Planning to buy or sell a practice? Start early
A version of this Q&A first appeared in the Dental Bite Newsletter. Sign up to here to receive the weekly newsletter.
By Carrie Pallardy | for Dental Bite
Are you thinking about selling or buying a practice? Rod Johnston, founder and principal of Omni Practice Group, recommends starting the process early.
Johnston spoke to Dental Bite about the sales activity he is seeing this year and what dentists can expect during the process of selling a practice.
Are you seeing any major themes for dental practice sales in the market today?
Early in this year, it started off a bit slower than normal. I think people were waiting to see how the economy was doing. But it has picked up, and we're busier than ever.
What does the process of selling a dental practice look like this year?
We had this checklist that I started years ago, and I think it was about 35 items to do before closing. Now, it's 85.
For a typical transaction, we'd start out by doing the valuation on the practice. That involves gathering documents: everything from tax returns to practice management reports, profit/loss, employee information. It takes us about 10 days to do the valuation to figure out what the practice is worth.
From there, we put together the marketing materials. Then, we start marketing it. Once the marketing starts, we start getting the phone calls and talking to buyers about the practice. And sometimes we do open houses on practices just like residential open houses, except they're confidential.
After that, we'll hopefully get an offer on the practice and we negotiate the letter of intent. Then, the buyer gets to do due diligence on the practice. They schedule a Saturday or an evening when the staff's not around. They'll come in and do anywhere from two hours to two or three days. It depends on the buyer.
The buyer is also getting their bank financing done. The bank's not looking at just the buyer, they're looking at the practice as well to make sure it's going to cash flow and that it's a good investment for the buyer to purchase.
Once the legal documents are done, we use escrow typically and it's all done electronically now.
Do you have any advice for dentists considering a practice sale this year?
Start early. Educate yourself. I just had a meeting last night with a couple of sellers who were probably a little over two years away from selling.
I suggest doing a valuation to see where you are. The rule of thumb is practices are worth 70% of collections. That might be true in 50% of the cases. If your practice is in the middle of nowhere in Washington or California or New York or wherever, it's going to take longer to sell and it's not going to be worth 70% of collections. On the other end of the spectrum, if it's in a downtown metropolitan area and the overhead is low, it might sell for 90% or 100% of collections.
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