The sale of a dental practice is one of the most significant events in your professional career. If handled properly, it should be a rewarding and profitable transaction for all parties involved. McLerran & Associates has the experience and expertise to help you navigate the transition process from start to finish, including developing a customized transition strategy for your individual situation, finding a buyer who is the right fit for your practice, and maximizing the value you receive for your practice.

Making the Decision to Sell Your Dental Practice

Making the decision to sell your dental practice requires a great deal of thought regarding when and how you would like the transition of ownership to occur. Here are some of the key considerations you should take into account when planning your practice transition:

Financial Considerations

For many doctors, their dental practice is one of their most valuable assets and the proceeds from the sale of their office will be utilized to fund a significant portion of their retirement. Therefore, it is crucial for you to understand the key factors that influence the value and marketability of your practice to ensure that you are in the position to maximize the value of your office at the point of sale. While the average sales price of a dental practice from a national perspective is approximately 65% of the most recent year’s revenue, there are a number of other factors that can influence value in either direction, including revenue trends, profitability, type of patient base, type of dentistry, location (urban vs. rural, high visibility vs. low visibility), quality and age of equipment, curb appeal, etc.

The first step in the transition process is to obtain a practice valuation from a local, reputable practice broker so you and your financial advisors can determine if you are financially prepared to sell your office. It is also important to remember that selling your office is not synonymous with retiring, as there may be opportunities for you to continue generating personal income following the sale by working as an associate in your office or outside of the non-compete radius. Once you have determined that you are financially prepared to sell your practice, it’s time to move onto considering the emotional implications of the sale.

Emotional Considerations

We have found that the emotional process of selling a practice often plays a more significant role than the financial implications. For many practice owners, it is extremely difficult to consider selling their practice due to the emotional ties the doctor has to their patient base, staff, and the business they have spent their entire career building. These emotions can be even more intense for those doctors who do not have other interests or hobbies outside of practicing dentistry. Therefore, it’s important to ask yourself these questions before making the decision to sell:

How strong is my emotional connection to my practice?

What interests or hobbies do I have to keep me busy following the sale?

Am I ready to give up control of my practice?

If you plan to continue working in your office following the sale, are you willing to adopt an “associate mentality” and be accepting of change?

It is also worth mentioning that the emotional implications associated with the sale of your practice will increase once you accept an offer and begin navigating the closing process. By asking yourself the above questions and dealing with these feelings prior to putting your practice on the market, you will be in the position to minimize your anxiety as you navigate the transition process.

The Importance of Planning Ahead

As practice brokers, we are often contacted by practice owners on the day they are ready to sell. In that situation, the doctor’s options are relatively limited in regards to the type of transition strategy they can utilize to sell their office. As is often the case, the doctor has also taken their foot off the gas in recent years, resulting in a significant decline in revenue, profitability, and practice value. To avoid these mistakes, we encourage you to contact us at least three years in advance of your practice transition. In doing so, you will gain valuable insight regarding the current value of your practice and the key factors that impact practice value and marketability. This information will also provide you with sufficient time to develop a customized transition strategy to meet your individual needs, make changes to your office that will enhance value, and avoid mistakes that may negatively impact value.

Over the past few years, market conditions have been favorable for sellers, as there has been strong demand for dental practice acquisition opportunities coupled with a limited supply of sellers and lenders have been providing buyers with 100% financing at historically low-interest rates. While market conditions remain favorable at the moment, we are expecting several changes to occur over the next few years that could have a significant impact on practice value. Therefore, it is more important than ever for potential sellers to understand the factors that influence value and take the necessary steps to maximize practice value, beginning with considering the financial and emotional implications of a practice sale and planning for their transition in advance.

The Role of a Dental Practice Broker

FACT: A dental practice is typically the doctor’s most valuable and prized possession.

FACT: A dentist will typically sell a dental practice only once during his or her professional career.

Considering these facts, many dentists will make the wise choice to entrust the responsibility of selling their practice to a professional who has the knowledge and experience to facilitate a successful transition … a dental practice broker. We have found that our clients typically receive a higher value for their practices, have a more amicable relationship with their buyers following the sale, and experience much less stress and anxiety during the transition process than their counterparts who try the “do it yourself” approach.

Selling a dental practice is not like selling a home … it is a complicated process which extends far beyond simply finding a buyer and closing on the sale. While some practice owners may be able to identify a buyer who is interested in purchasing their practice with little difficulty, getting from that point to the closing table is the most challenging component of a practice sale. Determining the market value of the practice, finding the right buyer, negotiating the purchase price, drafting the asset purchase agreement, formulating the transition plan, negotiating the lease assignment, and obtaining practice financing are just a few of the key areas where a potential practice sale can be derailed and the experience, expertise, and guidance of McLerran & Associates can prove to be invaluable.

