By Jen Bennett, OMNI Practice Group
Congratulations, you just accepted an offer on your practice! With all the emotions associated with the transition, when to notify your staff is surely at the top of your “to-do” list. Telling employees that you are selling your practice is an extremely delicate process. Breaking the news too early can come with many risks, so best to wait until all final closing documents are signed by both parties and no more than one week before the new owner takes over.
So, what are some potential risks?
One of the primary risks is that employees will naturally be worried about their job security the moment you make your announcement. Oftentimes if they have too much of an advanced notice they may start searching for other opportunities. Staff leaving could negatively impact the transition and patient experience because of how instrumental they can be in helping the buyer and the patients adjust to new ownership.
The other major risk is that nothing is final until it’s final. Dental practice sales are extremely complex and can be delayed for a multitude of reasons or fall through completely. Making the announcement before the sale is complete will cause stress and heartache amongst your staff during a time that you will be preoccupied with navigating a significant professional milestone. If the staff were to find out before closing was final, you wouldn’t be able to offer any reassuring answers because of unforeseen changes to the closing timeline.
Finally, regardless of your views of your staff’s maturity level, gossip will ensue. I have seen it countless times where a dentist tries to provide honest reasons on why they are selling, only to have their words misconstrued. Comments such as, “I’m selling my practice to focus on my health” can quickly morph into, “S/he is selling because the practice is going under,” or lead to unfounded conclusions such as, “After the new guy starts, we will all be replaced.” This kind of fear and uncertainty will have a profound impact on staff morale during a time where they will be needed to ensure a great patient experience during the transition process.
In the end, you probably have a deep and meaningful relationship with your staff. They deserve to know about ownership changes as they will be impacted, but it is best for them (and for you) that they be kept out of the loop until you have concrete answers to provide them.Read More
Many dentists will seek to sell their practice by themselves, presumably to “save money”. Sometimes the grass is greener on the other side so we do things out of emotion instead of “doing the math”. If you have a couple of hundred hours of spare time and love working with intelligent, challenging people, and showing your dental practice to strangers on evenings and weekends, you are going to love the process of selling your practice.
For most dentists, their practice is one of their most valuable assets, so if that sounds like you and you would like to go “For Sale by Owner” then now is the time to start to prepare. Probably a good time to study a little law, accounting, marketing, advertising, sales, and perhaps negotiations. Think about how you are going to tell your staff or decide to wait until they figure it out. Be sure not to lose them or your practice may become more difficult to sell (and you could lose more in practice value than the commissions you are saving). If your practice has seen better days you might consider sprucing it up a bit or maybe a little remodeling? As a do-it-yourselfer, you will save even more money.
Ask yourself “how do I value my dental practice” and balance that with what the market will bear. Keep in mind that the buyer will always think they are paying too much and the seller thinks they are selling too low. Once you’re ready to go, write your ads, contact (play phone tag with) the various media vendors to figure out how to best execute your marketing plan. Piece of cake, pay the man and place your ads. Soon your phone will be ringing, don’t forget to follow-up with the inquiries in your new email address.
Schedule the viewings after hours, on your day off, and on the weekends. Don’t be too disappointed when something happens and the person doesn’t show up or when the “tire kickers” don’t give you feedback. Soon if all goes well you will receive a Letter of Intent. There will likely be a number of things you’ll need to do to assist the buyer with their due diligence so be prepared to assemble all the information ahead of time if possible. If you are leasing the office, do whatever you can to negotiate with the property owner for as smooth as a transition as possible with the buyer. WARNING: half of all deals fall apart because of landlord conflicts with the seller or buyer. If this happens to you, and there is a 50-50 chance it will. Be prepared to start over and keep your emotions in check.
Is it worth it to “Do It Yourself” to sell your dental practice? It depends upon how many hours it takes, how much distraction you are comfortable with, and how much quality of life you are willing to sacrifice.
The legal community has a saying, “He who represents himself has a fool for a client”.
Transition your current practice to the productive, low volume, insurance-independent, profitable practice you used to dream about in dental school.
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The first team member you need to bring on board is someone who can help evaluate a practice. That can be an accountant, consultant, or broker that specializes in dental practices. Those last four words of that sentence are critical. Specializes in dental practices. They have to know what they are doing and how to analyze and value a dental practice. I once was representing a seller who had a practice collecting $800,000 with a net income of $300,000. The buyer’s consultant put together an offer of $280,000 when we had it valued at $550,000. The consultant ruined the deal. The seller was so upset with the buyers low-ball offer that the seller refused to even work with that buyer even with a higher offer.
The second team member is the attorney. Again, use an attorney specializing in dental practice transitions. It’s critically important. Do not use your cousin, friend, neighbor etc., who are divorce, bankruptcy or personal injury attorneys who took a contract class in law school. I’ve seen “friends” charge the dentist $25,000 for a review of a contract where a dental attorney would charge around $5,000.
You also need a dental CPA to help you with the numbers. They can help with the valuation, analyze the payroll and tax returns, help with the purchase price allocation and set up your legal entity.
Fourth is your banker. There are a number of banks that finance practice acquisitions and startups, and they all have their pros and cons. It’s important you work with someone you trust who will give you a fair deal. Sure, banker B may have a slightly better rate, or a cool toaster give away for new accounts, but go with someone you like and can build a relationship with. They’ll be there in the good times and the bad times to help you out.
If you need some names of good team members, let us know. We work with a lot of CPA, attorneys, consultants, bankers and brokers. We have a good feel for who will be looking out for your best interest and will do a good job for you. Give us a call and we’ll help you build your team for your practice acquisition or startup.
When I talk about corporate practices, I’m primarily speaking of the non-dentist owned corporate practice. There are dentist owned practices where a licensed dentist owns 3, 5 or more practices. He or she has full and legal ownership of their practices. I call these small group practices. Corporate practices tip-toe down the legal sidelines of practice ownership by having a dentist own the clinical aspect of the practice, called Dental Services Organization (DSO) and the non-licensed dentist corporation owns the non-dental management aspects, called a Management Services Organization (MSO). Note that this structure can also occur in small groups, but in the small group, a licensed dentist owns both the MSO and DSO. The large corporates include Aspen, Gentle Dental, Pacific Dental Services and others. Both solo practices and corporate practices have their pros and cons from both a patient perspective and from a dentist perspective.
As a patient, I prefer to know who my dentist is going to be when I go into the office. I want to build a relationship with him or her and want my dentist to know the history of my dental care — and a little bit about me as well. In a corporation, you might get the same dentist the next time you go in, but there’s a good chance it will be a different dentist. Small groups lean more towards a solo practice and you will have a reasonably good chance to get the same dentist in the well run small groups.
From a dentist perspective, most dentists do not want to be told what treatment to focus on, what supplies to use, etc., The majority of dentists surveyed by the ADA still have a dream of owning their own practice, being their own boss, making their own decisions.
Recent court decisions in New Jersey, Allstate vs. Northfield, sided on the side of dentists. It may begin to set the tone to start scaring away the non-dentist corporate owners. Washington State has been trying to pass a bill to allow non-dentist owners and so far has been successful. If you’d like to read an article on the New Jersey case, you can read it here.
So, if you have been holding off on not buying a practice because corporates are going to drive solo practices away, think again. There will always be a need and demand for a solo practice. Court cases like Allstate vs. Northfield will help ensure non-dentist owned practices stay away. Join the practice ownership club today!