In a previous blog, I wrote about How I VALUE Your Dental Practice. There, I looked at a bunch of qualitative and quantitative factors (location + metrics + opportunities) to assess what the intrinsic value of your dental practice would be to an objective buyer backed by a smart lawyer, accountant, and banker.
So how is SELLING (the topic of this blog) any different than VALUING a dental practice? Well, it all comes down to PROCESS and CONTEXT of the sale. And if everyone does it correctly, everyone walks away having achieved their objective (for the seller, this could be: work less, take more time off, retire completely, move, take $$$ off the table, etc.).
PROCESS: For the Buyer
When selling something expensive like a dental practice, I recognize that this may be one of the largest purchases for a buyer (apart from their house). And there’s a process that ought to be followed to help ease them into it so that they don’t have any misgivings or complaints afterwards. This is especially necessary if the seller is going to associate afterwards for a number of months or years; the relationship needs to be rock solid from the get-go.
That means building trust. That means being transparent and not trying to screw the buyer by hiding pertinent information until the last minute (like the presence of a demolition clause or the number of active patients).
I’m in the business of Selling Dental Practices, not playing games. Not wasting time. Not trying to pull one over the buyer’s eyes. That leads to lawsuits, headaches for the seller, and a bad reputation for me. So why bother? I too need to sleep at night 😉
Be honest with buyers, and they’ll feel comfortable handing over the $$$ and moving forward with the deal.
That’s also why we recommend Matt Bladowski of Dental Strategy‘s appraisals: they are reasonable, justifiable, comprehensive and banks accept them. They’re also VERY comprehensive. The best dental practice sales we at DMC have ever been involved in have always included one of Matt’s appraisals. Don’t believe me? Just register on DentalPlace.ca and take a look at some of the available appraisals. Then contact me to talk to some of our past clients who’ve sold using Matt’s appraisal. P.S. if we had a reputation for screwing dentists over, we wouldn’t want to invite them to our annual dental outreach program to hang out and do free dentistry with our other dentist clients, right? But we invite almost everyone (so long as you’ve got the right attitude!).
Because we’re in the business of bridging the dental community together. “All ships rise with the tide,” as my business law partner David Mayzel says.
I’ve come to appreciate that the best transitions are where everyone gets what they want. Now, with that said, we would ONLY represent the selling dentist when we’re involved in a transaction (no double dipping; no conflict of interest). We work hard to get our dentist clients the best deal possible. And if it was one of our dentist clients purchasing another one of our dentist’s practices (which is often the case), we would refer the purchasing dentist to any number of dental lawyers who could assist them.
But practically speaking, the best transactions and transitions are where everyone gets what they want. As I often tell buyers/sellers: this is the seller’s best year (the best they could do with the practice that is), and this is the buyer’s worst year (because they can only improve from here; otherwise, they never should have bought!).
If a buyer is SERIOUS about a practice, they need to do WHATEVER it takes to get it. It’s not often that a perfect practice comes up. So once they see one that is good enough for their requirements and they can MAKE way more $$$ within 18 months of taking over, then they need to get it.
What increases their chances of getting a dental practice? Constantly reaching out to us at DMC and letting us know you are super interested. Having a team of dental professionals (lawyer, banker, accountant) on standby. Having savings if need be. Having invested in a good skill set. Having ownership experience would be an asset (dealing with team management, branding and marketing, ordering supplies, using technology, etc.). All of these things – once conveyed to us at DMC – will encourage us to recommend you and your offer to the selling dentist. If the price or terms are not competitive, then you’ll be told to stop messing around if you really want to get it. So stay in touch and show us how you’ll beat everyone else for the practice, make lots of $$$ with it, and have a smooth transition. Then we can sleep better at night after the deal is done. Heck, you as, the buyer may end up needing us later on in your career after the deal is done (e.g. lease renewals, Wills, staff contracts, etc.).
PROCESS: For the Seller
For the selling dentist, there’s a process that leads up to a successful sale. This process typically involves the following and helps them get the best price/terms on closing (and prevent price discounts during due diligence):
- Having a DMC lawyer review your existing team contracts (staff and associates) and implement new ones that take into consideration all the recent court cases (especially that terrible Waksdale decision) that have been bad for employers relying on old contracts.
- Having a DMC lawyer review your existing lease to see if it contains any nasty demolition, relocation or early termination rights (in favour of the landlord) which need to be dealt with right away. How many years are left on the lease, including renewal options? What does the lease say about transferring the lease to another party? Does the landlord have the right to ask for a percentage of the sale or a chunk of money outright (e.g. $25k was recently paid to one landlord because they refused to give a renewal option without it, and they were seeing the selling dentist cash out – so where’s their $$$?).
- Having a DMC lawyer review your existing minute book and financial statements (particularly your balance sheet) in consultation with your accountant to find out if you qualify for the Lifetime Capital Gains Exemption when you do sell. This could save you HUNDREDS of thousands of dollars per person when you do l shares of your corporation. But there are lots of TESTS that need to be met to qualify – including the requirement to purify (remove) offending assets from your corporation – like securities, real estate, investments, and CASH. Otherwise, you won’t qualify for the lifetime capital gains exemption when you do sell.
Next, we want to know what you’ve got. In other words: what would a buyer/banker be prepared to offer you for your practice? I’m back to talking about how a buyer/banker would VALUE your practice. In order to give you a RANGE of what your practice could sell for, we would go through all the criteria discussed in this blog over HERE.
