The Ultimate Guide to Selling Your Dental Practice

Okay, so you’re officially ready to sell your dental practice… or maybe you’re thinking about retirement. Either way, you’re unsure about how to get started. No problem. We understand that selling your dental practice is a big deal and can be a little intimidating at first. That’s why we created this guide to selling a dental practice. 

Let’s get started!

Selling your practice on your own may sound like a good way to sell, but trust us, it is not the best option. In execution, details are frequently overlooked when dental professionals sell their own practice, leading to incorrect evaluations, breaches of confidentiality, or deals falling apart.

JPA Dental Transitions has been working in the industry for over 10 years. We have seen the ups and downs of dental practice transitions. We know how to avoid those costly issues. A big part of that is enlisting the help of a broker early on in the process.

You worked diligently on your practice and made it successful over many years of hard work with your team. After all of that work, you may feel like you should sell your practice, but you’ll be much better off allowing an expert and well-practiced broker to handle the transition. 

Let's look at the common statements practice owners make when trying FSBO
(For Sale By Owner):

1. “I already have a buyer”

We hear this the most often. We run into sellers who feel they don’t need any help because a buyer has already contacted them. Often times younger doctors are proactively reaching out to established practices. The issue is these buyers are contacting a lot of other practices too. These selling doctors think they have a hot lead and don't need help from a broker. In reality, the buyers are only partially committed to making a transition happen, and it is not a done deal.

2. “I don’t want to pay a brokerage fee”

Selling on your own means you’re avoiding a 10% brokerage fee, but it also means you’re doing all of the work a broker would do, while still running your practice. Here’s the big problem - not pushing a transition forward can lead to the deal falling apart. Time kills all deals. Keep in mind, a dental practice transition typically takes 3 months with a trained transition team helping. Without the experienced team they can drag on indefinitely.

3. “I know what my practice is worth”

We find when doctors attempt to value their own practice, they are more likely to overvalue, (or even undervalue) the practice. There’s a false rule of thumb that claims a practice sells at 65% of its gross income. Realistically, about 2% of practices sell for that. Nuances such as location, equipment, cash flow, and patient base greatly influence the actual worth of the practice. And an impartial broker can help to accurately value your practice for the market, and prevent you from leaving money on the table, or pushing away viable buyers due to an overpriced practice. 

4. “I can make the best decision on who should buy it.”

Selling a practice is an emotional process. You’re passing on a business that you built, and a buyer is trying to get the best deal possible. The transaction can be contentious, or an absolutely pleasant interaction between colleagues. Either way, emotions can get in the way of the deal. The buyer may not show you their true self, which makes it hard to judge accurately. Whereas a broker remains neutral, and is able to look at everything to determine what has actual value.

Further, a broker can also help your sale without jeopardizing your practice's confidentiality and value. When listing your dental practice yourself, the location, paperwork, and financial information can slip out, and your staff can prematurely find out you’re looking to sell. This can lead to staff loss, patient loss, etc., which causes a reduction in practice value.

We understand that it’s your practice, and no one knows it as well as you. However, transitioning a dental practice isn’t easy to do, and it’s even harder if you haven’t done it before. It’s possible, but it’s heavily detailed and a lot of boxes need to be checked. If you don’t check those boxes fast enough, the deal will die and you may have to start all over again. 

That’s why we recommend using a professional broker to save time, get the most out of the sale, and stay focused on what you do best. After all, you wouldn’t let a patient do their own filling, right?

We’ve talked a lot about maintaining confidentiality, but why is it so important? When selling your dental practice, the transaction process can be much more challenging if it isn’t kept confidential until the sale documents are complete. You may be conflicted about keeping this secret from your staff and we’ve seen this dilemma before - but trust us, it’s for the best. 

Your broker will take the necessary precautions to keep the sale of your practice confidential. In fact, every potential buyer should sign a confidentiality agreement. This protects you, your practice, staff and patients, and the buyer’s future investment. 

Here are our tips on confidentiality to help protect the sale of your largest asset:

1. Don’t tell your office manager or staff

This could be a costly mistake. While you’ve worked with your staff and office manager for a long time and have a high level of trust, will they return that trust? In many cases, we’ve seen that trust comes with a paycheck. When it comes down to relying on them in a situation of this gravity, they may not carry the same weight as you will as the practice owner. It can be very tempting for your office manager or staff to share this information with others.

