There is more than one sale option to consider when the time comes to transition your practice
Retirement Sale Option
The Retirement Sale is just what is says it is: the dentist retires and the practice is sold. There generally is very little transition time between the sale and retirement. The seller stays long enough to finish uncompleted cases and moves on to retirement life. Patients receive letters announcing that their “continued care has now been turned over to Dr. Smith, someone who was “hand picke” by their dentist.
This is the most common and the least complicated type of sale. It also requires the least amount of advanced planning when compared to other sale options. There are minimal relationship challenges in this transition, because the business relationship between the buyer and seller is brief. It’s been the traditional approach for most dentists for many years.
Pre-Retirement Sale Option
A second practice sale option is the Pre-Retirement Sale, which simply means the practice is sold prior to retirement, sometimes even years before. There are specific benefits to a preretirement sale, and dentists evaluating this type of transition usually have personal requirements and reasons for choosing it. Selling dentists at any career level can consider a preretirement sale. It’s extremely important for preretirement sale agreements to be designed and developed on a case-by-case basis, as the needs of the individuals may widely vary from situation to situation. A structured, preplanned exit strategy for the dentist considering retirement, relocation, or other types of transition is integral to the design of the preretirement sale.
This option is popular for the seller-dentist who has the desire to explore career opportunities outside of practicing dentistry. The advantage of selling and continuing to work in the practice (while pursuing other ventures) is one that few business-owners get to enjoy. Knowing that the option to return to private practice exists, these dentists can enjoy the freedom of trying new ventures.
The preretirement sale offers a number of other advantages, such as the opportunity to lock in practice value years before retirement and continue working until retirement in an overhead-free and management-free environment.
This option also protects the future seller-dentist from possible problems in the future. Often, during the five-year period preceding retirement, the productivity level of many dental practices drops. When this happens, the practice value decreases significantly. Other unforeseen problems, such as death or disability, can obviously have a tremendous effect on practice value. By choosing the preretirement option, this potential downward trend in practice value can be eliminated.
Another benefit to the seller-dentist is the opportunity make the entire retirement experience less stressful by planning ahead. The sooner the equity of a practice is converted into a cash-flow stream, the greater the return on investment. In some cases, this provides not only peace of mind, but also tens of thousands of dollars in advance for future retirement investments.
In addition, the gradual phase-out plan created by the preretirement sale facilitates a smooth transition for patient transfer. The patients know that they have been turned over to someone who worked side by side with you before you retired.
Deferred Sale Option
The next practice-sale option is the Deferred Sale. In this situation, the buyer and/or seller are not yet ready to exchange ownership of the practice, but both parties are willing to proceed with a plan for the eventual sale. The deferred sale can prove to be an interesting approach to this common scenario.
In this option, all terms and conditions of the arrangements are programmed to occur in advance. There are no items to negotiate at a later date and few questions left unanswered. This preplanning strategy helps prevent any misunderstandings from occuring down the road.
CHOOSING THE RIGHT OPTION
Choosing the appropriate practice-sale option will depend upon each dentist’s situation. The multitude of variables include the target retirement date of the dentist, how early the seller began planning, the health status of the seller, whether the seller wants a continued practice option, and the experience level of the purchaser.
Target Retirement Date
Dentists with rapidly approaching target-retirement dates have fewer options. It often takes a full year to get everything in order to sell–i.e., valuing the practice, locating candidates, and completing all the necessary paperwork. Those who are one year or less from retirement will most likely leave practice in a retirement scenario, based on the limited amount of time remaining. To have the greatest number of possible options, plan early — at least three-to-five years out.
Health problems force many dentists to sell early. At the very least, these dentists should be securing the future sale of their practice through a deferred sale or preretirement sale program.
Many dentists savor the idea of selling their practices early and continuing to work in the practice, taking profit out of their business after it’s been sold. Other dentists view this “benefit” with less appeal. For those desiring the continued-practice option, the deferred and preretirement sale approaches are the two on which to focus.
The Experience Level of the Purchaser
Each dentist’s view of selling is different, but three general attitudes prevail. These attitudes vary based on the seller’s age and career stage, as well as financial and health status, and their attitudes about the future of dentistry.