Selling a practice can be one of the biggest decisions that you will make in your career and one of the key factors in the decision-making process is selecting who to sell to. Choosing the right buyer for your practice is important as it can have a big impact on ensuring you maximise your investment of all the years and money spent building the business up.
There is no universal approach to selling a practice, which can be why it is such a difficult process to navigate. But to find out more about what factors to consider when choosing the best buyer, and what you can do to ensure you attract that type of buyer, I asked John Clarke, Head of Business Development at Wesleyan Bank: How do I choose and attract the best buyer for my practice?
John: “Many factors can affect your ability to attract the right buyer and what these factors are will depend on your personal situation. If you are on your retirement journey, seeking a change of location or responsibilities, or looking to raise funds for other business ventures, formulating a long-term plan will help you focus on your exit strategy and set appropriate timeframes.
“Many factors can affect your ability to attract the right buyer and what these factors are will depend on your personal situation.”
If you’re retiring, consider how much money you will need to retire on, whether your practice is attractive to potential buyers and if investment is required to modernise the existing premises to get you the best price. Buyers will seek any opportunity to drive the price down so keep essential equipment and facilities up-to-date. Be prudent and don’t commit to paying for things in one lump sum as this will eat into any future profits from the sale. Instead, consider an unsecured loan from a specialist finance provider which will offer a flexible and affordable way to spread the cost of purchasing essential items to maximise the value.
Research by the National Association of Specialist Dental Accountants and Lawyers (NASDAL) has revealed that purchases of dental practices have remained steady with an average goodwill value of 137% of gross fees to the quarter ending 31 January 2018. However, goodwill values for both NHS and private practices are fluctuating and with geographical factors becoming increasingly influential you must have a realistic expectation about what your practice is worth.
It can be tempting to sell after being approached by a third party. But informal unsolicited offers may fall short of your practice’s true valuation and cashing in early could cost you a significant amount of money longer term. Speak with independent dental agents who can arrange a proper valuation for your practice. As well as possessing intimate knowledge of the dental market, they will have hundreds of prospective buyers registered on their books to assist you with enticing genuine and relevant interest.
“Goodwill values for both NHS and private practices are fluctuating and with geographical factors becoming increasingly influential you must have a realistic expectation about what your practice is worth.”
There are pros and cons of selling to a corporate dental group, a dentist looking to step up or someone you already know, such as an associate at your existing practice. Several corporates have entered the market in recent years and are looking to quickly grow their market share. They may approach you directly and are likely to be of a sound financial footing. This is appealing if you own the freehold of your building as you could negotiate for a corporate buyer to lease the property from you which can provide a valuable income stream.
Negotiations with corporates can sometimes be more protracted as their demands are more specific to ensure any practice they buy complements their existing portfolio. Stipulations of the sale will vary but may typically include a requirement for the seller to stay on for a few years as the principal dentist to minimise disruption, so the practice is not adversely impacted by patients and members of staff leaving.
Selling to an associate dentist, particularly if they are an existing employee, could be a timelier and cost-effective transition to allow you to negotiate your departure on terms that you are comfortable with. The associate will already know your patients and staff and you will equally be familiar with their skills and capabilities, which is important to some retiring dentists who are concerned about their long-standing reputations within their local communities.
Associates may seem like dream buyers on paper but don’t be under any illusions. Although you may mutually agree a suitable timeline for your departure, your working relationship will come under strain due to the pressures and complexities involved in selling a dental practice. Are you confident that the associate can raise the necessary finance to purchase your practice or do you have concerns that they might try to negotiate the price down just before contracts are signed?
“Regardless of who you are selling to, always appoint specialist accountants, lawyers and financial providers who are experienced in handling sales of dental practices to ensure it progresses smoothly with the least amount of stress for everyone involved.”
Some high street lenders are risk averse when assisting associates with financing and adopt a ‘one size fits all approach’ ending in frustration and disappointment for many. In contrast, specialist commercial finance providers can be more flexible in their willingness to consider an associate’s business plan and personal circumstances to tailor a financial solution to their needs and offer step-by-step support throughout the buying process.
Regardless of who you are selling to, always appoint specialist accountants, lawyers and financial providers who are experienced in handling sales of dental practices to ensure it progresses smoothly with the least amount of stress for everyone involved.”
Thanks to John for sharing his knowledge and experience in this area. It’s clear that there are many considerations to take into account to ensure that the sale of your practice not only gives you a good return on the years spent building it up, but also sets you up well for the years to come, whatever your plans.
Selling your practice will always be a big decision that comes with a certain amount of stress; however, the process can be eased by having a well-thought-through strategy. As is so often the case, the key is in planning your approach as early on as possible, doing the necessary research and mapping out a way forward that will lead you to where you want to be.
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