What happens when your hygienists know that the practice is being sold? A large part of your hygienists’ job is chair-side, interacting with and getting to know your patients. While chatting, the fact the dental practice is for sale could come up. Then what? Can you guarantee your patients will stick around to see what happens? (See the section below on losing patients.)

The only way to protect your practice’s value and patient base is to prevent this fear of the unknown from being planted in the first place.

2. Losing your staff

Many hygienists and other staff members believe the sale of a practice means a staff purge. If they hear you are selling your practice, they might think, “well, I’m not waiting around to get fired. I’m going to find a new job now.” But as you know, this is simply not the case!

The truth is, we always advise new dental practice owners to keep the existing staff onboard - and they usually listen. Your staff is crucial to how your practice runs and have an incredible goodwill factor with your patients. Part of the value of your practice is the foundation you have laid in building a strong staff and patient base. 

It is a red flag for buyers if the staff is leaving at the time of sale. Staff is essential and training them is expensive. This could impact the value of your practice because of the added work the new doctor will have to put into hiring to keep the practice running after the transition.

At the same time, it can be challenging to convince your staff to stay once they know you will eventually, no longer be in charge.

If your staff does find out about the potential sale and starts looking for new jobs, they are putting their information out into the local dental community, submitting applications and going on interviews. They will be asked why they are leaving your dental office. At this point other dentists in the area could find out that you are selling your practice.

3. Losing your patients

A similar thing can also happen with your patients. If they find out you are selling your dental practice before you know who the new doctor is, they may not wait around to find out. They will have questions you probably aren’t prepared to answer yet.

• Who will the new provider be?
• Will they still take my insurance?
• Will my treatments cost more?
• Will they suggest different treatments than you?

As soon as your patients and your staff start leaving, the value of your dental practice starts dropping. At that point, it is a race against the clock to minimize the damage.

4. Losing the sale

Transitions are fragile at times, and having everything working in your favor is a good idea. Dealing with a public sale, uncertainty in the staff and patient base does not help. But don’t worry. We will prepare you for all of this! We can give you the tools to ensure your transition stays confidential.

For all of our practice sellers, we propose a thorough dental practice transition plan for after the sale is complete. We encourage an extended time working side-by-side with the new dentist, introducing him or her to the practice and patients, for as long as you both agreed to in the sale. This helps smooth the transition from one owner to another.

Who does your professional team consist of? When you want to sell your dental practice, it’s important to have a team that is well-versed in the dental industry. Ultimately, this makes the entire process run smoother.

An experienced dental broker, CPA, lawyer, and banker will help both parties avoid common setbacks and ensure that needs, concerns, and interests are better represented in a timely manner.

Your professional team

Dental Broker 

To put it simply, a dental broker is professional who guides you through every step in the transition process of a dental practice. A broker has undergone training that makes them an expert in taking you through every moment of the transition—including valuing a dental practice, purchasing or selling, and the transition that takes place from one owner to another. In short, they’re your mentor through the transition from start to finish. You’ll get a trained professional who can handle as much or as little as you want them to for your dental practice transition. 

Remember, you will also need legal documents in place and generally your broker does not do that. For that you will need a lawyer. Look for a non-biased broker who will work only for you. Some brokerage companies may have conflicts. Does your broker have monetary interest in who buys your practice? They shouldn’t. You want an independent broker who will look out for your interests only.

Dental CPA / Accountant 

In short, your certified public accountant handles all things financial for your business and they should always be consulted in financial decisions. While you could get a standard CPA, a dental-specific CPA will help you answer critical questions around your practice’s health, pull insights from other dental clients or help you understand the right time to expand your practice. It’s important to understand the knowledge from professionals in your industry to avoid mistakes and make good financial decisions. You can find a dental CPA on the directory at www.ADCPA.org.

Dental Attorney

Your legal team should approach the transition from the point of being a facilitator. They have an ethical duty to protect you, but if your goal is to sell, be sure to let your attorney know that, so that they may act accordingly.

Now that you understand who your team members are, it’s time to find them or work with a company that can help you build your own team. Once you find your team… set up a consultation with them!

This brings us to the next chapter.

In this step, you’ll want to set up a consultation with your transition team.

It’s important that you set a goal time frame and then create your transition plan.

Your transition plan is created to help keep you on track. Ideally, implementing a thorough plan that includes consults and efficiency systems 1-3 years before a sale can help you get the highest possible value for your practice. It is never too late to make these positive changes.

