All while maximising its value, and minimising your tax
If you are wondering what are the proper steps on how to sell a dental practice, keep these 9 points in mind. If you’re ready, contact us today and our expert dental practice sales agents will help guide you through the process
Step One: Work out your timeline to sell your dental practice
When are you looking to sell your dental practice? Is it in the next 12 months, or is it in 3-4 years time? Are you thinking of staying on working at the practice or are you looking to make a clean break when you sell? Once you have a clear idea of when you are thinking about selling, work backwards, and plan what you think needs doing? Ask yourself these questions:
- What is the financial performance of your dental practice like?
- How profitable is the dental practice?
- Does it show a steady improvement or decline?
- If in decline, what needs to be done to turn the situation around?
- How dependent is the practice of your income generation?
- How dependent is the practice of any key income earners?
- If you fell ill at the practice, would it still be profitable?
- If not, what would need to be done to make it profitable in such a scenario?
If you have no idea to such questions, then you have your work cut out, and you really need to get your house in order to ensure you achieve the sale you want in the timeline you want, else you will struggle to get a qualified buyer, with the right money, for your dental practice.
Step Two: Raise your profitability to sell your dental practice
The times of using a % of your revenue figure as a metric for valuing a dental practice are truly gone. Whilst revenue may inflate your ego, it will be your profit that will determine your valuation and the price you sell your practice. A valuation of your goodwill will more than likely be based on profitability, whilst using turnover purely as a secondary indicator.
EBITDA (Earnings before Interest Tax Depreciation and Amortisation) is a term you may have heard about. This is a common measure used to determine the “cash” profit of the business and is increasingly used to value dental practices, especially by the cash-rich Dental Corporates. Focus on increasing your EBITDA to maximise the value of your practice goodwill and other assets.
Step Three: Get your financial house in order to sell your dental practice
Whilst, high-quality clinical dentistry is essential in order to sell your dental practice, it is critical to have accurate and up to date financial information about your dental practice.Why? Well, the reasons are two-fold.
- If you are serious about improving your financial performance, you will need to know in the first place where things are working, but also where problems lie. Not knowing the figures means you don’t really have your finger on the pulse with respect to your practice performance and hence valuation. Knowing your financial performance, and adjusting it accordingly, is imperative to maximising the sales value of your dental practice.
- When it comes to showing off your financial performance to prospective buyers, having an up to date set of accounts, plus recent management accounts really are essential. These can be a deal breaker if not available, as a serious buyer is only going to buy your practice if they have accurate financial information about your practice in the first place.
If you have up to date financial information, it is then imperative to ensure your cost base is managed well, whilst your revenue is strong –Why? So you are maximising your EBITDA.
For instance, look at your staff costs; have you too many staff for the revenue you are generating? Are your laboratory bills carefully managed? What about your materials, have you sourced cost-effective suppliers? And do you have a tight control over ordering each month? Marketing? Very easy to spend on this, but are you getting a good return on this?
Run through each line of your accounts and see where you can make potential savings, then act on making the changes needed. Why? Because every £ saved, increases your profit, which increases your EBITDA, which increases your practice valuation.
In summary, if you want to get top whack for your practice, make sure you have up to date and accurate financial information for any prospective buyers, but have also ensured your cost base is well managed, and your revenue is maximised.
Step Four: Find or build a team that will help you get maximum value when you sell your dental practice
Whilst you may be building the right team internally, to maximise the sale of your practice, getting the right advisors early on, can also significantly add to the ultimate sales price. Accountants, Brokers and Lawyers with significant Dental experience, are essential to getting an excellent deal.
Our experience has shown that it really is essential to have people who know and understand your practice before it is even put on the market for sale.
A few tweaks in the business, in the right place, can optimise its performance, which will ultimately improve the practice sale value. So make sure you have thought through your timeline for sale, then work with expert Dental accountancy and marketing advisors that can recommend a course of action.
Only once everything has been optimised then your dental practice is ready to be put out on the market for sale.
Step Five: Practice Visits and Information Disclosure
From our experience, no-one sells a dental practice better than the owner.
If you are the owner, try and arrange visits when you are around, this will enable you to sift through the serious buyers but also provide you with the opportunity to sell the key benefits of buying your practice.Remember, you may end up working at the practice for some time post-sale, it is imperative you understand and maybe even like the incoming party.
At this stage, the prospective buyer may well request certain information from you too, such as accounts, management accounts, details of the property lease, CQC registration details, details of the Dentists working in the practice etc. If you have your house in order, as detailed in step 3, you will have no problem in collating and providing this information to them, however, make sure that non-disclosure agreements have been signed, which will protect both parties.
Step Six: Consider ALL Offers before you sell your dental practice
When you put your practice out for sale you may well receive various offers. The key is to ensure you review each and every offer in detail.
Whilst an offer from your Associate may be the best one financially, they may struggle to raise the money from the bank, especially in this climate. Whilst a Dental Corporate may well offer you a slightly lower price, they can typically move quickly and get the deal done, whilst your Associate is still filling in forms for the bank!
Always, assess each offer you receive carefully, knowing the full facts and the exact conditions of purchase, such as a tie-in to continuing to work at the practice for a few years. In addition, you may be requested for key personnel to stay on if you accept the offer, so the offer made may need to satisfy some of the existing team by getting them to sign and stay for a period too.
Details of the offer and knowing the buyer has the economic power to actually buy the practice are critical at this stage, else you really will be wasting your time on offers from keen buyers but really with no substance behind them.
Step Seven: Agreement of Heads of Terms and Due Diligence
Once you have negotiated and agreed to an offer, this needs to be put in writing so there is little room for misunderstanding further down the line. These are usually drafted by the buyer’s solicitors, but it is imperative you employ an experienced solicitor to review the agreed heads of terms.
‘Do not sign these without taking legal advice.’
At this stage, subject to the due diligence, an agreed timeline of exchanging and selling the practice is defined.
Once the heads of term have been signed and agreed, the buyer will now want to carry out due diligence on what they are buying. This will include due diligence in the 3 key areas of legal, clinical and financial.
Depending on the type of buyer, this can be quite a thorough and exhaustive process which requires you, the vendor, to be organised and quick in providing the information by key dates.
INFORMATION THAT WILL BE REQUESTED INCLUDE:
- Historic Accounts and Financial records
- Clinical patient records
- CQC registration details
- Employment contracts
- Associate agreements
- Supplier contracts
- Hire purchase and lease contracts
- Property lease agreement
- Details of the performance of the practice
- Loan agreements11.Complaint details
- Patient list details
Step Eight: Exchange and Completion
Once the due diligence has been completed, and the buyer is satisfied with what they are buying, then it is down to finalising the transaction. If the buyer is using a bank to finance the transaction then they will need to have satisfied with all their necessary criteria too.
If all parties are happy, the deal can then be finalised by both parties solicitors
Step Nine: Banking the money and paying the tax man!
Your solicitor will more than likely receive the funds due electronically. These will then be wired to your bank account, but don’t spend it all too quickly!
Enjoy it, but use it wisely and remember, and more than likely you will have a capital gains tax bill to pay.
Under current tax legislation, you may be entitled to Entrepreneurs relief against the Capital Gains Tax payable. If so, this may reduce the effective Capital Gains tax rate to just 10%. There are various criteria that need to be met to ensure you achieve a rate of just 10%, so seek professional advice before you sell.