Two Simple Questions before you Sell

Shakespeare’s Hamlet pondered, “To be or not to be, that is the question…” Likewise, many dentists considering the sale of their practice ponder, “to sell or not to sell”. Unfortunately the answer to this question is oftentimes not self-evident. Accordingly, when I (or other American Dental Sales brokers) are asked, “Do you think it’s the right time for me to sell?”, we typically advise the doctor to answer two fundamental questions:

ARE YOU FINANCIALLY READY TO SELL? Today more than ever, dental practices are very profitable for the owner/operator. Twenty to twenty-five years ago, an average dental practice would have revenues of $180,000 to $200,000. Currently it is not uncommon to encounter practices with $1M or more in annual revenues. Best of all, during those intervening twenty years, the overhead percentage has remained relatively constant (approximately 60%). Naturally 40% profit on $1M is much greater than a 40% profit on $200,000. Unfortunately the value of dental practices has not kept pace with their growth in relative terms. In other words, the sale of your practice will not replace the earnings if you continue to own and operate your practice.

Therefore, prior to the sale of a practice, a doctor should contemplate and have a thorough analysis from a qualified financial advisor as to the feasibility of the practice sale. Although the sale of the practice will certainly supplement a selling doctor’s financial plan, in most cases it will not replace the earning power of the practice.

ARE YOU PSYCHOLOGICALLY AND EMOTIONALLY PREPARED TO SELL? Frequently this question is more difficult to answer than the first question. It has been our experience that many times the doctor has a very strong emotional attachment to the dental practice. For natural reasons, the practice has become the doctor’s extended family, primarily because of the very close relationships the doctor has established with the patients and staff. These relationships may be very difficult to sever for a doctor contemplating a practice sale. I have encountered doctors describing this experience as “like a death in the family”. Hence, even when the sale of the practice is the right financial decision, from the seller’s perspective selling the practice strips away a significant portion of the seller’s life, thus negating the sale.

Another psychological barrier from selling a practice may be a Seller’s “control issues”. It is not uncommon for the doctor to nurture the practice in the same way the doctor would nurture a child. The doctor may have opened the practice from a scratch start and seen the practice blossom into a well-run, happy, profitable business. When contemplating the sale of the practice, doctors have articulated feelings of, “this is my baby” and “the buyer will run it into the ground”. In these situations, it may not be the right time for a seller to let go.

Obviously there may be other financial and psychological issues impacting your decision. Moreover, you may not have a free choice in whether or when to sell your practice due to health, family or other mitigating factors, which put you “under duress”. Nevertheless, American Dental Sales recommends that you (and your spouse, if necessary) meet with your trusted advisors to examine the economic and non-economic reasons necessary to sell your practice. Unless you can answer both of the foregoing questions in the affirmative, it may not be the proper time for you. Young Hamlet had a flawed character because of his inherent indecisiveness; hopefully analyzing and answering these two simple questions will save you from the same fate.

By: Kevin Shea, President of Shea Practice Transitions, P.A.

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Two Simple Questions Before You Sell