The projected value of your practice is based on various factors. Your main goal is to BOOST those factors to increase your numbers, and increase the value of your practice.

What is a practice appraisal?

A practice appraisal is a close look into the numbers of your practice, with the intention of accurately placing a market value on it. An appraisal is a way to listen to the heartbeat of your practice in order to evaluate its health. The healthier the practice, the larger the return when you choose to sell or seek out a loan for upgrades to your growing practice.

It is easy to see why keeping an eye on your practice numbers through a trusted appraiser like JPA Dental Transitions is so important. In order to achieve your goals, you must first know how your practice numbers are trending. 

Remember general evaluations are your guide to pricing and should only be used as an estimate. Your appraisal by a qualified appraiser, on the other hand, is a definitive value of your practice.

In this chapter, we’re going to talk about the different types of appraisals and valuations.

Dental Practice Value

You want to make sure you receive fair evaluation for the obvious assets, as well as, the work you put into building it. Hire dental brokers that have a keen eye and can provide accurate assessments and evaluations for any dental practice. 

Here is a list of some of the factors we take into consideration when valuing a dental practice:

1. Historical financials
2. Dental equipment
3. Number of patients and demographics
4. Dental staff and their associated experience and training
5. The location 
6. Net cash flow after expenses

Go to the “knowing your numbers” section in Chapter 5  to see what factors affect your valuation.

Do you know which type of evaluation you need?

First, the Cash Flow Evaluation

A cash flow evaluation is an effective tool for gaining a quick, inexpensive idea of what your practice may sell for on the open market. By analyzing practice production reports and profit and loss statements, adjusting the overhead by removing discretionary spending, and finding the net revenues of the practice, we can efficiently determine a practice value. One that is supported by the local market as well as the net revenues of the practice, after debt service.

What should I get with a cash flow evaluation?

• Cash flow supported practice value
• Cash flow proforma (a basic overview of the expenses of the practice, and a forecast of contemplated revenues)
• Adjusted overhead worksheet which shows the adjustments made to the expenses in order to find the true practice overhead
• Our proprietary one-page Practice Stats Report ($500.00 value) which gives a simple, no-nonsense overview of the health of the practice's vitals at a glance

The Standard Practice Appraisal

A standard practice appraisal is an appropriate way to establish a practice’s value in a multitude of situations. A doctor looking to determine the value of their practice for the purposes of selling or for financial planning reasons may choose to request a standard appraisal. Similarly, prospective buyers may request a standard appraisal to gain in-depth insights into the practice. 

How does a standard practice appraisal differ from a cash flow evaluation?

A standard practice appraisal differs from a cash flow evaluation in that multiple industry standard valuation methods are utilized, as well as, a site visit and a final appraisal report, outlining the valuation methods which were used in arriving at the final value. 

A standard valuation offers a wealth of information which is supported by an accepted methodology and should produce a hard value that is rooted in facts, and a great deal of supporting information is included.

What do I get with a standard practice appraisal?

An appraised number arrived at and produced by multiple trusted and proven methods including, but not limited to:

• Asset-Based Valuation
• Comparable Market Valuation
• Income-Based Valuation

Support documentation for appraised value in the form of a final appraisal report:

• In-person site visit
• Location demographics
• Cash flow proforma
• Historical financial statements and reports
• Adjusted overhead worksheet 
• Explanation of methodology and why each were used
• Appraisers qualifications
• Our proprietary one-page Practice Stats Report ($500.00 value) which gives a simple, no-nonsense overview of the health of the practice's vitals at a glance

Your results are the dollar value of your practice.

To keep the process moving along, put together your financial paperwork and make sure it’s turned in on time. When a buyer goes through due diligence, they may ask for documents such as: bank statements, number of active patients and new patients, staff compensation and benefits, plus multiple years of tax returns, production reports, profit and loss statements, etc.

Having these documents prepared not only speeds up the selling process, but it shows the buyer you are an organized individual, which makes them feel more comfortable with the purchase.

Additionally, your dental practice brokers need very specific information about your practice to effectively market to qualified buyers. 

Normally, they will request multiple reports and documents from your dental practice often requiring about seven to start - to maximize their efforts. This may sound daunting, but these reports help to gauge how your dental practice is running day-to-day, what your practice's production averages are by dentist and hygienist, and fee schedules, to name a few. 

