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Thinking of Selling? 5 Steps To Get Organized…

By March 29, 2022May 6th, 2022Selling A Practice

Me (after 1-2 hours on the phone): “And that’s how we prepare, market and sell your dental practice.

Dentist: “Wow!  It’s definitely not like selling a house!

That’s right about the time the dentist realizes that they need an entire team of professionals to help sell their dental practice. That it’s a 3-6 month, heavily involved, process.  An emotional rollercoaster for them; our day jobs at DMC LLP.  There are a lot of potential traps they need to be aware of – tax liability, lease liability, employee liability.  But they also need to get the best price and terms for their practice.  And we tend to think that we know our stuff and shine on all of these fronts.  Plus, we’re pretty easy-going/down-to-earth dental lawyers too 😉

Importantly, we at DMC spend a lot of extra time going over the details with our dentists because we want them to be properly informed before they decide to sell.  And once they do decide, we want them to know what lies 3 steps ahead.  This way, they’re fully aware and committed to the process.  And that’s how we prefer it.

For the record, we are not interested in:

  • Keeping our dentist seller clients in the dark
  • Having them sign some kind of exclusivity agreement with us (we’ve seen 1-3 YEAR LONG EXCLUSIVES – OUCH!!!!).  That means: the real estate salesperson ties up the dentist for 1-3 years and will get their 10% commission if they sell to someone as part of their marketing efforts.
  • Having them pay us a fee that doesn’t reflect the value of the services provided  – like a 10% commission PLUS having to hire a lawyer to actually do the legal work (advocacy, representation, drafting, negotiating, etc.)

What We Are Interest In:

  • Having well-educated dentists with managed expectations
  • Having the dentist disengage our services if they really want to and without doubt or regrets and knowing they’re getting a responsive, available, competent and experienced team of professionals
  • Having the selling dentist make AND save a LOT of $$$ by using us (dental lawyers) to prepare, market and sell their practices
  • Having them pay us fair value for the services that we provide
  • Recommending us left, right and centre to all other dentists and coming on one of our dental outreach trips.

Here’s What We Tell Dentists During a Complimentary Phone Call or Office Visit:

  1. Reason for selling: if you don’t have a good one, we won’t help you sell. Why? Because you need to be ready for the intellectual and emotional rollercoaster that is selling. You’ll do it once. You got one shot at it. We do it everyday. Every single day. For over a decade. It’s our day job and we’ve seen and problem-solved a lot. It’s a 3-6 month process and you need to “sell” us on it at the beginning. If you’re 50/50 on selling, WE WILL NOT try to persuade you. You must persuade us. This way we know you’re ready to sell. Because we’re about to invest a whole lot of my time and DMC resources to get you there quickly. Maybe you’re tired of COVID-19, staff turnover, increased competition, increased costs, etc.? Maybe you have health issues? Maybe you want to do something different altogether or just not be an owner? Maybe you want to sell and take some cash off the table?
  2. Owning the Property: if you OWN your property, you’re in the best possible position. Why? Because you can either keep it and rent it out long term or you can sell the property and possibly trigger lifetime capital gains exemption (there are a lot of nuances here). Now, if you do decide to keep the property, then you should be aware that buyers will try to have a low rent, that increases very slowly over time and will try to throw in options or rights (of first refusal) to buy the property from you. In other words: if you want maximum price on the practice, they’ll be looking for concessions on the lease. I’ve warned you! So you better be aware of fair market rent in your area for your space and communicate that BEFORE you accept any offer.
  3. Leasing the Property: the worst possible position you could be in when selling is that you have a crappy lease situation. What does that mean? Demolition clause. Relocation clause. Not enough years left. Landlord can terminate early. Landlord can terminate when you request their permission to transfer the lease, etc.   Are these clauses fatal to a sale? They may VERY WELL be unfortunately. Last year, we had 3 transactions (ranging from 500k to $2-million) die simply because of a demolition clause and the selling dentist wouldn’t accept a huge price reduction.   The best thing to do is to have a dental lawyer (at DMC) review your lease to make sure it has enough years left, the assignment provisions are fair to the seller (they come off the hook for example, after a sale) and doesn’t have these nasty demo, relocation or termination clauses. If there aren’t enough years left, we’ll need to reach out to the landlord immediately to gauge their appetite to add more years WITHOUT a demolition clause (because you don’t want to approach them at the 11th hour to find out that they’re now wanting to insert one – which will kill the deal!). Only LAWYERS are trained to hone in on these nasty clauses.
  4. Employee / Associate Situation: chances are you either have staff NOT on a written contract or the contract is not worth the paper it’s written on.  Because, unless you paid a dental lawyer to have proper staff contract in the wake of brutal and recent decisions like Waksdale, Sewell, and many other cases, your contracts are invalid when it comes to the termination provisions. What does that mean? Bottom line: a buyer and their lawyer will take issue with your so-called contracts and demand a price reduction or you sharing employee termination costs – UNLESS you fix the problem in the context of a sale. How do you fix it? The best thing to do is to have a dental lawyer (at DMC) review your employment law situation and either introduce amendments to new-ish existing contracts or introduce new contracts altogether. Then you won’t be expected to accept any price reduction on the sale AND you also shouldn’t have to share any employee termination costs.   Also, make sure your associates – especially long-term ones – have signed an associate agreement that contain a non-solicit agreement. Buyers and their banks/lawyers/accountants will want to see that to mitigate the risk of them leaving and taking patients and staff with them.
  5. Corporation: are you incorporated? No? Don’t worry: we can transfer (literally sell without triggering any immediate income taxes) your dental practice assets to your new empty professional corporation and then sell that corporation so that you can trigger lifetime capital gains exemption. If you maximize the capital gains exemption, you could save (at present) around $240k in capital gains taxes. You need to meet a number of tests – share tests, shareholding tests, asset tests, etc. – to qualify for the capital gains exemption. But if you do, and if you multiply it among family members (spouse, parents, adult children), then you could save a lot of $$$ when you sell. If you have a corporation with offensive assets – like excess cash, investments, real estate, loans receivable – then you’d need to purify them out.   The best thing to do is to have a dental lawyer (at DMC) review your corporate minute book and financials (especially the balance sheet) and consult with your accountant to gauge whether you’d qualify for the lifetime capital gains exemption.

