a year-and-a-half prior to listing it for sale.

Graham Middleton of The Synstrat Group has been advising dental practitioners on strategic processes, practice management and practice valuation for over 25 years, and says that many dentists who are approaching retirement age are reluctant to invest in their practices in this way and, as a result, the practices start to look like they’re falling apart. “Buying new equipment four or five years out from sale will ensure you get good capital returns,” says Middleton. “The only trouble is, no- one knows five years in advance that they want to sell.”

What is essential, then, is to come up with an exit strategy well in advance of the decision to sell. Since smooth handover is an essential component of the value of your practice, Middleton says your exit strategy can incorporate a period of ‘semi-retirement’, during which you keep your name on the wall but gradually phase yourself out to reduce patient attrition.

Your exit strategy should begin with benchmarking your practice against the competition at least 18 months prior to listing. “Most dentists tend to operate as little islands and don’t really know how their practice compares to everyone else,” says Middelton. “But you can’t fatten the pig the day before you take it to market.” By benchmarking your practice, you can identify issues that may impact on the value of your practice with enough time to address these issues before listing. This may include negotiating a longer lease, reassessing the appropriateness of current staffing arrangements and fees, or investing in new fittings and equipment.

The end goal, says Middleton, is to demonstrate continuously improving financial performance in the years leading up to the sale. Essential to this process is the untangling of any personal investments, clearly separating, for example, the salary and superannuation for yourself and your spouse, and any personal shares or property.

Once these things have been done, Middleton says the next step is to obtain an accurate valuation from a valuer specialising in dental practices. A good valuer, he says, will look at the value of similar practices bought and sold in a similar area and ask “What is the practice doing right now and what will be maintainable?” The key is to discover not the highest price, but the optimum price.

The disadvantages of under-pricing are obvious, but Middleton says overpricing can be just as harmful. “You don’t want to overprice your practice because you can’t lower the price later on and expect everyone to come back,” he says.

Any valuation performed in the current climate should take into account the surplus of dentists and how this will impact on the future growth and fee-earning capacity of the business. “At the rate we’re producing dentists… practices can hold onto existing patients, but their ability to grow in the face of competition is pretty doubtful,” says Middleton.

Palmer agrees, adding that there are around 65 practices listed for sale with DJS and around 350 registered, active buyers. “About eight years ago we had close to 100 practices for sale and about 100 registered buyers,” he says. “The ratios have shifted and I would say it’s much more of a seller’s market right now than it has been in the past.”

While, however, a surplus of demand can lead to higher prices for sellers, Palmer cautions that strong preparation is still required to achieve the optimum possible price for each individual practice. “The decision to list is usually an emotional one. It is essential that when a dentist gets to that threshold and they decide to sell, they are fully prepared,” he says.

Essential documents

Simon Palmer of Dentist Job Search advises that potential vendors prepare in advance of listing their practice for sale by obtaining the following documents:

  • Profit and loss statements for the last three years
  • A list of equipment of note
  • A floor plan
  • Evidence of security of tenure on the lease for the premises and any major equipment
  • Depreciation schedules
  • Fee schedules
  • Photos of the practice
  • Employee agreements for staff.

More information

Graham Middleton’s booklet, Buying and Selling General & Specialist Dental Practices is available for free from The Synstrat Group at www.synstrat.com.au. The booklet includes a checklist of essential steps in preparing a practice for sale.

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