Selling Your Dental Practice
What is a seller’s market? Simply put, it’s a market where there are more buyers than sellers. Based on basic laws of supply and demand, this means sellers may have the upper hand. They will likely sell their asset quickly, perhaps for over asking price, with the stronger negotiating position going to the seller.
Meanwhile, practice buyers in seller’s markets face a tough road: due to increased competition, they’ll have to act fast. Buyers’ offers tend to go higher, and they generally work harder to woo sellers into accepting their offer.
With that said, its important that sellers maximize their positional advantage. Sellers who want to navigate their transition proactively understand the following 5 Points of Selling your Dental Practice
Buyers won’t pay for non-verifiable potential: Frequently, sellers want to value their practice based upon future, potential income. “Once you do X, Y, and Z,” the doctor informs us, “this is a million dollar per year practice” with their intent being to base its sale price on this projection.
Buyers will evaluate your practice based on its current performance. Trends certainly matter -a practice growing in revenue year over year is in a stronger negotiating position than one declining. Be very wary, however, of attributing sale value to a practice based on extrapolated value. The practice’s current performance is by far the dominant consideration, which is why buyers want to see the next item on my list.
Buyer are interested in profits not glossy revenue: The practice’s net is #1. All else being equal, buyers would of course rather a higher than a lower gross revenue. But the figure that matters by far the most is the practice take home. Corporate Buyers are looking to acquire a healthy business, and a purchasing doctor’s calculus is weighing out their return as an owner versus other options.
Buyers expect documents that make sense: Byzantine P & L statements. Unclear line items. Comingled Funds. Gaps in Data. Messy Patient Statistics. Missing, even incorrect data. Each of these documentation pitfalls adds friction to buyer activity and interest. Your practice may in fact be exceedingly well-run and profitable, but if the data isn’t there to show it, it will be difficult to make buyers care. In our experience, sellers who are prepared with organized financials and data attract substantially more lasting interest with buyers.
Buyers know what you don’t know: Buyers are experienced investors, corporate/equity groups, and fellow doctors. Typically, these savvy buyers are well-acquainted with practices and their successful management. Is your practice legally unsellable until it comes into compliance with a local ordinance? They know. Is there a discrepancy between bank statements and P&L statements? They spotted it. Is there a potential upcoming regulatory change that represents a risk to the practice? They’ve researched it.
Sellers are sometimes surprised at what details can become relevant in negotiating the transition of their practice. Entering the sale of your practice fully prepared with a concrete goal will put you in a much stronger position to negotiate.
Buyers ask a lot of questions, be prepared: Selling your practice is one of the biggest decisions you’ll ever make; for the buyer, it can be, too. Whether it’s a recent grad transitioning into your practice, or a seasoned practitioner adding a satellite or a corporate group expanding into your area, the buyer for your practice wants to know what they’re paying for. Anticipate questions on patient numbers and draw, competitors, staffing, relationship with the landlord, style of practice, referral relationships, prospect for hiring associates, advertising/marketing, online web presence and reviews, vendor relations, and many others.