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Tips: Getting the most out of the sale of your practice

April 20, 2015

Here are four tips from Wells Fargo Practice Finance, the only practice lender endorsed by ADA Business Resources, for getting the most out of the sale of your practice.

Maintain production levels. As you approach retirement, it’s natural to want to slow down your work schedule. However, it’s critical to maintain production levels through your very last day at the office to preserve the practice value you’ve worked hard to build over the years.

Your buyer’s lender will look at your income history for the previous three years to help validate the assessed practice value and sale price. If you are winding down your business over your final years of practicing, you are devaluing your future equity.

Let’s say you traditionally work 4.5 days a week, but decide to drop to 3.5 days a week in order to wind down your practice during the few years prior to sale. About 25 percent reduction in your workweek can also lead to about 25 percent reduction in your net income. In addition, many buyers and lenders can be wary of purchasing a practice that has demonstrated declining revenues and income.

Incorporate advanced technology. Most buyers cannot afford additional funding for equipment upgrades once they have obtained a practice acquisition loan. They are seeking to purchase as much practice as they can now afford, equipped with as much of their preferred technology as possible. In particular, for new dental school graduates trained in the latest equipment, an up-to-date practice that includes that specific technology can have a significant edge over competing practices.

In addition, the inclusion of advanced equipment may also benefit your practice with improved efficiencies, higher production levels, greater patient confidence and more referrals. Remember that any investments designed to bring more dollars into your practice will be recaptured in your sale price.

Leave potential profits in the practice. Prospective new owners will evaluate the future production potential of your practice perhaps more than any other factor of your business. They want to know that your patient base has the ability to generate reasonable, immediate cash flow when they take the helm, and that the practice is well positioned for continued growth.

In addition to reviewing the proper financials and projections, your buyer will look for evidence that servicing your patient base will support their income requirements. While your inclination may be to complete all of the major dental work your patients need, this may in fact work against you.  A savvy buyer will want to see a genuine opportunity to generate meaningful cash flow, so maintaining the status quo will work in your favor.

Keep financial books in order. Smart practice buyers will work with their brokers to understand the guts of your practice operations long before they visit your location. Be sure to keep your financial records properly organized with full documentation of production levels, charges and receipts, bank deposits, and tax returns. Any discrepancies in your financials may lead to deeper investigation by the buyer and potential negotiation of your sales price.