Typical Concerns of Sellers
Typical Concerns of Sellers
By: Megan Urban
Most dentists may only buy and sell a practice once in their career, so it’s nearly impossible to know what to expect. You may have a few friends that have done it, but like wisdom teeth removal or birthing a baby, you will hear some wild and crazy things that may not be entirely accurate. We’ve helped dentists with hundreds of practice transitions and are happy to share what realistically happens. Below are some of the standard stresses that sellers have shared with us in the past so you can become oriented and keep positively moving forward.
Where do I start?
Talk with your broker or transition specialist so we can learn about your specific situation and discuss how we might help.
Do I sell my building or condo with my practice or later?
In most situations we recommend selling the real estate at the same time that you sell your practice. You will get the most value for your space if sold to a dentist and an empty dental space is difficult to sell unless you own oceanfront property. We also don’t want the new buyer to lease for a few years, then relocate and build a practice in a new, high-tech facility. Depending on the cash flow of your practice the buyer may not need a downpayment on the real estate portion, but if so, typically you as the seller may decide to carry that note.
Should I update my office and get new equipment?
If your office looks like it’s from 1985, let’s discuss if getting new carpet and paint may be worthwhile. If all your chairs, x-ray units, etc. all still work, we may want to wait and let the new dentist purchase what they want or need. Typically, banks will loan additional funds to cover any mandatory equipment the buyer needs to sit down and produce at least what you have been producing.
Do I have to sell to a large dental services organization?
You can sell to any buyer you determine is the right fit for you, your patients and team. Often large groups want you to stay on and work for a few years and meet production goals. They typically pay you a certain percentage of your practice sales price at the time of the sale and pay out the rest over a negotiated term. And for the record, we don’t know any groups paying 5-10% EBITDA. This thought is out there and the only way you may get there is if you count the amount they pay you as a provider for years, not truly the purchase price. Any practice must pay you for your work. I know there is a lot of concern about the large dental services organizations, and they are here to stay, but we still sell to many private practice dentists.
Should I tell my team I plan to sell?
We don’t recommend it because they typically get anxious and look for another job. I have had times where the dentist was not comfortable with waiting, and we figured out a way to present this to the team and retain them.
How do I know how much my practice and building are worth?
We can do a complimentary quick look and give you an idea of what your practice is worth. We can also complete a full valuation of your practice if you would like. If you list your practice with us, a Practice Prospectus will also be completed that we provide to potential buyers. When selling the real estate, we also complete a Brokers Price Opinion. With this information we determine both the price of the practice and the real estate together. You have the opportunity to look at offers provided by any potential buyers.
Can young dentists get money to purchase my practice?
Dental-specific lenders understand dentistry and if the cash flow supports the sales price, they will loan the full practice amount and usually provide around $75,000 for working capital. The banks understand that young buyers have a large amount of student debt.
How do I get sales documents?
Your dental attorney will draft those documents and we can provide you with some recommendations for dental-specific attorneys. Your attorney will provide guidance and ask questions to help complete the appropriate documents for your situation. We always strongly suggest that the buyer work with a dental-specific attorney as well so that everything goes forward in a timely and correct manner.
How long will it take to sell?
On average it may take 6 months to a year. Depending on your profitability and location, it may be faster, or we’ve seen it take up to three years. Young dentists typically like to make at least $250,000 or they may consider staying at their associate position for the same income and little responsibility. Buyers love to be able to add services, so if you are a few years out from selling, consider making your own codes to bill out regarding referrals to each specialist.
Is it mandatory or optional for me to stay on and work?
There are always options. If you provide services the buyer does not, you may need to stay on until the buyer can learn to take over these procedures. If you want to work, it’s something to discuss. The buyer may not want to work as much, and you can negotiate staying on. The Lender may not allow it if the cash flow is too low. The buyer may need all of the production to pay the loan. Sometimes we see sellers stay on for a while or cover vacation or maternity leave. If you are in the office providing services, you need to be paid and the attorney will write an Employment Agreement.
How do I sign sales documents and get paid?
Typically, final documents are signed electronically, and escrow helps facilitate this. Escrow will also look at items such as personal property tax, utilities, etc. and do a proration of those amounts, and the final amount owed to you can be sent by check or electronically deposited into the account of your choice.
