Maximizing Value When Selling Your Dental Practice
- Justin Marti
- 7 days ago
- 5 min read
Updated: 23 hours ago
Selling a dental practice is a significant milestone that requires careful planning and strategic execution. Whether you are retiring, relocating, or pursuing new opportunities, it's understandable that you'd want to receive maximum value for your practice.
Of course, we're lawyers, not brokers. However, our firm was founded with hands-on experience selling a multi-location DSO. That experience, along with representing buyers and sellers in hundred of healthcare deals, allows us to offer holistic advice to our clients. Beyond the legal framework, what steps can they take to get the best possible outcome from a sale?
In this article we walk you through practical steps to help you prepare your practice for sale, attract qualified buyers, and negotiate a favorable deal.
New to M&A language or practice sales? We've got a lot of resources that help.
Blog Post: The ABCs of Healthcare M&A
Understanding the Dental Practice Sales Process
Before diving into the specifics of maximizing value, it is important to understand the overall dental practice sales process. The M&A process typically involves several stages:
Valuation: Determining the fair market value of your practice based on financial performance, patient base, location, and equipment.
Preparation: Organizing financial records, updating equipment, and improving the practice’s appearance.
Marketing: Advertising the practice to potential buyers through brokers, online platforms, or professional networks.
Negotiation: Discussing terms, price, and contingencies with interested buyers.
Closing: Finalizing contracts, transferring ownership, and ensuring a smooth transition.
Each stage plays a vital role in maximizing the sale price and ensuring a smooth transaction.
Key Factors Influencing Practice Value
Several factors directly impact the value of your dental practice. Understanding these can help you focus your efforts on areas that will yield the highest return.
Financial Performance
During their due diligence process, buyers will closely examine your practice’s financial health. This includes:
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A financial metric used to evaluate a company’s profitability by excluding certain costs (interest, taxes, depreciation, and amortization) that can vary significantly between companies. EBITDA gives a clearer view of operational performance and is commonly used to determine the company’s valuation during a sale.
Revenue and Profit Trends: Consistent or growing revenue and profits over the past 3-5 years increase buyer confidence.
Accounts Receivable: Low outstanding receivables indicate efficient billing and collections.
Expense Management: Well-controlled expenses improve net income and overall valuation.
Patient Base and Demographics
A loyal and active patient base is one of the most valuable assets. Consider:
Patient Retention Rates: High retention suggests patient satisfaction and steady income.
New Patient Flow: A steady stream of new patients indicates growth potential.
Demographics: Practices in growing or affluent communities tend to have higher values.
Location and Facilities
The physical location and condition of your practice influence buyer interest:
Accessibility: Easy access and parking are attractive to patients.
Lease Terms: Favorable lease agreements or ownership of the property add value. Unbeknownst to many sellers, leases can become one of the biggest hurdles in a deal. Make sure you've reviewed yours before you sell.
Equipment and Technology: Modern, well-maintained equipment reduces buyer’s future investment.
Staff and Operational Efficiency
A skilled and stable team can ease the transition and maintain practice performance. Most practices will work to create SOPs, build and retain a stong team, and run as efficiently as possible prior to a sale.
Experienced Staff: Trained hygienists, assistants, and office personnel add operational value.
Efficient Systems: Use of practice management software and streamlined workflows appeal to buyers.
Preparing Your Practice for Sale
Preparation is key to maximizing your dental practice’s value. Here are actionable steps to get your practice ready before you start the deal process:
Organize Financial Records
Ensure your financial documents are accurate and up to date:
Prepare profit and loss statements, tax returns, and balance sheets for the last 3-5 years.
Separate personal and business expenses.
Address any outstanding debts or liabilities.
Enhance Curb Appeal and Office Environment
First impressions matter. Consider:
Refreshing the office with a new coat of paint or updated décor.
Repairing or replacing worn furniture and equipment.
Ensuring the office is clean, organized, and welcoming.
Optimize Patient Scheduling and Records
Update patient records and ensure compliance with privacy regulations.
Maintain a consistent appointment schedule to demonstrate steady patient flow.
Implement or upgrade digital record-keeping systems if needed.
Address Legal and Regulatory Compliance
Verify all licenses and certifications are current.
Resolve any pending legal issues or disputes.
Have an attorney review contracts with suppliers, landlords, and employees.
Have the Right Team in Place to Help You Navigate a Deal
Building the right team will be an investment that repays itself when you negotiate a better deal (or prevent a deal from falling through all-together. Include an M&A attorney with dental experience, a CPA, financial advisor, and an experienced broker.
Marketing Strategies to Attract Qualified Buyers
Sometimes an interested buyer might show up on your doorstep. Even so, it's always best practice to evaluate all of your options before signing an LOI. (Also, always have your attorney review an LOI before you sign it.) Effective marketing can significantly impact the speed and price of your sale. Consider these strategies:
Use a Professional Broker
A broker specializing in dental practice sales can:
Provide an accurate valuation.
Market your practice discreetly to qualified buyers in their network.
Help with negotiations and paperwork.
Leverage Online Platforms
List your practice on reputable websites and dental industry forums to reach a wider audience.
Network Within the Dental Community
Inform colleagues, dental associations, and local dental schools about your sale to find interested buyers.
Highlight Unique Selling Points
Emphasize aspects such as:
High patient retention.
Advanced technology.
Prime location.
Growth potential.
Negotiating the Sale for Maximum Value
Negotiation is where you can secure the best deal. Keep these tips in mind:
Set a Realistic Asking Price: Base it on professional valuation and market conditions.
Be Transparent: Disclose all relevant information to build trust.
Consider Seller Financing: Offering financing can attract more buyers and potentially increase the sale price.
Negotiate Terms: Beyond price, discuss transition support, non-compete agreements, and payment schedules.
Get Professional Help: Always use legal and financial advisors to review contracts and protect your interests.
Ensuring a Smooth Transition Post-Sale
A successful transition benefits both seller and buyer, preserving the practice’s value and reputation. Many owners don't realize that buyers expect them to stay on as employees post transition. This is a huge consideration for sellers looking to retire.
Agree on Terms of Employment Agreement: Include term, compensation, clinical expectations, termination provisions, noncompetes, and earn-out or holdback terms.
Communicate with Patients: Inform patients about the change to maintain loyalty.
Train Staff: Help staff adapt to new management and procedures.
Transfer Records and Licenses: Ensure all legal and regulatory requirements are met.
By focusing on these areas, you can maximize the value of your dental practice sales and achieve a rewarding outcome.
For those interested in more detailed guidance on selling dental practices, professional legal advice will be invaluable in navigating the complexities of the transaction.
Maximizing the value of your dental practice requires a combination of thorough preparation, strategic marketing, and skilled negotiation. By understanding the key factors that influence value and taking proactive steps, you can ensure a successful sale that reflects the true worth of your hard work and dedication.