The dental landscape has been shifting like no other in recent years. While it has been essential to stay focused on the immediate challenges, there is always a benefit to keeping one eye on what the future may hold for you and your practice.
As a principal dentist, it’s important to think about how and when you might choose to sell your practice, even if it’s not something you want to do straight away. There are a number of things to consider, which is why the decision should come months, if not years, in advance of your ideal exit date. A good deal of planning is essential for you to get your practice ready to be put on the market, to give you the highest return and, most importantly, provide you, your team, and your patients with peace of mind.
While it’s never too early to start, experts advise that an exit strategy be planned at least five years in advance. This will likely involve identifying and quantifying exit objectives with a professional team of legal and financial advisers, maximising and protecting the value of your practice to preserve and grow its value, deciding who you want to sell to (an insider or outsider), and developing a contingency plan for both the practice and yourself.
You will also want to use this time to prepare the list of mandatory legal documents and financial records in advance of the selling process. This gives you adequate time to review and amend remuneration agreements, as well as staff policies and contracts, to safeguard the goodwill of the practice and ensure as many people as possible – including the future buyer – will benefit from the sale.
Getting the best deal
In addition to the items mentioned above, it is integral to consider the structure of the deal that you are hoping to secure. This can be just as, if not more important, than the final purchase price and you will want it to be both attractive to potential buyers and personally lucrative.
In some instances, it will be preferable for a business sale to result in a clean break with all consideration being paid on the completion date. However, there are situations where this is neither feasible or the best way to structure the deal. ‘Deferred consideration’ is fast becoming commonplace in dental transactions, especially in cases where independent practices are selling to corporates.
In simple terms, it means that the buyer only pays part of the sales price, known as ‘initial consideration’, upon completion (generally 70%-80%) The buyer then pays the outstanding amount at a later date, and this is usually linked to financial targets. It is only when these targets are met that the withheld money, known as ‘deferred consideration’, is paid. A standard deferred period can be 2-3 years for a typical private practice.
Deferred consideration – risks and rewards
For the buyer, deferred consideration is attractive in that it mitigates some of the risk of a purchase by ensuring that the seller retains some responsibility for the practice’s performance post-acquisition. Deals can be linked to targets such as the business’ post-sale EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), or practice or individual turnover.
For the vendor, it is important to carefully consider the agreed targets. For example, whether the conditions of the deal are linked to personal or overall business performance. The seller will need to bear in mind that once the practice is sold, they will likely have little impact on how the practice is run, staff retention, and cost structure etc. As such, it will be important for the vendor to put protocols in place to protect against personal illness or underperformance.
In most cases, it may even be agreed that the vendor continues to work at the practice for a specific time period after the sale to assist in securing the deferred consideration, perhaps as an associate on a part-time basis. This could be of particular benefit to the buyer if the principal is a ‘high grosser’ (gross earnings in excess of £300,000 per annum) as they will be considered as an essential asset to the practice. For dentists within this bracket, it is important to consider if you want to remain working in the business for years post-sale, and make sure contracts are agreed that protect you and minimise risk if conditions are not met.
The primary advantage of deferred consideration for the seller is that it opens up a group of potential buyers who may pay an overall higher value for the business, but are more risk averse to managing the turnover post completion.
Experts you can trust
For a number of years, Dental Elite has been providing expert advice regarding dental exit strategies and practice sales. The specialist knowledge and experience of the professional team will give you peace of mind that your exit strategy will be completed comprehensively and with the support of trusted advisers. You may also benefit from a free practice healthcheck and valuation that will suggest ways in which you could maximise your business’ potential.
By considering your strategy well advance, you will be granted the time and know-how to optimise operations and ensure you achieve the best deal for your business.