Dental Practice Sales | Common Misconceptions
By Matt Porter, Menlo Dental Transitions
I find much of my time with clients, both those looking to buy and sell a dental practice, is spent dispelling misconceptions and myths associated with dental practice sales and helping them avoid pitfalls. Although some of the misconceptions are downright funny (I don’t have to pay any taxes on the sale of my practice, right?), most of them are fairly common and easily corrected. On what may be the single most important financial decision of your career as a dentist, knowledge is power.
Whether a buyer or seller, by educating yourself with the facts, you can set yourself up to succeed when dealing with dental practice sales. First off, let’s take a look at three situations that may be on your mind:
- Lease Negotiations. If you are even remotely considering retirement or a transition at the time of your lease renewal, make sure to read the fine print and propose changes where necessary. Although it may not seem like the lease directly impacts a future sale, lease language can make or break a practice transition. For example, there are a few landlords that have a clause, buried deep in the fine print that requires you to pay the landlord 10% of the proceeds of your practice sale. Can you imagine writing a check for up to $100,000 to your deadbeat landlord for the ability to sell your practice? Also, be mindful of the amount of term (years) left on your lease. Most banks and lenders will require that the term left on the lease (including options) is equal to or greater than the term on the buyer’s loan. So if the buying dentist is obtaining a 10- year loan, make sure you have at least 10 years left on the lease.
- I’m going to hire an associate and sell my practice to him in the future. The old adage attributed to Ben Franklin is: “ By failing to prepare, you are preparing to fail.” Without a defined purchase contract in place PRIOR to the associate starting, there are bound to be major issues, even with the best of intentions between the associate buyer and seller. Without a predetermined time frame and phasing plan in place with specific milestones and a method of valuation and payment for the practice, up to 80% of loose associate buy-in arrangements end up dissolving.
- Both buyer and seller need to put some ‘skin in the game’ and make a firm commitment. Otherwise, the venture dissolves after a year or two, leaving the associate feeling like they wasted valuable time in their career. The seller, although a year or two closer to retirement, now has to head back to square one in the transition process again. It becomes an unnecessary, heavy emotional drain on both parties who must return to the drawing board in mapping out their respective careers. By defining a plan with dates, timelines and defined actions, this frustration can be avoided altogether.
In Part II of this blog, we will discuss in more detail some very common misconceptions surrounding dental practice sales and whether or not they are true.