When you’ve considered what you will do when you decide to leave dental practice, you may decide that you do not want to sell your business to a third-party buyer. Fortunately, practice owners have succession-planning options beyond selling the business to a third party.
Why You Shouldn’t Always Sell Your Practice
Selling your practice does not always represent the best option for exiting from your dental practice. For example, planning to sell your practice means a risk of mistiming the market and receiving a lower valuation by the time you choose to retire or need to leave work for health or personal reasons. Selling a dental practice can also create significant work and stress for owners, due to the difficulty of finding qualified buyers and navigating the due diligence process. Owners may also worry about changes in their business’s patient care philosophy and workplace culture after selling to a new buyer. Selling a practice may also involve capital gains tax implications and post-sale restrictions under non-solicitation or non-compete agreements.
Internal Succession: Passing the Practice on to an Associate
One popular option for succession planning for dental practice owners is to pursue an internal succession, where the owner passes the business on to an associate looking to own a practice. Practice owners may bring in young dentists as associates to prepare them to take over the business, or they may partner with an experienced dentist for a few years to help them integrate into the practice. Internal succession may occur by providing an associate with a minority partnership interest before selling the rest of the business, or through a phased transfer of management responsibilities and ownership.
Family Succession
Some dental practice owners may also have the option for family succession if they have a younger family member who also practices dentistry. However, family succession may make less sense for transferring the practice to a family member with little or no experience in the dental industry, as that person may not have the skills to operate a practice, or state law may bar them from holding an ownership interest in a dental practice.
A family succession plan should also account for a practice owner’s family dynamics, especially if multiple family members may want to take over the business. When an owner has multiple family members qualified to assume ownership, they may create a succession plan that involves a transfer to joint ownership. However, when an owner identifies only one family member as the most suitable successor, they should tailor the succession plan to minimize family disputes.
Family succession can also raise unique legal and tax considerations, including how to structure the transaction (e.g., a sale versus other strategies such as family limited partnerships) and the potential capital gains or estate tax implications of the transfer.
Gradual Exit: Reducing Clinical and Supervisory Roles
An owner’s succession plan may involve gradually reducing their clinical and management roles, allowing staff and associates to assume responsibility for day-to-day operations, while the owner retains equity control of the business. Alternatively, practice owners may delegate operational duties to dental support organizations. This strategy allows a practice owner to maintain an income stream from distributions from the business’s profits while planning an eventual disposition of the practice.
Legal and Regulatory Issues for Dental Practice Succession Planning
Some of the issues that practice owners must consider when evaluating succession plan options include:
- State dental board ownership and control rules, which may limit eligible successors to licensed dental practitioners or prohibit corporate ownership of dental practices
- Valuation of goodwill and other intangible assets when negotiating purchase and sale agreements
- Complying with dental or other healthcare regulations, such as HIPAA
- Coordinating succession planning with tax and estate plans
Contact Our Firm Today
When you consider how you would want to retire from your practice, you may not want to sell your business to a stranger. Fortunately, you have succession-planning options beyond selling your practice. Contact Mahan Law today for an initial consultation with an experienced lawyer to learn more about the options you might pursue for your succession plan to help you exit from your practice on your terms.
