It’s all in the Timing
When it comes to comedy, timing is everything. When it comes to selling your dental practice, I believe the same is true. Over the course of our years in the dental industry, we have encountered one important question at most of our lectures, seminars, and meetings: “When should I sell?”
To properly answer this question, there are several factors that you will need to consider:
- Stage of Career
- Market Conditions
- Pragmatic Matters
Stage of Career
Retiring Dentists Vs. Lifestyle Dentists
The dental timing for Freedom 55 seems to range from 50-70, depending on the dentist. At one end of the scale, there are the retiring dentists. At the other end of the scale, there are the lifestyle dentists. Retiring dentists sell because they want to retire, or, in some cases, because they have to retire. Time runs out. Lifestyle dentists usually sell because they want to back away from the obligations of managing a dental practice. Lifestyle dentists usually continue to practice dentistry, but as associates, not owners.
A key point here is that you want to sell your practice when you are at the top of your game, not when your hand is forced. If you have to sell, you’ll do so under less favourable conditions than selling your practice because you want to.
Market Impact on Dental Practice Value
The second element to be aware of is market timing, which is going to be entirely divorced from your career stage and the status of your practice. Right now, the market in Ontario is very hot – practices usually sell quickly, and often for premiums. However, don’t assume this will always be the case.
A prime example of this is Alberta, which is about to experience substandard market conditions. This is due to the exodus of petrodollars and the potential re-establishment of a modest provincial fee guide. The recent average Alberta recall fee falls in the range of $425, an amount that will likely reduce by at least half as a result of a faltering local economy and the likelihood of provincial fee guide implementation. This could materially affect the marketplace, and therefore, the value of your practice.
If you could accurately predict upcoming changes in market conditions, then you could time your sale perfectly. Most people, however, do not have the capability of making predictions. The best they can do is watch for general trends, such as the recent changes in the federal government. Based on platform promises, we know that the government (at some point) will change the tax laws to be less favourable to most dentists. We don’t know exactly what they are going to do, or when they are going to do it. But most believe they will likely increase the tax burden on the upper income earners, which will include dentists. We know the rules aren’t going to get better.
One way to protect against an unwelcome unknown is to act before the unknown arrives. If you think you might sell within the next three years, it would be wise to consider a sale now before the unknown arrives. Better the devil you know than the devil you don’t!
Planning Your Dental Practice Sale In Advance
There could also be a number of pragmatic timing issues that, while they may not affect everyone, could very well affect you. For instance, if you have a very valuable practice, most banks require you to remain as an associate for as long as 3-4 years before they agree to finance the transaction. The timing and duration of your transition period could affect your ability to attract a buyer willing to pay the kind of price and/or premium that you would like. The changing demographics of your location could have material effect on the ultimate selling price of your practice, as can serious health issues. There are any number of pragmatic issues, most beyond your control, that could impact the timing of any practice transition. It is important to plan well in advance.
Dental Practice Appraisals & Transition Planning
How do you effectively execute your transition with all of these potential timing issues? Plan your transition early. Developing a transition strategy 3-5 years prior to any actual sale is entirely reasonable and, in fact, advisable. The place to start your planning is with a proper dental practice appraisal. Once you have a good appraisal, you can use this as the foundation for your planning. A good appraisal should tell you what kind of upside potential you may still have in your practice. With this information, you can decide if you want to develop all of the potential in your practice, or if you want to leave it for the next owner.
On the other hand, you may find that you have fully developed your practice. With the help of your accountant, armed with a realistic appraisal, you should be able to ensure that you are organized to minimize any taxes related to a transition. Planning should relate to maximizing the value of your practice, minimizing your tax cost, and ensuring your professional objectives are met or exceeded.