Like anything you don’t do on a regular basis, selling a practice can be stressful. Rest assured that all your trusted dental advisors, broker, CPA, and attorney, will proactively guide you through the process. Each transition is truly unique, and we deal with issues that arise and help you to obtain your goals. Give us a call so we can understand your specific situation and what next steps may be best for you and your family.
Read MorePreparing For The Emotional Roller Coaster When Selling
Selling a chair or even charts is easy. It’s just an object that you are giving to another doctor to own. But, I’ve had many doctors who realize their lives will be different going forward after their transition. They may have staff they have worked with for 25 years or more. They have seen patients grow from being a child to being a parent and some even become grandparents. Now their children and grandchildren are patients of the office. You have vendors and your CPA that you have gotten to know personally and confide in. Staff, patients, and the vendors have all become family and you will not be seeing them as often as you have in the past.
You will also be changing your life in that you no longer are the owner, manager, and decision-maker with people relying on you to lead them. You may no longer have to wake up and go to work every day. Believe it or not, you may even have “spare” time and have to find new hobbies, rekindle old ones or maybe even find take care of the honey-do list.
The good, if not great news, is that the staff, patients, and vendors are thankful for the years of service you have provided them in addition to your friendship. They want you to enjoy life and spend time with your real family – spouse, your parents, kids, and grandkids. Preparing for this emotional aspect of your dental practice sale will help make your practice transition into retired life a much smoother process.
Preparing To Sell My Dental Practice
Preparing To Sell My Dental Practice
By Megan Urban
Selling your practice can be a difficult decision to make for many reasons. Perhaps you aren’t ready to stop treating patients but want fewer headaches. Perhaps you don’t know where to start or how the process works. Start today by contacting us to provide you with years of experience to bring you comfort and understanding. Below are a few things to consider.
You can start by having us provide you with the potential value of your practice, without the cost of doing a full valuation. We can do the same for your property if you own it. These potential prices will assist you in working with your CPA and financial planner to determine what your retirement cash flow looks like. Be prepared to pay off any debt on the practice at the time of closing. Debt could be from recently purchased equipment or any loan you may have taken out against the practice. If you lease your space, please review your lease.
Start thinking about whether or not you want to continue working a bit. You may not be able to stay on at your office if there is not enough production for two providers. Perhaps you want to work at the dental school or cover for your friends when they are on vacation or sick. These important issues will need to be included in the purchase and sale documents if anything is outside the standard non-complete.
If you have a family member working in a main position in your practice who will be retiring as well or leaving the practice, consider options. We can discuss if it makes sense to hire and train someone new and if the wages you pay family are inflated, we need to consider that in the expenses and adjust potential income to a new buyer. The family member may also be held to a non-solicitation agreement or the like.
Preparing to sell also includes us looking at your dental software reports and tax returns. If dental reports don’t look accurate, they may need to be researched. If you refer out services, please start tracking this so we can provide a buyer with potential immediate increase in income if they can keep the services in-house.
Please look at your credit balances. Some dentists are surprised to see how high those balances are, and they will need to be addressed. It may be an error you can fix, such as unposted treatment or incorrect insurance adjustments. If it is truly a patient credit, get the patient in for an exam, cleaning, or any incomplete treatment. Any credit balances at closing will be directly reduced from the sale price.
If you have a lot of old accounts receivable, determine what needs to be written off, such as old accounts receivable that you know you cannot collect or family members that you don’t intend to charge. Accounts receivable are often purchased separate from the practice sale and aging amounts are reduced. If you allow monthly payments in your office and the patients are up to date on payments, you may decide to not sell these or negotiate for a higher price for this specific piece of accounts receivable.
Now may not be the time to get all new equipment if you are preparing to sell, but it may be time to shape up a few things. If you do not have digital x-rays and electronic charts, consider investigating the cost and process to determine if you want to take that on or not. We can discuss if painting or other minor aesthetic changes might make sense. Decluttering is always encouraged!
If you have a website, be sure to increase Google reviews. This is important to new young buyers.
Please do not tell patients and team members about potentially selling. We can discuss the timing of this for you and your specific situation.
If you are considering selling, let’s schedule a time to talk about the general process of selling your practice and how we are different in our approach to representing you and your best interests.
Read MoreThe Short List Before Selling Your Dental Practice
There are many steps to selling your practice and your trusted advisors are here to help. Right now, I want to address just a few items that many dentists don’t think about and that can lead to surprises.