Next, you’ll want to know what the risks are if the practice doesn’t sell for whatever reason. Know this: we work very hard to sell your practice and we only get paid when we close the deal. So the pressure/risk is on us to deliver a buyer. If for whatever reason, you’re not happy… don’t worry: we’ll keep marketing the practice until you ARE happy. Are you tied in with us for 6, 9 or 12 months so that if you find your own buyer we still get a cut? Absolutely NOT. We’re not like that at all. We want dentists to have an easy time doing business with us.
What about the transaction costs themselves? Well I’m happy to say that everything we offer is generally fixed rates. So we can give you an up front quote and we will certainly be MUCH LOWER than what a typical real estate salesperson + lawyer wold charge you. To the tune of tens of thousands or even hundreds of thousands (for bigger practices). We don’t charge 10% commissions like Broke-Ers do! And don’t take our word for it: you can read up on the many, many testimonials of happy dentist clients over the past number of years HERE.
So now that we’ve talked about the PROCESS for Buyers (we are all about transparency, while buyers need to show us that they’re smart, serious and have a strategy) and Sellers (preparation prevents poor performance), it’s time to talk about how the CONTEXT of a sale has a BIG impact on the overall price and terms.
CONTEXT 1: Sale to Associate
Let me be blunt: I’m GENERALLY not a fan of associate buy-ins. I’ve ever written an article about it that was published in Oral Health magazine. Bottom line: associates won’t value your practice as much as you’d like them to if they’re not facing competition and timelines. We’ve seen it time and time again. Best thing is to sell on your terms and timeline.
CONTEXT 2: Private Sale
A private sale involves confidentially marketing the practice (not disclosing any identifying information until AFTER the buyer has signed a confidentiality agreement and been reminded of it numerous times). Marketing includes sending eBlasts to thousands of dentists across Ontario and B.C., running an open house on a Sunday when the office is closed, and reaching out to our dentist clients or other dental professionals who may be interested (or know someone who is). This is the ideal way to sell a practice since it incorporates competition, strict timelines and puts all prospective buyers on a level playing field with all the same information.
Typically, for example, a buyer will have 15 minutes during an open house private attendance to tell us why they’re the best person to buy that practice. They’ll ask forward-thinking questions (what’s the seller looking for, what are the areas of improvement, this is what I would change, etc.) instead of simply looking backwards. Yes, there are stories behind a practice’s numbers and it’s important for buyers and their advisors to know/appreciate those stories. Why did revenues/EBITDA go up? Why did supplies drop? How many weeks off did the dentist take? Why the high staff turnover that year? Why the high “repairs and maintenance” costs that year? Etc. But we want to recommend purchasers who are smart, serious and have a strategy to make more $$$ than the selling dentist did. That’s a successful business transition in my opinion.
Once buyers submit their offers after the open house (and after having all their questions answered BEFORE they put in an offer), we set up interviews for the top candidates at the dental practice so the selling dentist can meet them. The purpose of the meeting is to see if the selling dentist likes the prospective purchaser’s personality/philosophy/skill set. They want to know what kind of person and dentist they are. How do they react under pressure? What are they good/excel at? What kind of dentistry do they not like to do? And then, the selling dentist will come back to me and give me their input, and so too will the prospective purchasers. It’s funny because I often tell selling dentists that they’re interviewing their future bosses!
And it’s through this in-depth process – that starts with a comprehensive and rational appraisal by Dental Strategy which is marketed to the dental community in a confidential manner and then ends with offers being made and interviews conducted – that we hopefully find a great match between buyer and seller!
CONTEXT 3: Super-Duper Private Sale
Some dentists are afraid to go full-out private sale. Despite our best efforts to make sure no one finds out (specifically your team and patients) about your practice being for sale, there’s a theoretical risk that someone might find out. It’s very rare because we have systems in place to prevent against this (e.g. confidentiality agreement + reminders not to reach out to the office/selling dentist/team + showing the practice only when it’s closed on a Sunday).
But there was one instance where a dental supply company sent an invoice to the selling dentist’s practice AFTER they had completed due diligence and it had the prospective buyer’s name on it. Ouch! The selling dentist had to lie lie lie about that one, and the dental supply company was scolded for sending that invoice. The deal still went through, and nothing came of the breach, but it was stressful nonetheless.
And in one other instance, the bank that was financing the purchase sent a point-of-sale terminal machine to the selling dentist’s office with the prospective buyer’s name on it BEFORE the deal closed. Ouch! Again, the selling dentist lied about it, and they sent the machine back. And again, the deal still went through.
Sufficed to say: nowadays, the buyer’s dental supply company reps and banks are constantly reminded NOT to send anything to the selling dentist’s office before the deal finishes.
Even with these limited cases (over many, many successful cases where no one had a clue of the sale), dentists may still be afraid that word will get out. My response is: if you limit our ability to market, you’ll bear the risk of getting fewer prospective buyers. If you hamstring us, that’s on you.
But there’s another option as well: we can try to coordinate one-off purchase/sale transactions by reaching out to select buyers we know who are serious and possibly good fits. So we’ll call or email or text them and provide them with basic information. Or we send big eBlasts out with very limited information but no open houses or appraisals available until the prospective buyer has been vetted. Then we get them to sign new confidentiality agreements. Then provide them with pertinent information (e.g. appraisal, financials, lease, etc.). And if all looks good, coordinate a private meeting after hours between them and the selling dentist. THIS IS A TIME-CONSUMING PROCESS which may not result in anything. Without competition or timelines, the seller may be missing out. But in order to go in small steps and to give a seller more comfort with the process, we have done this SUPER-DUPER PRIVATE SALE approach in some instances.
