How can you tell when it is time to sell your dental practice?

Simon Palmer, September 2014 -  

A dental practice will usually be one of the most valuable assets of a dentist. The money from the sale of it should make a huge difference in the lifestyle and the choices available to the vendor post sale. As with the sale of any asset, timing is everything if you want to maximise your results.

It stands to reason that you won't get the same money for your practice at every stage of its existence. Businesses aren't stagnant. They have peaks and troughs, periods of growth, periods of stability and periods of decline. The markets for dental practices are not stagnant either. They have periods of excess supply and periods of excess demand.

The trick to maximising the money paid for your practice is noticing the peaks and troughs of your business and the coming factors impacting the supply and demand for dental practices and selling at a time to yield the best results.

So what should you look out for? How will you know when it is the best time to sell your practice?

Below are some indicators that may tell you if an optimal time may be on the horizon:

Personal

• Age. I know many dentists over 60 who love their work and have no plans to slow down. Even if this is the case, if you are over 60, it may be time for you to start looking into an exit plan. The best results for practice sales come when you have time to carefully plan, consider options and often the ability to stay on post-sale even if it is in a part time capacity.
• Health. Dentistry is a surprisingly difficult profession on a practitioner's body. Dentists have high rates of back problems, eye strain, hand, depression.
  The most common response to this is for the dentist to cut back their hours temporarily till the symptoms are manageable. This cut back in hours over a time will lead to a decrease in production and profit, if not counteracted by increasing the hours of another dentist in your practice. If you are about to cut down your hours for health reasons, or you have already done so and haven't counteracted the effect this will have on your practice it might be worth looking into selling your practice.
• Fatigue. Early in a Dentist's career their dental practice will go through a period of growth as they inject youthful energy and enthusiasm into their practice, working hard to build a patient base. Making themselves more available for their patients than they will be at any stage in their career. Later, fatigue will usually creep in incrementally, as the owner puts in fewer weeks per year, less hours per week and less energy when he is at work. The passion he once brought to the business and practice is replaced with complacency and in some cases neglect. The practice growth slows until the practice production and value begin to plateau and later decline. By the time many Dentists weary of dentistry decide to sell and retire their practice is worth significantly less than it did at its peak.

If you know that fatigue is creeping into your practice it may be time to look at ways of reinvigorating your interest, bringing in some new younger associates or selling the practice before its worth as a business becomes compromised.

Practice

• Lack of Reinvestment

  There are some practice owners who have proudly told me "I have no debts on the practice and all of my equipment is depreciated". While this may have increased your profits in the short term, what it usually also means is that you haven't reinvested in the practice in a long time.

  All businesses need reinvestment on a regular basis in order to seem current and attractive to the public. Shopping centres like Westfield usually have mandatory regular renovations as part of the leases of all their tenants for this exact reason. While shopping centres are just concerned with aesthetics, Dental practices need reinvestment in aesthetic, equipment, materials and their own clinical skills as well.

  In many patients' minds a modern practice's appearance also speaks to modern standards of hygiene, sterility and how up-to-date the practice is with the latest procedures, techniques and materials.

  If you haven't reinvested in your practice aesthetics, equipment and your own clinical skills in some time, the chances are that the fatigue mentioned previously may have started to set in.

• Plateaued production

  Your production doesn't need to be going down for your business to be going backwards. The fundamental costs associated with doing business like rent, outgoings (water, electricity) staffing, equipment, materials, insurance, etc are all going up. Unless your practice gross is increasing accordingly... you are going backwards.
  If:

  • the production figures in your practice have plateaued over the past few years.
  • you are waiting for them to improve thinking you had a winning formula 5 years ago, you've seen boom and busts before you just need to ride out the storm.
  • you are not being proactive with turning them around and have a solid plan to do so...

  ...then you may want to consider that your practice may have its best years behind it. It may be time to sell.

• National and Local Industry Indicators
  • Interest rates. People spend more on large purchases (like dental practices) when interest rates are low.
  • Government spending.

    Some recent examples of this include:

    • CDBS. The new federally funded Child dental benefits scheme has increased buyer interest in practices located near schools and day care centers in areas likely to access this scheme.
    • DRISS. The new federally funded Dental Relocation and Infrastructure Support Scheme (DRISS) has been designed to help establish dentists in a regional and/or rural community. DRISS includes relocation grants of up to $120,000 and the opportunity to apply for infrastructure grants up to $250,000 to help pay for equipment and fit-out of dental facilities. This Government spending has increased interest in regional and rural practices for sale.
  • Growing competition. The growing numbers of dentists per head of population in Australia and widely reported oversupply of dentists will probably lead to increased competition for dental services in most places and make achieving growing production numbers more difficult in the future.

As with any major decision timing is everything. Recognising the signs that it may be the right time to sell means looking for indicators in yourself, your business, the wider industry and the economy. Keeping your finger on the pulse in these areas and acting accordingly will mean a significant difference to your return on investment on your practice and your life post sale.