Doctors who are preparing to sell a dental practice often ask us what our role in the process will entail. Here are our primary responsibilities as your practice broker:

Identify and accomplish the seller’s goals for the transition – Every doctor and practice is unique so it is imperative for us to spend the time to understand the seller’s individual situation and goals and formulate a transition strategy to meet their needs. Solely represent the seller’s interest throughout the process – While our goal is to put together a win-win transaction for all parties involved, our responsibility is to solely represent the seller’s best interest during the transition process. Beware of other practice brokers who offer “dual representation”, as it is impossible to represent the best interests of both the buyer and seller simultaneously. Determine a fair market value for the practice, maximize the value the seller receives at closing, and be able to support and articulate the value to interested buyers and their advisors. Construct a detailed marketing profile and cash flow analysis for the seller’s practice – The marketing profile includes all of the pertinent information a potential buyer and their advisors will need in order to evaluate your practice. Confidentially market the practice to qualified buyers and advertise the practice on a local, state, and national level via the web, print ads, seminars, trade shows, etc. We require all prospective buyers to sign a Confidentiality Agreement prior to receiving any information regarding your practice. Handle all inquiries from potential buyers and their advisors regarding the practice, including conversations, email correspondence, and showing the office after business hours. Work with the seller to identify the right buyer for the practice so that the staff and patients will be in good hands following the transition. Serve as a buffer between the buyer and seller throughout the process (particularly during price and contract negotiations) to preserve the goodwill of the practice and relationship between the parties. Provide draft contracts including the Letter of Intent and Asset Purchase Agreement. Provide an organized process so the practice sale and transition go smoothly, including managing all correspondence between both parties and all of their advisors (attorneys, accountants, consultants, lenders, etc.) Assist the buyer with securing practice financing. Assist the buyer with building an experienced team of dental advisors so that he/she is positioned for long term success following the transition.

As you can see, our team plays a vital role in the transition process. When you consider all of the responsibilities associated with owning/operating a dental practice along with the expertise and time necessary to fulfill the practice broker’s responsibilities, it is easy to understand why doctors who attempt to sell a dental practice on their own are often overwhelmed by stress and anxiety. Therefore, we encourage you to contact McLerran & Associates when it is time to start planning the sale of your practice.

Why Choose McLerran & Associates?

While it is important to understand the role of a practice broker and the importance of utilizing their services, it is also imperative that you hire the RIGHT broker to represent you in the sale and facilitate a smooth transition. In addition to handling all of the responsibilities discussed above in a professional and efficient manner, here are a few additional reasons that McLerran & Associates is the premier dental practice brokerage firm in Texas:

Experience & Expertise

Our team has specialized in providing practice appraisal and transition services to Texas dentists since 1987. We have been involved in over 1,000 successful practice transitions and understand the significant impact a practice sale has on both the professional and personal lives of our clients. With a diverse skill set and knowledge in finance, accounting, marketing, and professional sales, our team has the experience to craft a transition strategy to meet the goals of each client and expertise to properly value your practice, effectively market the practice to find a buyer who is the right fit, maximize the value our client receives for their practice, and work closely with all parties involved in the sale to facilitate a smooth transition of ownership.

We Only Represent Sellers

At McLerran & Associates, we work diligently to structure a win-win transaction for all parties involved in the transition but our fiduciary responsibility is solely to the seller. By exclusively representing the Seller, clearly disclosing this fact to the buyer, and assisting both parties in building a strong team of advisers, we have the ability to represent the seller’s best interest while ensuring the buyer has proper representation and is positioned for success following the purchase. Beware of working with a broker who advocates dual representation, in which they represent both the buyer and seller. Under this arrangement, the broker is obligated to share all details with both parties, including any statements made by either party concerning pricing or terms. Since the buyer’s and seller’s financial interests are typically converse to one another, it is nearly impossible for the broker to fairly represent both parties under the dual representation arrangement.

Marketing Your Practice

McLerran & Associates employs numerous effective marketing strategies to ensure that we identify a buyer who is the right fit for your office in a timely manner and maximize the value you receive for your practice at closing. We confidentially market our listings via our website (which ranks very highly on Google and provides your practice with strong national exposure), online dental communities such as Dentaltown, local and state dental journals, and local dental conventions and dental society/study club meetings. However, that is just the starting point. We are heavily involved in the local dental community and spend a great deal of time educating and cultivating relationships with potential buyers. When a buyer makes initial contact with our office, our focus is to get to know them (background, career goals, practice philosophy, personal financial condition, etc.) and determine what type of opportunity they are looking for. Because we place a high priority on developing meaningful relationships with potential buyers, we maintain a strong pipeline of qualified buyers and can immediately reach out numerous doctors who may be the right fit for your office immediately upon listing your practice.

Involvement in the Local Dental Community

At McLerran & Associates, we feel that it’s imperative to play an active role in the local dental community in order to keep a pulse on current market conditions and cultivate relationships with potential buyers and sellers. We accomplish this initiative by regularly attending and sponsoring local dental society and dental study group meetings, hosting seminars to educate buyers and sellers on the transition process, and networking with professionals who serve as valuable resources for our clients (attorneys, accountants, consultants, equipment reps, etc.). We also volunteer our time and make considerable monetary contributions to charitable dental organizations such as the Capital Area Dental Foundation.

