Things to consider when selling your practice
Deciding to relinquish the reins of your practice is undoubtedly one of the biggest decisions most practitioners make in their professional lives. Nevertheless, the time comes when all principals are in this position and it is vital that plans are in place to make sure the practice is in the best shape possible to reach its optimum value, particularly in the event of an untimely or unexpected exit.
One thing that many principles underestimate is their apprehension during the decision about exiting, it is important that you prepare yourself to separate from the business you have successfully built. Preparing for the sale can take as long as two years to complete, so planning far enough in advance is essential.
The days of ‘one year’s gross’ are long gone, with todays practice valuations being based on profitability. In fact, a practice valuation is an invaluable tool and ideally should be performed every year so that you can identify any strengths, weaknesses and areas which could add more value to your business. If this process is undertaken whilst you still have time to make tweaks and improvements, you will ultimately gain the reward in realising a higher value for your business.
Once the decision to exit has been made, you must create a plan. There are several options that should be discussed with a specialist dental broker depending on your goals:
- Close the door and walk away – mostly a last resort and a very rare scenario
- Maintain, develop, and improve – one choice is to keep going and make changes that can rejuvenate your practice. This can be a viable solution, especially if the timing is right and there is time to continue before exit
- Selling to an associate or partner – this is often an easy solution if they are interested and with the right individual this can prove an excellent exit strategy. Both parties know and understand each other and the risk to the seller is low and benefit to the buyer is high, a broker in this scenario bares the tough negotiations keeping relationships at their best
- Selling to a corporate – this is an increasingly popular solution that works well for some and not so well for others. Typically, the selling price is good, but there is often a requirement for the principal to remain for two or more years
- Sell on the open market – this remains the most common method of selling a practice, and is a very good way to ensure the best possible selling price. Typically, leading brokers have a large database of potential buyers thus there is not only one interested party like you may be led to believe. Brokers can be of great assistance in this process, not only helping to locate an appropriate buyer, but more importantly, helping with contracts, financing, and the negotiating process enabling the principal to realise the full cash value of the practice
- Do nothing – this is all too common and occurs when a principal has gone beyond the point at which they should have sold, but delayed in making the decision. This creates a situation where the practice often deteriorates, revenue stagnates and the practice in fact becomes harder to sell
- Partial buy-in – this can be a solution for associates who want to buy-in in stages, and there are pros and cons to this strategy. On a positive note, it enables the current owner to maintain control and makes buy-in more affordable for the purchaser. And of course, if an associate purchases even 10% of the business, they are much more likely to remain at the practice, this is commonly known as ‘golden handcuffs’.
However, there are also downsides to this type of sale. If the practice is properly valued, cost should not be an issue as the cash flow should be sufficient to pay for the business. The greater the percentage of the business purchased, the larger share of the profits the buyer will receive – which they can then use to make their purchase.
Often, these profits represent more than the seller is receiving in a ‘note payment’, meaning the seller does not profit as much and this can result in ‘giving away’ a portion of the practice. Finally, if the buyer purchases only a small percentage of the business and things do not work out, it can be difficult to undo the process unless there is a specific buy-sell provision in the shareholders’ agreement.
It seems that a new group appears daily in the dental sector; from the large high street brands to smaller groups, this is a growth area in dentistry. With so much consolidation in the market, individual practice owners can see the benefit of either selling their practice for high values or building a small group themselves.
Being aware of all your options when it comes to selling your practice is vital as this will allow you to plan with more confidence. The more knowledge you have, the better your plan will be and the more successful your exit is likely to be.
Practice Location - established since 1980, the current principal acquired the practice in 1988 as a going concern and has now reached retirement. The practice benefits from its town centre location, excellent transport links and plentiful parking for patients, all making the practice extremely popular and easily accessible.
Type of Practice - this two surgery mixed practice occupies the whole building and is situated across two floors. The premises boasts huge potential for expansion by converting the space on the upper floor into two additional surgeries. The current principal is the only dentist and therefore all the income is derived by him.
Financials - the total annual turnover for this business is just shy of £176,000 made up from an NHS contract of £150,000 for around 6,000 UDAs, private fee per item treatments and a well know capitation scheme. Further promotion of the private side of the business would give the incoming purchaser future turnover growth and subsequent profit margins.
Buyer Appetites - we advertised the sale of the practice to our general market buyers, sending the sales particulars to over 351 individuals and resulting with six viewings in total.
Reason for sale/Incoming purchaser - the principal was looking to retire and exit dentistry immediately which suited the incoming purchaser perfectly as they already owned another practice within the local area.
Price Achieved - £290,000 inclusive of the goodwill, equipment fixtures and fittings. In addition £275,000 was agreed for the freehold premises.
Practice Location - the practice is located in a residential part of the town within southern England and has a long and well established reputation spanning over 60 years. The location is ideal for patients and staff alike being situated on a bus route and just a few minutes’ walk from a parade of shops.
Type of Practice - a desirable and well run NHS dental practice with two fully equipped dental surgeries. Private treatments are not currently promoted providing an untapped potential for growth in this sector of the business.
Financials - this solely NHS business has a contract worth in excess of £450,000 for a provision of 16,668 UDAs. There is future potential to increase practice turnover by utilising the third surgery which is already plumbed and wired.
Buyer Appetites - the practice was launched to the whole general market and advertised online, we received a greatly positive response resulting in two viewings days, the first of which had 16 appointments booked and the second with 14 appointments booked. Following the viewing days we received two offers for the purchase of the practice above the asking price. The successful offer was negotiated and agreed just 18 days after the practice was launched to the market.
Reason for sale - the vendor was looking to retire and cease working at the practice. The purchaser was a first-time buyer looking to own and work within the practice.
Price Achieved - £1,110,000 inclusive of the goodwill, equipment fixtures and fittings and £265,000 for the freehold.
Practice Location - established for over 80 years, the current principal acquired the practice in 2000 as a going concern, however their plans have changed and now they are looking to pursue other interests. The practice is based in the excellent busy town centre of Harrow. The practice benefits from good transport links and passing trade with local shops and amenities.
Type of Practice - this busy two surgery practice is open Monday to Friday working from 9am until 5.30pm and Saturdays 9am until 1pm for emergencies. The income is derived from both NHS and private fee-per-item patients. This practice was available on leasehold and is based within a semi-detached property which occupies the whole of the ground floor with apartments on the second floor. The practice is also fully computerised.
Financials - annual turnover of £310,000 is achieved via an attractive NHS contract of £185,000 over 7,400 UDA’s, and private fee per item patients. The practice has great potential for growth by increasing the chair-time utilisation and introducing further private treatments to increase turnover and maximise profits.
Buyer Appetites - we successfully marketed the practice to our priority buyers. Twenty-two viewings took place resulting in an over the asking price offer being placed. The buyer also agreed to pay the vendors fees in order to secure the practice, bypassing the vendors expectations.
Reason for sale/Incoming purchaser - the vendor was looking to pursue other personal interests and so wished to exit the practice upon completion. This was the buyers first acquisition and therefore decided to work within the practice prior to completion to aid with the transition.
Price Achieved - £621,260 inclusive of the goodwill, equipment fixtures and fittings. The sale was agreed on a leasehold basis with a rent of £25,000 per annum.