So those are my top 5 tips to get organized in anticipation of a sale. If you have a good lease situation (you own the property or you have a good lease), your team have proper contracts, and your corporation set up properly (correct shares have been given to the right shareholders; no bad assets sitting on the balance sheet, etc.), then you’ll be in a much better position when it comes to selling.

Apart from these purely “legal” things you need to do to have the best sale possible, there are also 10 other important things you can do to have the best sale possible:

  1. Make sure your practice is operating at at least 40% profitability. This means, for every $1.00 coming in, only $0.60 are actually leaving and you’re keeping $0.40 before paying any taxes, interest, debt, depreciation, amortization. How will you know? Contact a dental lawyer (like at DMC) to review your last few years of financial statements quickly over the phone and we’ll break it down for you. We’ll quickly tell you if you’re overpaying staff, rent, supplies, etc.
  2. Make sure your hygiene program is solid (should be around 40% of overall collections).
  3. Make sure your online reputation is solid (5* ratings from Google please!).
  4. Make sure you’re either a non-assignment practice OR collecting co-pay (or doing your best to collect).
  5. Do NOT spend any more money on major equipment (you won’t get it back) or marketing (the results won’t be seen until the next set of financial statements, and you’ll probably have sold before then).
  6. Make sure you have a solid team (dental lawyer, dental accountant, dental banker, dental financial planner, etc.) who can assist in the sale.
  7. Prepare yourself to meet your future buyer/boss. After the open house, if you receive multiple offers, we encourage you to meet with good prospective buyer candidates before accepting any offer. This way, you know what you’re getting into. Screen them (we’ll guide you) to make sure you’re comfortable with them taking over.
  8. Don’t use a Real Estate Agent or Broker. With DMC, we take care of it all and we don’t charge 10% commissions. And we mean that sincerely: we take care of everything for you – including marketing, running an open house, preparing the offer and helping you to select a buyer. So you don’t need anyone other than DMC. And you certainly won’t be paying us what you would otherwise pay to them. You’ll save big time.  Besides: you NEED a lawyer to handle everything for you and actually do the legal work to close the deal; you don’t need a real estate agent or broker to find you a buyer in today’s seller’s marketplace.
  9. Make sure you’re Organized. Here’s what we, the appraiser, and the buyer and their professionals would want to see in the context of a sale (the better organized you are, the quicker / smoother everything will go):
    • Financial Statements for the last 5 years.
    • Production Reports by Provider for the last 5 years.
    • Production Reports by Procedure for the last 5 years.
    • Team contracts (if any), including any policy manual.
    • Lease documents (if applicable).
    • HARP reports for the last 6 years.
    • Tax returns for you or your professional corporation for the last 5 years, including notices of assessment.
    • Corporate minute book for your dentistry professional corporation (if applicable).
    • Confirmation of any litigation, investigation, claim, etc. against you, your practice, etc. by anyone (RCDSO, patient, employee – past or present).
    • X-Ray Floor Plans, as approved by the Ministry of Health and Long Term Care (don’t worry if you don’t have these as we lawyers can get these directly from the Ministry).
    • Name of your professional advisors (accountant, previous lawyer, financial advisor, and banker).
    • Copy of your driver’s license, SIN, and passport.
    • List of recent invoices and third-party suppliers to your dental practice (e.g. rent, software, utilities, marketing, etc.).
  10. CONTACT US FIRST. You read that right. You’ve probably heard that lawyers are the last ones you’ll talk to in your sale. Actually, with DMC, we’re the FIRST ONES you need to speak to. And it’s FREE! We’ll speak with you on the phone, after hours. We’ll come by to take a look at your office at a mutually convenient time. We are your starting, middle and end point. All-in-one. No need to get a bunch of different professionals to do what we can do (review your current legal situation with respect to your team, lease and corporation; help address troublesome issues; market your practice; negotiate purchase and sale agreements; dealing with the landlord; preparing your associate agreement; introducing team contracts; purifying your corporation’s bad assets; closing the transaction; reporting to you throughout, etc.). We do A LOT. We don’t work for every dentist. And you can see by our 100+ testimonials on our website (www.dentalplace.ca) that dentists who’ve used us are quite happy. They should be! Otherwise, why would they keep coming on our dental mission trips with us 😉