ALWAYS BE PREPARED!5>
“Forewarned, forearmed; to be prepared is half the victory” – Miguel de Cervantes
I have had several requests from practice owners recently, requesting more information on how to properly prepare a practice for sale to the level of “Best in Class” for individual sale or transition, or for a Corporate or Partner Buy-in/out.
This area of business is complicated, but partnerships and corporate deals can be fraught with danger if not done correctly and there are plenty of stories, both good and bad. I’m sure you all know someone who’s been there, done that, both ways.
It’s the same with trying to sell a practice yourself. “What a nightmare that turned into!” as many have found out, so why bother? What do you achieve? Perhaps you’ll save some money, but still inherit a whole new set of time wasting dramas. The extra dollars may not compensate.
Should your practice be Sale Ready all the time?
I have been involved in the dental industry for past 18 years; in that time, I have seen a lot of practice principals come and go.
Prior to the dental industry, I spent 25 years in the commercial life assurance arena, in other words key-man assurance, partnership assurance buy-outs and buy-ins, commercial debit repayment assurance and mortgage assurance, to name a few.
The interesting point was that most of my clients reviewed their positions annually without fail. They reviewed their entire position and adjusted accordingly. If the business had increased in value, new key positions created, partners retired, or something happened to a member, their level of protection was adjusted accordingly.
Recently I was involved in two practice sales, whereby one 40-something year old principal was diagnosed with a debilitating illness that would turn his life upside down, and the other a perfectly healthy hard working 60-year-old principal died smack bang in the middle of a settlement on one of his practices of a major heart attack.
Unfortunately for the first dentist, by the time we got to him he had sold off two practices for next to nothing and had accepted an offer on his remaining practice which was, in my opinion, less than half its value. Too bad he couldn’t work any longer and locums were not around. There was just no time to prepare a sale or have a plan in place.
The other dentist was in the middle of settling his unique practice. It had taken us months to get near to finalising the sale when the seller’s wife called informing us that her husband had just died of a massive heart attack. How do you think that would have ended if we hadn’t been totally prepared with a plan B? Plan B you ask!
We were missing one signed form that was imperative to this advancing, Luckily, we were able to call on his wife to provide an alternative option that was acceptable to all parties. Granted it doesn’t happen every day, but it did happen, and we were prepared.
“It all comes down to having your ducks in line” knowing the path you are traveling on, and three important ingredients: Time, Totally prepared Plan A; and a Plan B. This is not about trying to scare readers or sell life assurance, but during a normal day I come across so many principal dentists who too busy or haven’t given any thought to what may happen to their pride and joy if they don’t make it in the practice tomorrow.
Seven out of ten owners admit they have no idea what the practice is worth, and it is fantastic to see the look on their face when you give them a reasonably accurate idea of the value. Then there are many who comment “I have worked all my life for what, how much?”
It seems now everybody wants a piece of the practice. Some corporates are still buying practices and that suits some principles, then there are others that don’t fit the criteria. They tend to look to sell privately or through a broker. Seems there are also other schemes trying to buy into those practices with twists and turns on the same old deals.
It’s this simple: either you fit the total profile of the likes of Maven Dental, 1300Smiles, Bupa Corp, and so on, or you sell the practice privately.
BUT either way, your practice needs to be totally prepared with both a Plan A and Plan B firmly in place. You need to understand that it takes between one-to-two months to get everything sorted. It cannot be done overnight.
So here is an answer:
The main areas we consider when preparing your surgery for maximum return at sale are as follows:
- Web site:
- Sale Price:
The surgery must appear to be clean, well organized and nicely presented in a good location with ease of parking, and access for all.
Your location is paramount with a premium paid for the best in class location choice.
Your website must be very professional and well laid out, because people make decisions on whether to do business today based on the overall feel and look of a website.
Your staff members are the core of your business, and in so many cases determine if patients will come back, based on their overall experience. Your staff should have the special range of unique talents and skills that make up the best practices.
In today’s world, outgoing owners are obliged to stay on for a period determined by negotiation, which is a positive, and is also a comfort point for any new owner. By the way, in a lot of cases the finance institution can require this as a consultant role for new dentists.
Financials must be well prepared, complete, accurate and in sync with practice software. Financial history should go back at least four to five years, with ability to contact all involved in the preparation and maintenance of same.
How do you determine a figure? It is extremely difficult to make an assessment based on limited, inaccurate or incomplete data. We have many benchmarks to help us in determining a value, for example:
- Ebitda is based around multiplying the before tax profit by a multiple used mainly by financial institutions for loan purposes.
- Another is by valuing the last three years revenue then using a calculation to determine a percentage which includes risk factor.
- It is always worth getting a second opinion from an expert. We use an expert with over 40 years in the dental industry
After an initial visit, it’s time to get to work on preparing a Comprehensive Practice Review (CPR) and a bullet proof Practice Readiness / Exit Plan package, which includes the following:
- Customized 10-20-page practice history and company profile Information Memorandum
- Management and personnel overview, actual and forecast financials
- Summarized copy five page Information Memorandum
- Terms and Conditions of sale.
We put all potential buyers through stringent due diligence and confidentiality processes before introducing them to the practice or to you personally.
If prepared correctly, we would have a very good chance of achieving a successful sale price. It may take a little longer to sell at a premium asking price, but it would be a good long-term investment for the right buyer with some foresight.
There are five steps to get you to the point of being ready for sale, reports are as follows:
- Business Attractiveness: This report will outline the following:
a. A scorecard out of 100 points of your business results broken into sections.
b. A graphical highlight of each area of analysis,
c. A detailed review by section.
- Exit Planning Readiness: Like the Business Attractiveness but goes that much further.
a. Cross checks possible issues that may be found in the Reverse Due Diligence process allowing us to fix any issues up front.
b. The results in this report, confirm everything is in place and up to date making sure the business is not only attractive to a buyer, but ready to be sold.
c. Looks at the owner’s readiness to transition out without regret which is the biggest issue of all.
- Valuation Gap Analysis:
a. Allows us to get a picture of where everything sits including the personal side of the transaction
b. Allows for consideration if net proceeds are enough or close to the owner’s target
c. Comprehensive snap shot into the future with regards to revenue, profit, and new valuation scenarios if required.
- Action report:
a. Creates a time line to address any issues that may have surfaced and keep everything on track.
- Exit Readiness Report:
a. This 35-page document ties everything together and is presented to a potential buyer.
b. We know this document will satisfy the Accountants, Lending Institutions, Legal, or Corporate buyers.
I have spent a tremendous amount of resources creating these ultimate tools required to offer business owners and their team of specialists the edge required to achieve a free-flowing successful exit outcome. If you would like to know more about any of these fantastic opportunities or my planning process, click on the link to contact me personally firstname.lastname@example.org.
Every practice where we have been involved in the planning and sale process has achieved successful outcome and satisfactory sale price, even when it’s been done up to 24 months prior to selling.
Because we work in conjunction with the owners and their specialists to create a bullet proof Practice Readiness and Exit Plan.