For many dental practice owners, the income from the future sale of your practice factors greatly into a retirement package. However, we have found over time that without careful planning, you may be very disappointed by how much the sale of your practice will generate. In addition, the sale of your practice may be surprisingly emotional. Retirement not only signifies the end of a chapter in your life, but also eliminates a source of deep gratification. We have some suggestions about how to maximize the value of your practice and minimize stress before you hang the proverbial “For Sale” sign on your door.
- Plan well in advance. The best time to plan for retirement is at the beginning of your career. Hopefully you’ve worked with your financial advisor to fund the proper retirement accounts, but your financial advisor should also be focusing in advance on preparing the necessary documents for the sale of your practice. As part of the process, both you and your financial advisor should be aware that the value of your practice will be determined by what is displayed on your tax returns. Speaking of your financial advisor, you should always work with a seasoned professional who understands the intricacies of creating, maintaining and transferring a dental practice. And make sure you do as your advisor says! How many times have you had a patient return after following the advice of a friend rather than her dentist? Do you want to risk being the non-compliant, ill-advised client?
- Build up your practice. Though it might seem counter-productive, you want your practice to be at maximum capacity at the time that you’re ready to transition it to another owner. Many dentists make the mistake of slowing down toward the end of their careers. The problem is that then when they’re ready to sell, the practice has diminished value. In addition, make sure that your office remains state-of-the-art throughout your career. The dentist to whom you transition will want the newest technology, so you might as well benefit from working with that technology by keeping your practice up-to-date.
- Appraise the practice. Before you’re ready to transition, find out how much the practice is worth. No matter what you think of your practice, you will need someone other than yourself to validate its monetary value. Once the practice has been appraised, you will be capable of making more informed decisions about how to proceed toward retirement.
- Bring in an associate. The trickiest part of a succession plan is finding the right person to care for your patients with the skill and compassion that you have. You’ve invested a lot in your practice and developed attachments to patients. You want to make sure that whoever takes over from you will continue to care for your patients in the manner to which they’ve become accustomed. The best way to ensure that your successor is like-minded is to train an associate and encourage her to gradually accept more and more responsibility. Suppose it doesn’t work out? Bring in another associate. Since it can take several years to locate and develop the most suitable junior dentist to affiliate with you, you should start the process long before you are ready to retire. It might be helpful to join an algorithmic dental job matching website like Doccupations.
- Create a buy-in agreement. Once you have the right person, each of you needs to sit down and create a wish list of the details of your succession plan such as a time frame, a sale price and whether or not you will consider sweat equity. Then you need to meet to discuss and agree on a plan to transition from you to your practice’s new owner. Finally, you will need to engage an attorney to formalize the arrangement. While many dentists balk at the thought of being locked into a contract regarding the conditions of their retirement, that contract will provide the peace of mind and security needed to flourish at the end of your career.
- Have a back-up plan. In addition to supplementing your retirement, your practice is an asset for your estate. In the event that you’re not around to execute its sale, make sure that you have assigned someone the task of selling your practice, and that all of the information needed to protect this asset for your loved ones is available to that person.
Finally, remember that this is a business transaction. We know that you’ve put your blood, sweat and tears into this practice, but the best thing you can do now is ensure that your succession plan is one that will succeed. Hopefully, that knowledge will pave the way toward a long, rewarding and enjoyable retirement.