How to Maximize your Practice Sales Price
By Ken Rubin, CPA, PFS, Broker
The single most important thing you can do to ensure that youll get the absolute top dollar when youre ready to sell your practice is to PLAN AHEAD. With practices selling today (in 2005) at record highs, failing to plan ahead could easily result in a decrease in resale value of $100,000 or more for the average San Diego dental practice. By planning ahead and following the steps below youll ensure that you get top dollar when youre ready to sell your practice.
Keep your Practice Numbers up! Youve work during your career and you should justifiable be entitled to take it easy as you approach retirement. However, prospective buyers and their accountants, lenders and other advisors will be scrutinizing your numbers (primarily production, collections and net income) during your last three years. The formulas they use to determine their offering price is based on your actual numbers, not the potential numbers you could have generated. A downward trend in your production (even if theres a logical explanation) may even trigger their suspicion regarding the future financial health of your practice, and cause a further reduction in sales price.
Keep Your Fee Schedule Up. Ideally you should be raising your fees on a consistent annual basis. If not, your fees will likely be low and buyers shy away from practices with abnormally low fee schedules. They dont want to perform discounted dentistry under a low fee schedule, and they know that if they buy a practice and make a large increase in fees, theyll probably lose a ton of patients.
Have a Transferable Office Lease. Without an adequately transferable office lease your practice will only be worth pennies on the dollar! The buyers lender is going to require the buyer to obtain a lease that has a minimum of at least 5 years (including renewal options). They wont lend if the possibility exists of the buyer finding himself/herself out on the street without an on office location and still owing money on the practice acquisition loan. Be sure your existing lease and renewal options are assignable and cover at least 5 years (preferable longer). Be sure the assignment to the buyer will be at your current rate, rather than an increased rate.
Give your office a Cosmetic Makeover. Consider the following items to make your office more attractive to a buyer: A fresh coat of paint on walls and cabinets, new carpet or steam cleaning, new wallpaper, remove clutter, re-upholster chairs, new light fixtures, new ceiling tiles, etc. You get the idea. If your practice looks the same way it did 30 years ago, investing money in a cosmetic makeover will pay off handsomely for you!
Consider an Equipment Upgrade. Be careful. Suppose your equipment is 30+ years old and unattractive to a buyer. If you replace it with brand new equipment right before you sell your practice, you probably will NOT recoup your investment in the new equipment. The resulting increase in practice value will be less than the investment you made in the new equipment. However, if you PLAN AHEAD, and make the new equipment purchase approximately least 3 years before you sell your practice, youll come out economically ahead for several reasons. Just like a new car, the resell price of equipment will decline dramatically once it has been removed from the showroom floor. From a buyers standpoint, theyll pay almost as much for a practice with 3 year old equipment as they will pay for a practice with brand new equipment. The way they see it, either way they dont need to spend any money replacing anything. Youll get to enjoy the new equipment for at least 3 years, and your productivity and take home pay should go up significantly due to the implementation of new technology. This will in turn generate a higher sales price for you due to the increase in your numbers.
Improve your Listing Agreement. Even in todays hot dental practice sales marketplace, selling dentists frequently find themselves locked into a long-term unbreakable listing agreement with non-performing brokers. Be sure to insert protective language in the agreement to clearly give you the ability to terminate the listing if your predetermined criteria are not met. Also keep in mind that there is no central multiple listing service (MLS) for dental practices, similar to the MLS that exists for real estate. Therefore, extensive marketing is required to expose your practice to the entire population of potential buyers. All brokers are far from equal and it is absolutely essential to compare different brokers marketing plans for your office and their recent past performance.
Ken Rubin has been helping dentists since 1984. He owns and operates both Ken Rubin Dental Practice Sales and Ken Rubin & Company, Dental CPAs. He is a frequent author, lecturer and co-founder of the Academy of Dental CPAs (ADCPA). He can be reached at (619) 299-6161 . Websites are www.krpracticesales.com and www.kenrubincpa.com