According to a 2010 survey done by the ADA, dentists under 40 plan to retire at age 61, however when dentists over age 40 were asked the same question, the average drifted up to 67**. We see this happening on a daily basis at our firm. Once dentists really start thinking about what it actually takes to retire and what must happen before getting to the point of a transition, they realize a great deal of planning needs to go into a proper transition strategy.
Most dentists wait until it's too late to start planning their practice transition. Don't make that mistake or you will end up selling out to corporate dental.
This still leaves all options on the table and allows for you to find the right successor. Even if you do everything right, what happens to your practice immediately after you sell it and retire is up to you.
You can have a custom transition process, and ensure that everything is executed to your liking; this is not a square-peg/round-hole situation. A custom transition allows you to find the partner who’s best suited to carry on your
Am I burnt out?
Am I comfortable with the new owner/partner?
Am I comfortable handing over my practice to this person and releasing some control?
Financially, can I afford to sell?
A tiered, two-part, transition—this is where portions of the practice are sold over a period of time (i.e. 50% now and the second 50% in the future).
A combination transition—this is basically a combination of the previous two options.
We prefer the tiered option for a few reasons. Monetarily speaking, a tiered transition will net you the most for your retirement and is most affordable to the successor. It’s also the best option for your patients, as they get to know your partner and future owner. However, many dentists cannot afford this type of transition or wait too long to plan for it, or some simply do not have the personality for it. There are many factors to consider, which we will discuss later on.
Not every practice can handle the requirements of a custom transition. Do you have enough production? A large enough facility? Do you have low enough overhead to be able to take on an associate? If not you may be forced into a walk-away sell, zero to six months of preparation, then you hand over the keys and leave. That may not sound like what you want, so your priority should be to get your finances in order so that you can transition properly. Again, doing this over 10 years before you plan to retire is ideal.
Many practices think the only option is to sell the practice and walk away, but there are many more options to consider. If you plan appropriately, you can build a transition that fits your lifestyle and retirement goals. If you don’t plan appropriately, you may be forced into an arrangement that puts your legacy at risk.
For example, if a dentist wants to simply walk away from a sale and transition quickly, we will plan conservatively.
Alternatively, we can stage the sale over the course of years. A practice owner may choose to sell half the practice, continue to work over the next few years, and then sell the other half. After that, he may continue to collect rent on the building, if they own, and then sell the building after a few years.
Another option is continuing to work after the sale, as an associate. This allows an older dentist to semi-retire, working for the new owner and collecting supplemental income, without having the responsibilities of ownership.
A custom dental transition looks different for each practice. A dental transition should never be exactly like others, each practice and dentist are unique in their own right. We can help you know how to plan for the transition that works best for you, and help you know when you’re ready to sell.
This involves a two-sided valuation process. How much do you want to sell (maximum profit)
A dental valuation may be conducted by a private individual or a broker. Some dentists resort to using a broker if they don’t have a buyer lined up or they haven’t planned for
The location of your practice will determine how easy or difficult it may be to sell when the time comes. If you’re in a rural, isolated location it may be more difficult to find a partner/associate or potential buyer who wants to relocate, compared to a more populated area.
Again, it is different for every practice, but six months to a year would be a reasonable benchmark (not too fast, not to slow) once a suiter is selected.
There are two ways to sell your practice – by selling an ownership interest or stock, or by selling off the practice’s assets. Generally, you as the seller will prefer the first option, as it carries with it a capital gain treatment of 15-23.8%. The buyer, on the other hand, will prefer a sale of assets, because then they will reap the benefits of depreciation. If it is not pre-determined by the transition structure in place, you can negotiate with your buyer, and find a level of price and sale type that suits you both the best.
You’ll also need to negotiate the method of financing your buyer will use. In the event that they cannot or prefer not to go through a bank, it’s possible they could pay through seller financing – that is, essentially you would hold a note on the purchase price as negotiated, loan the money to the buyer, and they would pay you back over time. Both sides get the benefit of keeping the bank out as a middleman, plus you make a little interest over time. The flip side to this option, however, is that you lose the time value of money of getting that money to work for you in the market which is worth much more over time. There are times when seller-financing is ideal, but for the most part, it is not the first choice by anyone because it muddies the relationship between partners.
But when negotiating price, remember this – you won’t be keeping all of the money paid, no matter what. Even if the bank’s not involved, it’s income and you will be taxed for it.
There are a lot of reasons behind that, but one of the primary ones is that many practices fail to devise and implement a good transition strategy. Not enough preparation is accomplished beforehand to make sure the hiring and the full transition process goes smoothly from the beginning.
How many practices do you know that hired an associate who was gone in less than a year? Don’t bring someone in hoping your finances will improve or a huge influx of new patients would happen. If you don’t have the money or the patients currently to support the hire, the time isn’t right.
There has to be a “carrot” to motivate the associate. Triggers should be in place that
Once the associate has bought in, they will need a pay increase since they will have a new big loan from their recent buy-in. You need to know already how much of a jump that is going to be, and how it will affect your salary as well. The pay increase needs to be enough to cover the loan payment and then some because if not, why buy-in in the first place?
The endgame is for you to retire. Full control then will be turned over to your new partner. You need to decide ahead of time at what price you’ll sell your remaining stake in the practice to your partner. You should also clarify when that’s going to happen and what will trigger that sale.
It’s absolutely key to make sure the partnership is equitable – no 51-49 percent splits. The associate has to be treated as an executive from day one. With the massive debt today’s dental school graduates incur you won’t be able to compete with corporate dentistry if you aren’t offering a stable salary from the start.
They have to be treated as your equal as much as possible to make the transition
They say that negotiation brings out the worst in people. If you’ve saved and planned properly, you’ll be in a much better negotiating position when the time comes to sell your practice. Treat the practice transition as icing on the cake to supplement what you have saved and planned for not the big payday at the end that makes or breaks your retirement.If you’re not on pace to hit your retirement now, it is time to consult your team of advisors. If you can implement these ideas in your practice transition planning you will be well ahead of the game and able to transition on your terms. Keep in mind, this is a transition