This is part one of a two-part series examining the most important points a dentist should understand to accomplish a successful transition.
There are few moments in the long successful road of your dental career that are more precious (and potentially stressful) than selling your dental practice. The milestone will represent the culmination of years of risk-taking and hard work and will allow you to enjoy the fruits of that labor.
After ten years of representing dentists in the sale and purchase of dental practices, I’ve witnessed my share of the good, bad, and ugly in practice transitions. Preparation, as is the case most times when facing a challenge, is the hallmark of a smooth dental practice transition.
Considerations Before The Sale of Your Dental Practice
1. Don’t Tell Your Staff
As difficult as it may be, it’s important to refrain from telling your staff about your intentions to sell the practice. Your instincts and loyalty to your employees may tell you to prepare them for the coming change in ownership. Going down this route, however, may result in the devastating effect of causing a staff exodus just before you list your practice or find a buyer. Instead, use a business coach or an experienced practice broker who will prepare you for a staff transition that preserves your sale while properly introducing the employees to the new owner.
2. Put the Right Team Together
The sale of your dental practice is the point where you cash out on the equity you’ve built over the years. To accomplish this goal, an experienced team will help you find the right buyer, maximize your equity, and mitigate your liability. At a minimum, your team should include:
- A dental practice broker that will help properly value your practice and market it to the community
- A consultant that will assist you with transition issues
- An experienced dental attorney will draft and negotiate the transition documents so as to mitigate your exposure to liability post-sale
3. Understand Your Lease Obligations
Generally, a buyer cannot purchase and operate your dental practice without taking over your lease. As such, it is critical that you understand what rights and obligations you have to the landlord when requesting that the lease be assigned to your potential buyer.
Many times, when representing buyers in a practice sale, I have witnessed sellers who are ready to sell their practice but have never reviewed their lease assignment obligations. Some sellers don’t even have a copy of their lease!
It is critical to review your lease with a dental attorney before you find a buyer, in order to understand how to navigate the lease assignment provisions in that document. If a seller never reviewed their lease when first signing it, they may be surprised to find onerous obligations including paying the landlord a hefty transfer premium for the sale of their business.
4. Don’t Take Your Foot Off the Gas
Understandably, after a long (and back-breaking) career in dentistry, a seller may start to take their ‘foot off the gas’ once they see the light at the end of the tunnel. Sellers may start coming into the practice later, taking vacations and days off, marketing less, and focusing more on post-sale plans. This is all on the false assumption that the practice sale will be quick.
However, no one can predict how quickly your broker will find a buyer and how fast the sale will take place. You must factor in the obstacles the parties may face with financing, the landlord, and unknown issues that may pop up during the transition.
A ‘quick’ transition is the exception to the rule, and your transition is likely to hit at least a few obstacles along the way. Taking your foot off the gas will exacerbate issues by decreasing the value of your practice (if production slips) or leave you in a difficult mental space if your sale falls through and you have to rev up the practice operations again.
5. Prepare to Let Go
One of the biggest issues I’ve witnessed in representing sellers in their transitions is a dentist’s failure to appreciate the significance, both professionally and personally, of selling a dental practice. It is important that sellers have extensive discussions with their loved ones and advisors prior to deciding to sell their practice, contemplate the decision and post-sale plans, and mentally prepare to let go of the business they have worked so hard to build.
Unsurprisingly, the lack of mindfulness in this regard causes sellers to react emotionally in negotiating deal terms, transition documents, and letting go of their ownership hat if they work in the practice post-closing. All of this can be detrimental to a smooth transition.
On the flip side, a seller who is at peace with his decision will properly prepare for the sale and experience a smoother transition. Thereby upholding the legacy built-in the dental practice.
What’s Coming Up
Part two of this series on transition issues will explain a seller’s obligations typically associated with the sales documents and how to mitigate your liability post-sale including:
- Understanding the representations you are making in an asset sales agreement
- How uncompleted dentistry and retreatment issues are typically handled
- Covenants not to compete
If you would like to have a California dental attorney with 10+ years of experience discuss your questions about your dental practice sale, please schedule a free 15-min phone consultation today.