I began selling dental practices in 1984, the year I obtained my real estate license. I performed my first appraisal in 1979, at the age of 16, as that service did not require a license. My father owned the only company active in appraisals back then, and a large part of my job was to show the practices we had for sale to interested buyers.
There were numerous showings at each practice and driving from one to another was a time-consuming element of the job. I spent many evenings and weekends listening to dentists express their thoughts as a potential buyer of a practice. I enjoyed the job but had to find a way to be more effective with my time. I soon discovered that the best method was to quickly identify each dentist’s specific needs, and then show them only one or two practices, versus taking them to every one we had for sale. I also discovered several common issues arose in the process and identified those most likely to affect the sale of a practice. The following are just a few of the many issues to consider, which may assist you when selling your practice. They may also help today’s buyers to better understand the practices they are researching.
Leaseholds and facility
One of the most overlooked events is the buyer’s first visit to the practice, which can sometimes prevent the desired, favourable first impression. The following is some very old advice that I heard my father offer many times, but it’s well worth repeating: walk through your office, or have a stranger do it for you, and critique it as though you are a prospective buyer.
Many business owners ignore the most obvious of shortcomings, sometimes for years, while in mere seconds, a third party can point out minor cosmetic flaws, space-saving ideas or inefficiencies. It amazes me when a dentist enters one of my client’s offices and points out something simple that even I failed to recognize. Presentation means much more than we think and a buyer is strongly influenced by a poor first impression. When your practice is for sale, the number one thing you should do is take some time to make it look its very best. Following this advice always produces a favourable result.
Sundries and supplies
Broken, obsolete or out of date supplies should be removed. For example, I was showing a practice to a buyer who found a few packages of expired anaesthetic in a storage cupboard. She assumed that the owner did not always use current materials. It was untrue, but this inaccurate and negative conclusion about the owner’s philosophy could have been easily prevented if he had thrown it away earlier. Buyers will always find these items because they are permitted to inspect the contents of most every drawer. They notice every single deficiency. I often find that business and private offices are not demonstrating an organized and efficient operation and suggest they be cleaned out, top to bottom, before allowing a buyer into the practice.
“(Buyers) are looking to purchase equipment that is in profitable use, not equipment that looks profitable.”
New equipment and office renovations
I recommend that the selling dentist resist the temptation to make too many last-minute changes to the office in an attempt to impress a buyer. Purchasing new technology solely to “prove” you are up to date is often a complete waste of money. I recently sold a practice where the owner had just bought a high-tech item to showcase his belief in a modern practice philosophy.
When asked about it, he readily admitted that the new “toy” was not in regular use and that they really didn’t know how to use it just yet. The purchase price was almost $100,000 and this was added to the asking price. This did not impress the buyer. These people are looking to purchase equipment that is in profitable use, not equipment that looks profitable.
The same goes for renovations. The owner of an office I just sold performed a total redecoration prior to the sale. The buyer loved most every aspect of the practice, but complained about the “awful colours!” A coat of paint can do wonders for the aesthetic appeal and the overall décor – just choose a neutral colour. I often see wallpaper peeling, loose toe and chair rails, wall scrapes from X-ray machines and chairs, etc., that may only require a couple of hours of handy work to improve at little or no cost. But watch out for the temptation to go overboard. You may accidentally overcapitalize the value of your practice.
“Test-driving” and meeting with the buyers
Most buyers ask if they can work in a practice for a short time, prior to making an offer. I do not recommend that an owner agree to this. Allowing more than one dentist to “test-drive” your practice will most certainly cause damage to your goodwill. Staff and patients can be easily confused if you allow these very curious dentists into the practice on a trial basis. Some owners do not inform staff that the associate dentist is also a prospective buyer. While staff is not always entitled to know such information, they often feel betrayed and hurt if they discover the secret plan. My experience as a business owner is that staff will almost always uncover secret plans, and it’s sure to reduce their trust in the owner.
While in some unique situations it may be necessary to allow a buyer to work in a practice, this is rarely the case with practices I sell. I have found that test-driving does not meaningfully affect a transition, and in most instances it will negatively affect negotiations. As a manner of conveying the uncertainty it evokes within my clients, I liken the test-drive theory to allowing someone to live in a part of your home, while you still live there, just to see if they are interested enough to make you an offer. More than that, you have to pay them to do it. It’s not entirely the same for dental practices, but it makes you think, doesn’t it?
However, it’s common for a buyer to request a meeting with the owner prior to making an offer. I suggest all owners agree to this, but only after a thorough qualification process of the various candidates has been completed. The meeting should be held at the practice, after hours, so that you can reference charts or materials to demonstrate your technique and philosophy. Staff should never be involved at this stage and they should not be encouraged to meet the buyer until after an offer to purchase has been accepted and made unconditional in all regards.
If you must issue new wages and benefits, or encounter a staff change or notice of maternity leave, you must notify your broker or the buyer. Full disclosure is the only way to sell a practice and it is advisable to inform the buyer of staff changes, no matter how insignificant they may seem to you. I have heard about situations where a small detail was not communicated and it created a sense of mistrust between the parties. An innocent moment of forgetfulness can subject other elements of your practice to greater scrutiny and suspicion. It is now essential that an appraisal be given to the buyer during their investigations, but the information contained within may become outdated if you have modified the practice in any way. Be certain that the appraisal is updated in these situations to ensure you are giving your broker or the buyer a full disclosure of all meaningful facts.
Hours of operation and holidays
Buyers always ask us about the days and hours of the practice. From time to time a client will make modifications in this area to better serve their lifestyle, staff availability and patient flow. Seasonal modifications such as “summer hours” are common, but buyers must know if they are part of the practice’s regular business operation.
Many dentists buy a specific practice in large part for the hours of operation (see my September 2001 Ontario Dentist column for more on this). If you decide to take more or fewer holidays than usual, and it is something likely to affect your gross income, it may alter the overall appeal of the practice. Buyers are on strict budgets, with substantial debts to manage at the early stages of their careers these days. Hours of operation and holidays are very important to them. Once again, if you change them, tell your broker or the buyer.
If you contract the services of a professional broker to sell your practice, I suggest you meet with them and review the issues raised in this article prior to commencing the confidential advertising and presentation of the practice to third parties. Preparation is essential to obtaining the highest possible sale price. The simple process of readying a practice for sale is usually a low-cost affair that will produce high gains in most every instance.
If you own a dental practice, it will be sold one day. It is inevitable. A study of the dentist – when acting as a buyer – reveals that the process can be simplified if the owner plans ahead. When your dental practice is being sold, it’s an exceptional practice to be prepared.
Ontario Dentist – May 2002