You can download the list at www.jpatransitions.com/required-docs-to-list-your-practice

Remember, it can be difficult for you to gather these reports and documents and to maintain confidentiality as you may need staff assistance. You will have to use your dental software, payroll software and more to gather these reports. After all, your office manager and front desk staff normally handle these programs for you, right?

Don't worry! Here are our best tips to help you get the information you need, without alarming the office.

How to get the information you need:

First, start a list of all documents and reports you need

The challenge for most doctors in this position is pulling the reports. If you don't normally run them, some can be difficult to pull. 

Second, do a quarterly review and get access to the right systems as soon as you start thinking about selling.

If you're reading this guide, you've probably already started thinking about selling (if you haven't already started the process). Now is a great time to start doing quarterly reviews with your staff, pulling the reports you will need when you sell. This way when you finally get to the stage of your dental practice transition where you need these documents, it will be a normal practice for you to pull these reports.

Third, don’t let your broker talk you out of having practice confidentiality.

Dental practice brokers have different views on confidentiality - some believe you should tell your staff you are selling, and some don't. As we previously discussed in the “Maintaining Confidentiality” section of Chapter 3, we always advise maintaining confidentiality. We can help you control that process. You may be tempted to ask for help from people in your office, but before you do, contact your transition advisor. It could help save the confidentiality of your sale.

Fourth, leverage your CPA.

Share your list of documents with your CPA to see what he or she can provide for you before you try to find the information yourself. Your CPA can pull a lot of the financial statements your dental practice broker needs, like profit-loss statements and tax returns. They will also be very helpful in determining the overhead adjustments to be made. Make sure you use a dental specific CPA and other dental professionals who understand the process of a dental practice transition. They will be mindful of your need for confidentiality whereas outside professionals may not.

Fifth, don’t use your work email and phone number.

When you are communicating with your dental practice's CPA, broker and other professionals on your transition team, use your personal email and phone number. You don't want someone with confidential information calling your practice and asking your front desk, "Can I speak to Dr. Smith?" Staff is savvy to anything out of the ordinary. This is especially true if your staff has your email password or access to your accounts on an office computer.

As part of listing and marketing your practice, you should have completed all of the documents in the previous step. But here are some ideas to help you list and market your practice.

When selling your practice, there are a couple of routes you (or if listing with a broker, your broker) can take to 

market it. This can include advertisements, website listings, online marketing, and association websites (which needs to be done in a confidential manner, of course).

Additionally, at JPA, we list your practice directly on our site. We have a database of hundreds of buyers which will help you sell your practice fast.

Ready to show your office to a potential buyer? Did you receive an offer? What’s next? Once you receive an offer on your practice, engage with the rest of your professional team. Look to them for guidance and review the offer. Then, accept it or counter back in a timely manner. 

Once the offer is accepted, it’s important that your team sets a FIRM closing date. This keeps both teams aligned.

Showings should be a laid back chance for the buyer and seller to discuss practice philosophy, general questions and information, and other items of concern for the buyer. There should not be open negotiations about sale price or other points for the transition at the initial showing.

If you aren’t available for showings, be prepared for a longer selling process. And remember - time kills all deals.

After a successful showing, interested buyers generally submit an offer. This is the time to discuss the offer with your broker and CPA. Is it a good offer? Is there some give and take? Are you going to counter or accept? Remember if you counter, do it quickly and have a basis on why. 

If you are ready to accept, congrats!

When you’re working through your due diligence items, be an open book. At this point, the buyer has signed an NDA and should have the keys to the kingdom with regards to anything business-related.

After your accepted offer, things really start to move--and move fast! It’s time to prepare, negotiate and review closing documents.

The dental broker and advisors will begin the negotiation process on your behalf; going back and forth with the other party and their advisors until an agreement can be reached. This will ensure that you receive the best deal possible through skilled negotiation tactics. 

At that point, legal contracts have to be drawn up to consummate the ownership transfer. Some brokers provide specimen contracts to use, but your professional legal team will need to review these contracts (no matter who provided them). Make sure you fully understand what the contract entails so you can make an educated decision for your dental practice transitions.

Key tips in due diligence:

• Don't make it a 1-on-1 negotiation with the buyer.
• Keep your professional team updated and let them do the heavy lifting.
• Your buyer will request a list from their advisors for all the information they will need to make an informed decision about the practice. Ensure that they sign a confidentiality agreement, if applicable.
• Understand that the buyer won’t solely rely on your information or your advisors’ information to make their decision, and that is a good thing.

