Navigating the Sale of Your Dental Practice: Key Questions Answered

Selling a dental practice is a major milestone in a dentists career, and it often comes with many questions about the process. Whether you are preparing for the sale, understanding legal implications, or navigating the emotional aspects, its essential to be well-informed. This guide will address the most common questions dentists ask when they begin the process of selling their practice, providing clarity and actionable advice for a smooth transition.

Understanding the Value of Your Practice

One of the first things dentists want to know is how much their practice is worth. While getting an accurate appraisal is important, several factors can influence the value, both on a broad economic scale and within the practice itself.

• Outside factors like interest rates, inflation, and the overall economy can impact the value. These elements affect buyers' ability to borrow and their discretionary spending.
• In-practice factors include the specifics of your practice, such as the number of operatories, active patient count, treatment planning approach, and expense management.

By looking at both these aspects, sellers can get a rough idea of the market value. However, for an accurate valuation, working with an appraisal specialist is essential.

Continuing to Work After the Sale

Many dentists are concerned about how long they should continue working in the practice after selling. Our recommendation is to associate for 6 months or more following the sale. The longer the better.

• Why? This timeframe provides security for both the buyer and the seller. It helps maintain patient continuity and reduces legal risks for the seller.
• Flexible working hours: You do not need to work full-time post-sale. Many sellers negotiate reduced schedules, such as one to two days a week with extended time off.

This period allows for a smoother transition, both for the practices patients and for the buyers operations.

The Emotional Side of Selling

Selling a practice is not just a financial transaction—it is often an emotional rollercoaster. Many dentists are not prepared for the stress and emotional toll of parting ways with a business they have spent years building.

• Team of professionals: Surround yourself with experts who specialize in dental practice sales. They will help you navigate the financial, legal, and emotional aspects of the sale.
• Expect challenges: The process can be overwhelming, especially when issues arise with contracts, leases, or tax planning. Staying focused on patient care while leaving the details to your team of experts can ease the burden.

Acknowledging that this process can be emotionally taxing will help you better prepare for the challenges ahead.

Addressing Employee Concerns

When selling a dental practice, team members are often a top concern for the seller. The challenge lies in how buyers view the staff, as potential liabilities.

• Introducing new contracts: Ensuring that all employees are on proper, up-to-date contracts before the sale is crucial. These agreements can limit the buyers liability and make the transition smoother.
• Managing liabilities: Without updated contracts, long-term employees may be entitled to significant severance pay. However, with the right contracts in place, these liabilities can be minimized.

By proactively updating employment agreements, you can protect both your staff and your practice during the sale process.

Lease Considerations in a Sale

The lease can be one of the trickiest aspects of selling a dental practice. If the lease is not structured properly, it can become a roadblock during the sale.

• Assignment clauses: These govern the ability to transfer the lease to the buyer. In some cases, landlords can terminate the lease when a transfer is requested, which could complicate the sale.
• Landlord negotiations: Some landlords may request part of the sale proceeds, or impose additional fees, when transferring the lease to a new tenant.

Ensuring your lease has favorable terms—and ideally at least 12 years left—will make your practice more attractive to potential buyers.

Impact of a Demolition Clause

A demolition clause can be a serious issue for dental practice sales. This clause allows the landlord to terminate the lease if they intend to redevelop the property, creating uncertainty for buyers.

• Buyer reluctance: Banks may be hesitant to finance a practice with this type of clause in the lease, as it introduces risk.
• Negotiating the clause: If possible, work with the landlord to remove or delay the clause. This can make the practice more appealing to buyers and easier to sell.Understanding the implications of a demolition clause and addressing it early can prevent problems later in the sale process.

Non-Competition Agreements

Many sellers are concerned about non-competition clauses. These clauses prevent the seller from opening a competing practice within a specific geographic area for a set period of time.

• Enforceability: Non-compete clauses are typically enforceable in the context of a practice sale, provided they are reasonable in scope and duration.
• Exceptions for associates: In associate agreements, courts may be more reluctant to enforce these clauses, preferring non-solicitation agreements instead.

Discussing non-competes with your legal team ensures that these agreements are clear and enforceable, protecting both buyer and seller.

Minimizing Tax Liabilities

Tax planning is a critical aspect of selling your dental practice, and it can have a huge impact on the final proceeds from the sale.

• Lifetime capital gains exemption: Dentists can take advantage of this exemption to save a significant amount on taxes. With proper planning, this exemption can even be multiplied among family members, reducing taxes further.
• Corporate reorganization: Moving “offensive” assets like excessive cash or real estate out of the professional corporation can help maintain eligibility for the exemption.

Work with your accountant and legal team to ensure you are fully leveraging tax-saving opportunities during the sale.

Timeline for Selling a Practice

Many dentists wonder how long the process will take from start to finish. On average, it can take anywhere from two to four months to sell a dental practice.

• Initial steps: This typically involves gathering information about the practice and getting an appraisal.
• Marketing and negotiations: In the second month, the practice is marketed, an open house is arranged, and offers are reviewed.
• Due diligence and closing: The remaining time involves addressing any issues that arise, such as finalizing contracts with staff or negotiating with landlords.

Each practice is different, and timelines can vary based on how prepared you are and the complexity of the transaction.

Ensuring a Smooth Transaction

The final goal for any seller is a smooth and successful transition. Here are some ways to ensure that the process goes as planned:

• Build a strong team: A legal and accounting team with experience in dental sales is essential. They can help you avoid common pitfalls and guide you through the process.
• Manage your expectations: Selling a practice can be an emotional and unpredictable journey. Be prepared for unexpected challenges, and focus on getting the best deal possible.
• Prepare for the worst: Stay realistic about potential market changes, such as rising interest rates or inflation. While you hope for a smooth sale, being prepared for any scenario will help manage stress.

By having a solid team and realistic expectations, you will be better equipped to handle the ups and downs of selling your practice.

Conclusion: Navigating the Sale of Your Dental Practice

Selling a dental practice is a complex, emotional, and multifaceted process. By asking the right questions, understanding the potential challenges, and having a professional team by your side, you can navigate the journey with confidence. At Meridian Sales & Appraisals, we are here to ensure that your practice sale is smooth, successful, and as stress-free as possible.

Alan Rustom