Better the devil you know

Selling your practice to an associate – is it better the devil you know?

John Clarke Practice Management Leave a Comment

Irrespective of your current age, most principal dentists have retirement plans that include eventually selling their practice. Having evaluated how much money you will need to retire on and whether your practice is attractive to potential buyers, other key considerations revolve around timings and determining who the right person is to sell your practice to so you can set the appropriate wheels in motion.

The latest Practice Goodwill Survey statistics released by the National Association of Specialist Dental Accountants and Lawyers (NASDAL) paints a mixed picture for the quarter ending 30 April 2018. Average goodwill values for UK dental practices have fallen slightly to 132% of gross fees compared to the previous quarter ending 31 January 2018; however, average valuations have increased by 4% to 140% of gross fees.

“Key considerations revolve around timings and determining who the right person is to sell your practice to so you can set the appropriate wheels in motion.”

This rise, according to market experts, is linked to a number of practices attracting high demand from large corporate buyer competition, such as BUPA, Portman and Genesis.  As ever, practices situated in the ‘right’ location in major cities with good transport links and nearby amenities attract considerable interest, but this is of little consolation to principals who own practices in more rural areas.

It can be tempting to sell your practice to a large corporate group. Several have entered the arena in recent years and are looking to quickly grow their market share so you may not be short of offers. Most corporates will be of a sound financial footing. This is appealing if you own the freehold of your practice’s building as you can negotiate for a corporate buyer to lease the property from you, thus providing a valuable income stream in your retirement.

But there are also some potential pitfalls to consider when selling to a third party. Some corporates may approach you directly and make an unsolicited offer to buy your practice which may fall short of its true valuation. Discussions over the terms of sale could become more protracted due to their specific demands as they will want to ensure your practice will complement their existing portfolio. Furthermore, corporate buyers are more likely to insist that you remain as the principal dentist for a set period of time even after the sale has completed so that practice revenues are not adversely affected by existing patients leaving.

“Selling to an associate dentist, particularly if they are an existing employee, may be a more timely and financially sound decision that will allow you to enter retirement on your own terms.”

Does the thought of losing control over how and when you retire leave you feeling uncomfortable? If so, a better option might be to sell your practice to an associate as there are no shortage of potential buyers who are looking to take the next step in their careers.

Selling to an associate dentist, particularly if they are an existing employee, may be a more timely and financially sound decision that will allow you to enter retirement on your own terms. The associate will already know the inner workings of your practice which can ensure a more seamless transition for patients and staff alike, thus helping to protect the longstanding reputation that you have established within your local community long after you have departed.

Some high street lenders are risk averse when assisting associates with financing and adopt a ‘one size fits all’ approach. In contrast, specialist commercial finance providers can be more flexible in their willingness to tailor a financial solution to meet an associate’s needs and offer step-by-step support throughout the buying process.

“Always speak to specialist accountants, lawyers and financial providers who are experienced in handling sales of dental practices to ensure the least amount of stress for everyone involved.”

Choosing to sell your practice is a major, life-changing decision. But it might be that it is a case of better the devil you know than the devil you don’t when it comes to determining who is the right person to sell to. Regardless of which option you pursue, always speak to specialist accountants, lawyers and financial providers who are experienced in handling sales of dental practices to ensure the least amount of stress for everyone involved.

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