The Critical Steps of Selling a Dental Practice

As previously mentioned, selling a dental practice is a complicated process which extends far beyond simply finding a buyer and closing on the sale. Therefore, to ensure your practice transition is successful, it is imperative to follow these crucial steps:

Begin the planning process three to five years in advance of a transition. There are countless ways to sell a dental practice. Therefore, it’s imperative to meet with our team at McLerran & Associates well in advance of a sale to determine the best transition strategy to accomplish your individual goals. Another advantage of beginning the process three to five years before a sale is the ability to address and correct issues that could have a negative impact on practice value, thus ensuring that you maximize the value of your practice upon the sale and position the future practice owner for success. Once you have selected a transition strategy and prepared your practice for sale, you are now ready to initiate the transition process. The first step in this process is to collect all of the information we will need to complete a practice valuation/appraisal: practice reports, financials, office lease, equipment list, pictures, etc. Upon establishing the value/asking price, we will construct a comprehensive practice profile that will be utilized to confidentially market the practice to prospective buyers. When you sell a dental practice, maintaining confidentiality during the transition process is extremely important. At McLerran & Associates, we require all potential buyers to complete a confidentiality agreement prior to receiving any information regarding your office. We also oversee all communication with potential buyers and their advisors and handle initial practice showings after office hours. Should a buyer determine that your practice is a good fit after reviewing the profile and visiting the office, a follow-up meeting will likely be arranged to allow both doctors to get to know each other. The next step is to find the right dentist for your practice. To sell a dental practice, many brokers will simply list a description of your practice in various journals and on their website with the hope of coming across a buyer who is a good fit. This approach doesn’t cut it! At McLerran & Associates, we work diligently to cultivate relationships with prospective buyers to understand their needs, goals, and skill-set then match them with the appropriate practice. By taking a more hands-on approach, our team can find a quality buyer in a shorter amount of time. Once an ideal buyer has been located, the next step in the process is to agree on the terms of the purchase in a Letter of Intent (we provide our clients with a draft LOI), which should detail the proposed purchase price, intended closing date, assets included in the sale, and a list of contingencies that have to be met before the transition is completed. Upon agreeing on the terms of the sale, the next step in the process is for the buyer to secure financing. Since most buyers will require 100% financing, it is important for your buyer to work with lenders who are familiar with dental transactions. At McLerran & Associates, we play an active role in referring the buyer to several experienced dental lenders and helping position their loan request in a favorable light with each lender to enhance the probability of securing financing approval. This involves understanding each lender’s unique underwriting requirements, presenting a comprehensive practice prospectus and cash flow analysis, and proactively addressing any potential red flags up front. While navigating the financing process, the buyer will also be completing their due diligence on the practice. This typically involves meeting the selling doctor, reviewing patient charts and practice reports, inspecting equipment, and consulting with an accountant to evaluate practice financials. The most important document involved in a dental practice sale is the Asset Purchase Agreement, which serves as the legally binding document detailing the terms of the sale. This document should be specific to a dental transition and be a win-win agreement that protects both sides and discusses how common issues, such as accounts receivables and credit balances, will be handled after the sale occurs. At McLerran & Associates, we provide the parties with a draft Asset Purchase Agreement and encourage each doctor to obtain their own legal counsel (with experience in dental transitions) to review the APA and other agreements involved with the sale. In addition to the APA, the buyer will need to negotiate an assignment of the existing office lease or negotiate a new lease with the building landlord. It is important to consider the requirements of the lender when negotiating the lease term and to approach the landlord at the proper point in the transaction to protect confidentiality while not delaying the closing. As the closing date approaches, our team at McLerran & Associates will work closely with the buyer and seller to ensure that all the details of the transition are completed prior to closing, including transferring/establishing service provider accounts (utilities, phone, etc.), PPO credentialing, drafting a transition letter that will be mailed to active patients upon closing, and ensuring the lender receives all necessary documentation to fund the buyer’s loan on the closing date. Throughout this process, the staff and patients are typically unaware that the dental practice is being transitioned to a new doctor. The reason for this is simple: to protect the goodwill of the practice. Selling a dental practice is an emotional process for any doctor because of the relationships developed with their patients and staff over the years. Timing of this introduction, how the initial meeting is handled, and training the staff to explain the transition to patients is a critical step in ensuring a smooth transition of ownership and maximum patient retention following the sale.

While this list covers the most significant steps required to sell a dental practice, it is by no means comprehensive. Each practice transition is unique and presents its own set of challenges to overcome during the transition process. Therefore, it is imperative to be educated about the process and employ the services of experienced professionals (McLerran & Associates, attorney, accountant, etc.) to help you navigate the process, protect/maximize the value of your practice, and ensure your transition is as smooth and successful as possible for all parties involved.

If you have questions regarding the transition process or would like to schedule a time to meet at your office to discuss your future plans and potential transition strategies, please don’t hesitate to contact us. We look forward to working with you!