October 12, 2022
This article gives some tips on ways to maximize value when selling a dental practice, but much of this also applies to the sale of other businesses.
When selling a practice, many dentists wonder if they are getting good value in the deal. For some, it can be disappointing to learn that the business is not worth as much as they thought, especially after years of dedicated work. With retirement looming, the pressure to sell can lead owners to accept a lower purchase price. Unfortunately, this situation is all too common, but it can be avoided with proper planning.
Stay Put: The location of a business or practice is often important to profitability and thus, company value upon sale. Changing location can hurt customer (or client/patient) retention, as not all customers will follow from one office to the next. Thus, buyers often want to keep a business in its present location. To help solve this problem, when negotiating a lease for your business, try to get the right to freely assign the lease to a buyer and get a lease term, or extension options, that a buyer can exercise. For example, if you are thinking of retiring in five years and your lease is up for renewal, don’t settle on a five-year lease extension. Think ahead and try to get five years and two five-year renewal options so your future buyer doesn’t need to worry about moving. If a buyer can take over your lease without having to renegotiate the terms or pay more, they may find your offer more appealing.
Maintain Reliable Equipment: The quality and quantity of equipment can also impact the marketability and sale price of a business, depending on the industry and the equipment being sold. Buyers may not want to spend the time and money to replace equipment. Avoiding unnecessary wear and tear, getting equipment serviced on a regular basis and upgrading outdated machinery may provide buyers with peace of mind, thereby justifying a higher purchase price when a deal gets negotiated.
Ramp Up, Don’t Wind Down: Many owners planning to sell their business view their last few years before sale as an opportunity to work less and slowly winddown their business in anticipation of retirement. This can be a big mistake if it causes a reduction in the overall revenue or profitability of the business, as the value of a dental practice (and most other businesses) will be determined, in large part, based on company finances in the years prior to sale. So, to maximize value in the years prior to sale, it is generally better to ramp up production rather than ease off.
Retain Staff: Staff turnover can be expensive. It can also decrease value. Keeping the same staff can create a brand for your business and patients (and for non-dentists, other kinds of customers) may also feel at ease when the same familiar faces are providing reliable service even though the old owner is gone. And for professional staff, consider restrictive covenants (non-competes), as a savvy buyer will hesitate to pay top dollar for a practice that could disappear overnight with employees who leave and take customers with them.