Our thoughts . . . 01-13-10
ARE YOU READY TO SELL?
There can be no doubt that 2009 was an uncomfortable year for many doctors. Those late in their careers found themselves in an even more painful dilemma of watching both their practice revenues decline but also the value of their retirement accounts take a substantial hit. As slightly better financial news trickles out in early 2010, many are asking themselves if this is the year that they will finally be able to move away from the chair. The question arises, what steps need to be taken to maximize the value, productivity and profitability of your practice? At no time are these concepts more important than when you begin to imagine a time that you will be ready to retire and sell your practice.
Discounting those cases in which the seller may have little or no choice, such as sudden illness, permanent disability, and death, I believe there are three components in evaluating a potential seller's readiness to sell. Let's call them the three "F" factors; financial, facility and fun, and examine each in some detail.
Financial Factors:
This area has two main components; the practice financials and the owner's financials. The owner has to ask himself (yes at this point they are still mostly "hims") if he can afford to retire. Are his accumulated assets sufficient to continue an active lifestyle without the ongoing practice revenues? Is the sale price a critical component to a retirement portfolio or is it just the icing on the cake? Make note of this: tax consequences aside, in most cases a potential seller will generate more income by practicing two more years than they will realize from the sale of the practice. If money is going to be tight maybe now is not the time to place the practice on the market.
In the January 8, 2008 issue of The Wall Street Journal, Arden Dale says that "small businesses often lack key elements that buyers look for – such as proper financial records or detailed documentation about how the business runs. Moreover, lots of owners go into the selling process without researching the market, so they have unrealistic ideas about the price their business will fetch." As he points out, the result may be that the business lingers on the market much longer than expected. In some cases, they may not be sold at all. He goes on to say that "they should get professional help to figure out how much the business is worth and how to handle the sale." In our experience, overpricing a practice leads to generalized frustration and the perception that the seller may not be flexible in other areas of the transition. Buyers will ask us, "Is he really ready to sell?"
The last part of this factor is the financial health of the practice. What are the annual revenues and are they increasing, flat or decreasing? Is there adequate profit for the buyer to make a living and be able to pay back the bank? Are business records and tax returns in good order with all income and expenses well documented? Are fees set at an appropriate level? Will the practice sell for enough to cover any remaining debts or liens? Prospective buyers are more comfortable with practices with good long-term records of production and profitability and their comfort level will generally be reflected in a better return for the seller.
Facility Factor:
In this factor I'm talking mainly about curb appeal. Is the location still desirable and well kept? Has the building been kept "up to code" and not in need of immediate functional or cosmetic updating? Buyers generally want to be able to take over the practice and go to work without having to do renovations. We don't normally recommend the wholesale replacement of all of the existing equipment unless you made your last major purchase while Eisenhower was still president. If that is the case, some gradual updates may be in order over the next few years. You may not get your money back dollar for dollar but at least you may be able to attract a buyer. If new patient flow has slowed down, maybe it's time for some freshening up of the office surfaces. It is amazing what $10,000 in paint, wallpaper, carpeting and upholstery can do for a practice. You might even feel better and more productive while you're there. Lastly we have the…
Fun Factor:
This may well be the most important and difficult of the factors to consider. Are you still having fun? How's the back, shoulders and hands? Are you still comfortable physically with the clinical areas of the practice and enjoying the day to day interactions with patients, staff and colleagues? Are you prepared psychologically to quit? Do you have other interests you are anxious to pursue after retirement or if planning to work as the buyer's associate, can you tolerate the lack of control known to other "worker bees"? Would two weeks in St. Thomas improve your outlook on your practice or are you really ready to pack it in? These questions and others like them need to be honestly asked and answered.
If after stepping back and evaluating you discover that it's time to begin the process towards a sale or transition, assemble a good team of advisors in order to market the practice in its best light. If working a few more years (regardless of your age) turns out to be the best answer, then enjoy. The world needs practicing dentists who enjoy who they are and what they are doing.
Steve Wolff, DDS
UMKC Class of 1977