You would expect someone in my business to say, YES automatically, but the correct answer is more nuanced, and a better answer is MAYBE. Let me outline some of the things you should consider before deciding to sell your dental practice on your own or to hire a professional dental transition consultant to guide the process.
The Process
Selling a dental practice is a complicated process. The days of two dentists striking a deal over a cup of coffee and one-page sales documents are long forgotten. Before 1985, almost all dental practice sales were for the most part at least partially seller financed. After 1985, bank financing became the primary mode of purchasing a dental practice. This development meant that the sales process became more formalized and required more steps to be completed.
The development of dental software further enhanced the process of transitions. When most practices started to use computers and dental-specific software to track the financial side of the practice, it became very easy to generate not only Profit and Loss Statements but any number of reports that a prospective buyer could use to evaluate a practice. Production by Procedure reports, Practice Patient Demographics, and Insurance Payors reports now only require a couple of clicks of a mouse to generate. This gives the buyer more information to study and evaluate before proceeding with an offer. While this improvement is a benefit to any buyer it also adds complications to the process of selling a dental practice for the seller. They now have to gather and sift through many pages of documents and reports and then be able to provide these to any prospective practice buyer.
In addition to the reports, there are now CPAs, attorneys, and transition consultants who are evaluating practices for sale on behalf of the buyer. This means that the back and forth of negotiating a practice sale involves not only many more people but also more factors to be evaluated and discussed. This process can be challenging for most sellers to navigate on their own unless they have an understanding of business factors involved and a willingness to be the “point person” for any negotiations involving the sale of their practice.
Another issue to keep in mind is that dental practice owners typically do not view their practice with the detachment of business owners in other fields. Most dental practice owners do not want to believe that they are selling a “business”, but rather, they view the sale of their dental practice like they are turning over their “life’s work” to another dentist. This can make it difficult for sellers to hear things about their practice that may be considered negative. Seller often make remarks such as, “I’ve never had digital radiography and I’ve been able to make a good living in response to a negative comment from a potential buyer about the lack of digital radiography in the practice. Questions such as Why do they want to pay me $50,000 less for not having digital are common for practice sellers. While these points are valid, you need to consider many of today’s younger dentists have never used X-ray film. In dental school, they were taught that digital is the standard of care and if radiographs are not digital, then the quality of care cannot be the best. Many dentists would disagree with this view, but it will not impact the perspective of a younger dentist looking to buy a dental practice.
Buyers will voice their concerns about many things that in the opinion of most sellers are not important. Many times, this leads to hurt feelings and potential loss of goodwill. When selling or buying a dental practice the only true asset to be sold is the goodwill of the practice and a loss of any part of this will lessen the value of the practice. So, if as a seller you are not able to hear negatives about your practice without becoming angry about it, then hiring someone to act as your intermediary may be a good idea.
What Are The Different Types of Help and Which Type Do I Need?
The first professional I would consider hiring is a Transition Specialist to oversee the entire process. There are different terms that these folks go by including Practice Brokers, Practice Sales Consultants, or Dental Transition Specialists. Hiring someone in this capacity usually means that they will engage almost exclusively with the potential buyers and relive the seller from having to engage in these types of discussions. A Transition specialist will usually start by requesting information from you, both financial and non-financial about your practice. They will also complete a formal valuation of your practice. A market-based analysis is the only method that is valid as far as setting a sale price and the only valuation method that any bank will be concerned with. There are different methods of valuation but many of these are not useful in a practice sale situation. Most times in conjunction with a practice sale, the cost of a Market Analysis Valuation will range from $2000-$3500, which is usually credited toward any eventual practice sale.
The Transition Specialist would then market the practice to find prospective buyers, screen those buyers, arrange practice visits, and help negotiate on the seller’s behalf regarding any Offers to Purchase that might happen in the form of Letters of Intent commonly known as LOIs. The Transition Specialist will also act as a liaison to provide the buyer’s bank with any information that may be required to help obtain loan approval. They would then coordinate with the attorneys involved to draft formal Purchase Agreements and bring about a closing. In addition, the transition specialist may help develop and implement any transition plans for both staff and patients.
Many times, they will also be the ones to supervise and conduct the actual closing itself. There are many more sub-steps that go into the process that are too numerous to mention here, but a good Transition Specialist guides the sale from start to finish. In return for these services, expect to pay between 7%-10% of the sales price. As a rule, practice sales are more efficient with a Transition Specialist leading it, and the practice usually sells for more money as well. Dental practice sales can be done without a Transition Specialist, but I would advise sellers working on their own to make sure they have strong business acumen and the ability to maintain an objective position.