Contact your CPA and/or Financial Planner regarding the following items:
- Are you financially prepared to retire? Your transition specialist (broker) can assist you in determining the potential price of your practice and your real estate (if any).
- Depending on your entity structure and past depreciation, what taxes will you owe?
- Depending on your state, what taxes will you owe?
- If you have any debt against your practice or real estate the debt will be paid at closing from your sales proceeds
- What will you do with the final funds? Do you have a retirement plan to maximize or does a 1031 exchange on the real estate make sense for you?
Again, there are many steps to selling your practice, but please address the above items to help reduce surprises.
Read MoreSettling Credits Before Listing Your Practice
You’ve made the decision to sell your practice, and with that comes the to-do list of tasks that can often feel daunting. One important task that is often overlooked is settling patient credit balances.
What are credit balances and where do they come from?
In many cases, a patient will have a credit on their account when their insurance pays more toward their treatment than anticipated or you estimated a patient portion to be higher than was necessary and collected accordingly. In these instances, patients paid more out of pocket than necessary; therefore, the difference will show as a credit on their account and on your accounts receivable report or unassigned credit report. Credit balances can also result from patients mailing in a payment or making an online payment on a balance that they have already paid. These are duplicate payments typically made in error. When this happens, we recommend contacting the patients and advising them of the duplicate payment before posting it to their accounts. Many patients will request that you return their duplicate payment to them and some will elect to leave the credit on their account if they have upcoming treatment planned. If they have upcoming treatment planned, this can be an effective way to get them on the schedule. It can be difficult to reverse an online payment and, in those instances, you may have to post it to the patient’s account. In other cases, patients may pay upfront for larger treatment plans and due to unanticipated circumstances, they were not able to complete their full treatment, or perhaps less treatment became necessary. If you have a practice where patients with insurance are required to pay their patient portion due at the time of scheduling their appointment for treatment, then credit balances will appear on the patient account until the procedures are posted and until insurance has paid their portion, this is just the normal course of collecting patient portions upfront. The same applies to patients without insurance if you collect the patient portion upfront.
How should I be handling credit balances?
To keep your credit balances at a minimum I would suggest you come up with an efficient protocol with whoever is in charge of your accounts receivable, whether it be your office manager, bookkeeper, or yourself. Credit balances are typically handled by an office manager. It is our recommendation that your accounts receivable report or unassigned credit report be reviewed monthly. If there are outstanding claims on an account, no refund is due yet. If there is a credit balance and there are no outstanding claims, we recommend contacting each patient and advising them of the credit balance. And again, if they have been treatment planned for procedures ask each patient if they would like to keep the credit balance on their account and get them on the schedule for treatment. If they have no upcoming treatment, it is typically best practice to refund the patient as soon as possible to keep your accounts clean. Make sure to document these conversations about credit balances in patient notes. This will serve you well in the long run when reviewing your reports each month for credit balances. Some practices choose to monitor patient credit balances quarterly; however, if you are preparing to sell your practice, we recommend that you do this monthly. You’d be surprised how quickly credit balances add up and how often they are overlooked.
One important note of caution! When reviewing the credit balances on patient accounts, do not assume that the refund always goes to the patient! You want to look back to the last zero balance on each account and look at patient payments made and insurance payments made. Insurance companies make mistakes and sometimes they overpay and sometimes they make a duplicate payment on a claim. In these instances, the refund is due to the insurance company and not to the patient. Some insurance companies catch these errors quickly and request a refund in writing. Others do not catch them so quickly and they have up to a year to claim their refund (this may vary from state to state). Pay attention to this detail when reviewing accounts. Remember to make notes in patient account notes so you don’t have to repeat your efforts every month.
I have not been settling patient credits on a regular basis, I have thousands of dollars in credits now what?
Follow the detailed recommendations above and get your accounts with credit balances cleaned up. It is essential to do this leg work prior to the sale of your practice. Make every effort to contact your patients to refund any monies due to them. If the refunds are due to insurance company overpayments, contact them and ask that they send a request for refund letter. If you are unable to reach patients with credit balances due to them, these credit balances in many states must be reported to the state in which your practice is located. For example, in the state of Washington, credit balances over a certain dollar amount must be documented on an “Unclaimed Property Report” and filed with the state before November 1st each year. Do some research and find out what your state’s unclaimed property reporting requirements are.
*Disclaimer: The information above is not legal advice. Each state has its own rules and regulations. Be sure to review all rules and regulations as circumstances may vary.
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