A checklist of steps smart dentists take before selling their practice
If you are planning to sell a dental practice, preparation is one of the most important factors in achieving a successful outcome. Whether you are retiring, relocating, or ready to focus solely on patient care without the responsibilities of ownership, selling a dental practice requires strategic planning. Dentists who take the right steps before they sell their dentistry often secure higher valuations, attract stronger buyers, and avoid unnecessary delays during the transaction. Owners who hurry without proper preparation can often leave value on the table.
Understanding how to sell your dental practice starts with knowing what buyers look for and how to present your practice as a strong investment.
At Mahan Law, we help practice owners navigate this complicated process with care every day. Below are the key steps to help you get started navigating selling your dental practice with confidence.
Assess the Current Value of Your Practice
First, you should obtain a professional valuation for your practice. An expert appraiser with experience valuing dental practices can help you determine your practice’s current market value. Expert appraisers can assess a dental practice’s value based on standard valuation methods, such as the income-based approach (value based on a business’s future income) or the market-based approach (value based on the prices paid for similar companies in the market). Knowing your practice’s value will help you during negotiations with a prospective buyer. Some of the key factors that affect practice value include:
- Office location
- Size and stability of patient base
- Consistency in cash flow
- Offering specialty services
- Investments in technology
To help you identify your practice’s strengths and weaknesses, obtain a valuation before publicly listing it for sale. This will make it easier to focus on improving aspects of your practice that may increase its value to potential buyers.
Organize and Clean Up Financials
Prospective buyers will want to have a thorough understanding of your practice’s financials. For this reason, you will need to organize your financial records to provide a clear picture to buyers. Steps you can take to prepare your practice’s financials include:
- Clean up and update financial statements for the past three to five years
- Reduce discretionary spending on non-essential expenses that may eat into profitability
- Ensure your billing records are current and accurate
You may need to work with an accountant experienced with dental practices to help you organize your financial records to present a clear, favorable picture of your business’s performance.
Strengthen Operational Metrics
Demonstrating your practice’s operational stability will also help increase its value in the eyes of potential buyers. With a stable practice, buyers can feel more confident that they will continue to receive the same cash flows. Some of the primary areas you should focus on optimizing include:
- Patient retention metrics and new patient flow
- Hygiene performance programs
- Staff retention and precise documentation of employee roles
- Updated equipment and compliance procedures that meet current industry best practices
Improving the practice’s operational efficiency will not only demonstrate it can maintain its historical performance but also relieve potential buyers of the need to invest additional money to optimize the business.
Legal and Regulatory Housekeeping
Preparing for the sale of your dental practice also requires some legal and regulatory housekeeping. First, review essential legal documents, such as:
- Entity formation and governance documents, including articles of organization/incorporation, bylaws, operating/partnership agreements, or shareholder agreements
- Essential contracts, such as independent contractor agreements with dentists and other practitioners working in the practice
- Office space and equipment leases
- Vendor agreements
- Employee agreements
Furthermore, you should review your practice’s records policies to ensure compliance with HIPAA standards.
Reviewing your practice’s operations can help you identify potential regulatory issues, including those overseen by state dental board regulations, HIPAA regulations, or DEA regulations. An experienced dental attorney can also audit your practice’s contracts and operations to identify potential legal or regulatory risks that might derail the sale of your practice in due diligence.
Prepare the Office and Equipment
You can also boost your practice’s value by taking time to assess the office aesthetics, patient facing experience and equipment.When a buyer visits your office during due diligence, an inviting atmosphere will help your practice seem more attractive. Cost-effective upgrades to enhance the visual appeal of your practice’s office include new paint, carpets, and furniture.
You should also check your practice’s equipment. Make sure your equipment remains functional, has undergone all manufacturer-recommended services, and that you have an accurate inventory record of the equipment. If feasible, consider updating equipment to integrate the latest imaging systems and charting software, which can help create a significant selling point.
Plan for the Transition and Succession
You should also consider what you want the transition or succession between you and an eventual buyer to look like. Buyers may wish to know about your post-sale plans, as they can affect how buyers value your business. Some of the aspects of a transition you should consider include:
- Will you stay with the practice temporarily as an employee or independent practitioner?
- How will you communicate the transition to your staff and patients?
- How will you minimize disruption to the practice’s operations, including the transfer of licenses, patient files, and insurance registrations
Having a comprehensive, documented playbook for transitioning between you and a buyer can help the buyer feel more confident that purchasing your practice will not completely disrupt operations or destroy any value the practice had.
Work with Advisors Experienced with Dental Practice Sales
Finally, reach out to professional advisors who have experience guiding owners through dental practice sales. For example, you may need a CPA with experience in dental practice financials to help you audit and prepare your financial records. A dental practice broker can help you find potential buyers more efficiently. Lastly, a dental attorney can help you ensure your practice’s legal and regulatory compliance and handle the aspects of the deal process, including negotiating preliminary terms, responding to due diligence requests, drafting finalized purchase agreements, and addressing post-closing and transition issues. Having a team of experienced advisors can help you avoid mistakes, minimize tax liabilities, and negotiate the highest value deal.
Contact Our Firm Today for Guidance and Support
Taking proactive steps can help maximize your practice’s value when you decide to sell your practice as part of your retirement, relocation, or exit from ownership. Contact Mahan Dental Law today for a confidential consultation with an experienced lawyer to learn more about the steps you need to take to prepare to sell your practice.