The second professional you should consider hiring is an attorney familiar with dental practice sales. You ALWAYS need an attorney to complete a practice sale. Even if you decide to go it alone as far as a Transition Specialist, you need an attorney to draft and review sales documents and protect you from legal jeopardy. Also, if the sales agreements are not professionally drafted, most banks will not accept them, and this will delay loan approval for the buyer. As for attorneys, make sure you engage one that has experience working through dental transitions. More deals are scuttled over sometimes well-meaning, but inexperienced attorneys. You want attorneys that understand the process of dental practice sales.
If I Do Hire Help, What Questions Should I Ask Before Hiring Them?
Whomever you choose to work with, make sure to address the areas outlined below before hiring a Transition Specialist or an attorney:
Have they ever done dental practice sales before?
Dental practice sales have many unique features, unlike almost any other business, even medical or veterinary practice sales. Issues like “Work in Progress”, Retreatment, and Accounts Receivables need careful discussion and agreement to ensure a win-win transition. You are much more likely to get a good result if you deal with professionals that have prior dental practice sales experience.
If they have done dental practice sales, how much experience do they have?
This may be a tough question to ask, but I have found the more experience the professional has the better the practice sale will turn out. Some of us were great at prepping crowns and after doing 5 of them we were pretty good while for some dentists it may take 100 crown preps to be proficient. In general, I’d like to see any professional you hire have experience with at least five prior dental transitions.
What is included in their services?
You need to know exactly what any professional will do for you. Most, if not all, Transition Specialists and attorneys will have formal agreements that you will need to sign and in these, there will be a list of services that are included. Make sure you read and understand just what items that will be done for you. Look at the specifics and get clarification before signing any contract.
How will contact between us be handled, by the professional directly or through others?
Ideally this should be between you and the professional directly. Many times, in the case of attorneys, the size of the law firm may dictate that you talk with assistants. Know who your point of contact is.
How much will your services cost?
Again, a tough question to ask but ask you must! When it comes to Transition Specialists expect to pay between 7%-10% of the sales price with between $2500-$3500 being due at the time of the valuation. If a valuation fee is charged it is usually credited against the eventual sale price commission of the practice.
When it comes to attorneys, I prefer a fixed fee rather than a by the-hour fee. I do not like there to be any disincentive to get a sale completed Which paying by the hour tends to encourage. For a practice sale, legal costs can vary widely. You can expect to pay between $7,500-$10,000 for a moderately complex practice sale.
How can our arrangement be terminated?
This is very important, especially in the case of a Transition Specialist. These agreements routinely call for an exclusivity period of between 12-18 months where you can only work with that particular Transition Specialist. In addition, you cannot sell to anyone that the Transition Specialist introduced you to for an additional 12-18 months, or you owe the sales commission. I understand the exclusivity provision and the prohibition against the sale to a prospect that the Transition Specialist introduced you to, but I do not think we should be bound together for 12-18 months if one of us decides that the partnership is not working. That is why all of my agreements can be terminated by either side with 30 days’ notice. Keep in mind this provision will most likely be unique to my agreements only and they will be the exception in the industry. I have worked with many sellers over the years that had to wait months before we could formally work together due to a 12–18-month exclusivity clause. That is why I have altered this standard clause. I am committed to win-win dental practice sales and unhappiness between myself and a seller is not the way to ensue a win-win outcome.
What About Selling To a DSO?
I saved the easiest issue for last. If you are selling to a DSO, you absolutely must have at the very least an experienced attorney that has substantial experience dealing with DSOs. The things to watch out for when dealing with a DSO are too numerous to mention and don’t mistake this warning as being 100% opposed to practice sales to DSOs. There are times when selling your practice to a DSO is the best decision. But once you do make that decision, be careful!
I will demonstrate why you may need competent help when selling to a DSO with the following story. I have an acquaintance that sold his practice to a well-known DSO but did it on his own. When I asked him why he didn’t call me, he said that the DSO told him that they would handle everything for him. And handle it they did………right up to the time they fired him 6 months after the practice had been sold to them. The DSO owed him over $400,000 in sales proceeds at the time of his firing, that they hadn’t paid out yet. What made it worse was that he had a Covenant Not to Compete with the DSO that he signed during the sale process that prevented him from working anywhere in the state of Michigan for two years, even though he was fired. Almost two years later when all the dust had settled, this dentist had to borrow nearly a $1,000,000 to buy his old practice back from the DSO and to pay his legal bills. How would you like to start over at 64 years of age with a debt of $1,000,000 and a practice that the DSO had damaged?
Let me say it again!!
DO NOT SELL TO A DSO WITHOUT EXPERIENCED PROFESSIONALS ON YOUR SIDE LOOKING OUT FOR YOUR BEST INTEREST!
Selling your dental practice can be a challenging and emotional experience for many dentists. The process of transitioning a practice has many steps and components. All transitions will need a seasoned attorney to draft and review the legal documents. I would highly recommend a Transition Specialist to oversee the transition and be the point of contact through the process. Having an experienced professional working on your behalf can greatly increase the overall success of your practice sale.