You’re almost there! Here is what you need to handle in the last 2 weeks of your transition. 

Quick tips for the last 2 weeks:

1. Conduct a final review and execution of closing documents.
   
   
2. Request any required debt payoffs (see Chapter 5). Remember, having those plans to pay off your debt before or during the sale of your dental practice is very important. You don’t want to be blindsided. Be sure to always be aware of your debt amount and prepare yourself for resolving it when you decide to sell. This will keep your stress down and keep the process from getting sidetracked. While every situation is different, we want to make sure you understand everything you need to do to have a smooth transition.
   
   
3. Inform your staff of the practice sale, but ONLY if all documents are signed and funds are being held in escrow.
   
   
4. Remove personal assets not included in transition. This is true, however, if there is a lot of large pieces, such as art, that should be noted or removed and replaced with something similar early on.
   
   
5. Provide wiring information to your attorneys in preparation for funding.

Closing on a dental practice is similar to closing on a house. The day of closing will be busy and emotional, so expect some issues.

On the day of closing:

1. Be prepared for your buyer’s team of advisors to reach out. When you’re at the closing table, your buyer shouldn’t need to "glance over the documents".
   
   
2. Honestly, a lot of closings are done via email, fax, scanning, or Docusign. More often than not, your team will email the closing documents, which your buyer will e-sign, or print, sign, and fax or email back. On the other hand, there is nothing wrong with all gathering around the table to sign. It just doesn't happen that often.
   
   
3. If you feel anything is “out of the ordinary”,  remember you can always call your attorney or other trusted advisor to discuss. But don’t let it send you into a tailspin before speaking with them. Remember, once your buyer signs, it is a different ball game.
   
   
4. Don’t delay closing unless absolutely necessary. Closing day is a big day for you and the buyer as well. A lot has gone into setting up closing, so unless you absolutely have to delay, try to stick with the agreed on closing date.

Other things you need to do:

1. Remember to finalize any remaining documents - bank documents, etc.
   
   
2. Prepare accounts receivable for collection if not purchased, or run a final report if purchased. Don’t forget to run a credit report as well.
   
   
3. Ensure that funds are received.
   
   
4. Make sure the ownership is legally transferred. (Note: Your professional team should have taken care of this for you.)

Once the practice has closed, congratulations, you are not the owner anymore! You may be having mixed feelings but don’t worry, the process isn’t quite over. There are more activities that come along with transitioning your practice.

Post-closing activities:

Once the sale is completed, then comes the transition phase. It can seem overwhelming getting everything in order to hand off to the buyer, but don’t worry — your broker has you covered.

We facilitate the transitions by making sure the buyer has everything they need to be successful with the dental practice. We also make sure the seller has taken care of all their legal obligations. The dental staff and the patients of the practice need to feel like operations are continuing smoothly—and we’ll make sure that happens for you.

Things you need to do as the seller: 

1. Schedule a meeting to introduce your staff to the buyer. This is a key meeting and should be communicated with the staff once all documents are signed. Having the buyer stop in afterwards is a great idea. It will help quell any fears.
   
   
2. Send a mutually agreeable letter to patient base. Prepare a letter to the heads of household of any patient that has visited in the last 18-24 months. What should you include? Announce the retirement or reason for leaving and introduce the buyer. Provide a bio of the buyer, their credentials and possibly a description of their family, or something that feels a little more personal.
   
   
3. You need to be mindful of your time at the office. This depends on what your agreement is with the new buyer. Remember, in a non-employment transition period scenario, you are not there to do productive dentistry, but to glad-hand with patients, answer questions, discuss treatment plans, and finish up any open cases. A good scheduled day here and there will be sufficient. Also, fulfill goodwill transfer requirements.
   
   
4. Begin accounts receivable collection if not purchased. Remember that list of patients with A/R balances that was run at closing?  Use that as the road map to collecting your A/R after closing.

In summary...

We know it can be hard to imagine life after practicing. That’s why we want to ensure you have a successful transition. We work hard so you never have to worry about the confidentiality of your sale, professionalism in vetting potential buyers, or maximizing your return on investment. With some planning, and the right team on your side, you’ll successfully make it through the transition process!