Now may not be the right time to sell your practice.
But now is the time to start planning for it.
Whether you just opened your office, took on a new associate, added a second location, or are thinking about retirement, ensuring your practice becomes a valuable asset instead of a “job you own” requires careful planning.
As business and accounting advisors, we believe you deserve help thinking through more than day-to-day operations and tax strategies but also your practice’s full trajectory. Here are five questions to help you plan a smart exit strategy.
How far in advance should I prepare?
It’s true we’ve said “now” is the time. And in a perfect world, we advise our clients to start planning at least 10 years in advance. But we also know that sometimes that just doesn’t happen. So no matter how much runway you’ve got, start by thinking beyond timelines and instead about the person (or people) who will eventually buy your practice.
You understand better than anyone the makeup of clients attracted to your office. What qualities does your successor need to serve these patients well?
If you’re early in establishing your practice, this question can also help you think about what you’re building. What does a thriving practice look like?
If it feels like thinking about selling your business brings you back to how you’re running things today, it should. According to Forbes, dental practices that don’t differentiate ultimately struggle to grow. Guaranteeing your success through strategic planning, good marketing, and sound financial advice is essential to preparing your practice to sell in the future.
How can I attract the right successor?
Your practice is your legacy. When another dentist looks at your business, there are certain things they’ll want to see.
First, are your financials buttoned up and in order? No matter how much money you make over the years, if you lack good recordkeeping, your practice will invite speculation about its overall worth.
Next, profit is just one important component when it comes to your business’s valuation. Retention of key staff responsible for your success and documented internal processes make you more or less attractive as a practice.
As discussed above, thinking about the future offers helpful insight into today. If your practice doesn’t have documented internal processes or if key employees don’t feel recognized or valued, you’re not only hurting your options when it’s time to sell, you’re also in trouble now should these key staff members leave.
What changes do I need to make now?
It may seem obvious already, but it’s worth pointing out. Selling your practice means your future self is moving into the next phase of life, whether that’s retirement or something else. If you’re not carefully managing your practice as a profitable business, you won’t be ready when that day comes.
Running your practice efficiently includes controlling overhead, building up cash reserves, and plenty of savings. For instance, if your overhead is above 65% of your gross revenue, it’s going to kill your cash flow. And cash flow problems create a ripple effect by stifling your savings for retirement or keeping you from building up a surplus that allows you to make eventual personal or business investments that ultimately build wealth.
Managing your finances well doesn’t just benefit you when you’re actively working in your practice — if you keep accurate, long-term financial records, it can also help demonstrate the financial health of your business when it’s time to sell.
What do I want the process to look like?
There isn’t one way to sell a practice. Are you going to quit cold turkey or slowly transition out of the business? Many medical providers choose to gradually transition. This approach provides a lot of assurance to your successor, staff, and patients.
Think of it this way: your patients get to meet their future dentist and have positive interactions while you’re still around. This process increases trust and results in far more patients staying when the changes become permanent.
This not only helps preserve your practice when you’re gone but it also can be leveraged in advance to reduce perceived risk when it’s time to negotiate.
What do I want from my retirement?
Most dentists want to retire with millions of dollars saved, but according to American Dental Association, that’s getting harder and harder. In 2002, the average age for retirement was 69, but today it’s 65.
And dentists who haven’t saved enough find themselves stepping back their lifestyle instead of enjoying financial freedom in their golden years. It’s natural to think of retirement as a set of financial investments and savings, but it’s important that you integrate your retirement plans with your exit strategy.
Seeing the whole chess board, rather than one move at a time, is tough when you’re trying to run your practice and serve patients. Talk with your accountant or business advisor to ensure your plans for the future are integrated.
Even if now isn’t the right time to sell your dental practice, now is the time to plan ahead for it! We hope you found this post helpful in that process!
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If you are looking for outsourced bookkeeping services in Newport Beach, San Francisco, or Walnut Creek, California, consider WCH CPAs.