Most dentists will sell a dental practice once or twice in their career. This short column contains more issues to consider, in addition to last month’s suggestions, and they are intended for those who are placing their practice on the open market for sale, or for those who are looking at practices to buy.
After hours showings
Buyers often ask if they can observe you during working hours to see the practice functioning. This is a genuine curiosity and I understand why they ask. However, I recommend you not agree to this. It is an unnecessary interruption for staff and patients, and may lead to speculation about your plans. This is similar to the “Test Drive” theory and it should be avoided unless necessary. A visit to the office after hours is the customary procedure with which most buyers are familiar. Try to avoid office cleaner schedules, staff that may work after hours, associates, etc.
Day sheets and appointment books
Buyers usually ask to review the appointment books and day-end sheets. They make their decision to buy a certain practice in large part on the scheduling philosophy of the previous owner. Many times I have listened to a buyer say how they are impressed, or perhaps unimpressed, with the owner’s use of time, something which can attract or deter a buyer respectively.
If you use computer day sheets, open a binder and save them while the practice is for sale. Another tricky issue is that buyers love to see the upcoming appointments. Due to the prevalence of computers, this often presents a problem. It is not advisable to let your broker use the computer, as we do not know if they are familiar with the many different software programs. Therefore, it may be necessary for you to perform this at one of the after hours meetings mentioned above. It is almost always a requirement of the buyer’s inspection.
Premise lease renewals
Landlords have been known to modify, amend or renew a lease on short notice. If this occurs while the practice is on the open market, the buyer must be made aware of any new contracts with the landlord. We sold a practice recently where a lease was in full force and effect, and a renewal had been issued and signed; yet neither the broker nor the buyer was made aware of it. Luckily, the change was very minor, but the potential was there for accusations of withholding information deemed important to the buyer. Full disclosure of all meaningful business information is the only way to sell a practice.
Computer software contracts
Your computer software company will issue annual updates, such as the new ODA fee guide, and they occasionally change their annual fees. If an appraisal has been performed and the circumstances surrounding your software license change, it should be mentioned. The key issue with computers is continuity. The buyer wants proof that the staff can run the system efficiently after closing. A system that is not updated may need to be replaced, creating lost productivity time and higher overhead. That is absolutely the last thing a buyer wants to deal with his first year of ownership.
Continuity of all factors
If you have decided to sell and then allow your gross income to go into a state of decline – which is common – this has a modest, yet unfortunate side effect. Most appraisers will rely upon financial statements from the previous three years to determine fair market value. A buyer, on the other hand, is primarily focused upon the most recent year.
There is a school of thought within the valuation industry that relies solely upon future income streams in appraisals. A favourable report in this area may impress a buyer and entice him to purchase the practice, but a prudent and informed buyer will always want to know the most recent figures, not just the projected ones. Therefore, even if you only take a few days off, or reduce your overall effort modestly, the slight decline in gross may result in a lower selling price for your practice.
Buyers are looking for a meaningful issue to initiate a negotiation of sale price and the terms of sale. This is prudent behaviour and is encouraged by all professional advisors, within reason. However, it is also an ethical and proper business practice to prepare an asset before it is put up for sale. It is the duty of the owner to do so.
In the event that you contract the services of a professional broker to sell your practice, I suggest that you meet with them and review this column, and my May 2002 Ontario Dentist column, prior to commencing the presentation of your practice to third parties.
Ontario Dentist – June 2002