Before you enter into the sales process, it’s critical to deeply understand the ideal end-point you hope to achieve. This will not only help you in the negotiation process, but also in identifying the right target buyers, and informing your marketing plan (which we’ll talk about in more depth next month).
First, we recommend you develop a list of minimum criteria that must be met before you are willing to consider a sales transaction. This list will serve as an initial screening tool, and represents the lower limit of requirements needed to consider would-be suitors. These benchmarks might include clinical philosophy, advanced practice provider philosophy, administrative capabilities, quality of care, patient satisfaction, chemistry with the practice leadership team, and others you’ll personally add.
Second, we recommend you make a list of the criteria that will be most important to you once buyers make it through the initial screening. As you make this list, it’s important to understand your short-term and long-term goals. This understanding will help you to recognize that not all criteria are equal, and to clarify which are more important than others. To help you weigh the importance of the issues, you can assign a number between 0 and 100 for each criterion, so that the total of all the numbers adds up to 100.
To help you identify potential sales criteria that may be important, following is a representative list.It is not meant to be exhaustive, and there likely will be additions you’ll make.
- Sale price: Often one of the most important factors, but it should not be the only one.
- Transaction structure: three most common types of sales structures are- capital sales, asset sales and mergers, and the tax considerations of a transaction.
- Transition period: This is the amount of time an owner is willing to continue on as an active part of the practice. In general, the longer the transition period, the better the sales price. Many buyers will give maximum value if the seller commits to three to five years.
- Ownership: Do you have the option to “roll over” some of your sales price into an ownership stake in the buyer’s new practice?
- Compensation: Ongoing compensation can often be as critical as the sale price for your practice, if not more so. This is especially true if you have a long transition period and/or retirement is still far into the future.
- Benefits: Personal benefits can be an important and material part of the compensation package. The most common offerings include health insurance, dental insurance, vision insurance, life insurance, disability insurance, malpractice insurance, 401(k), etc. Consider how the benefits are structured, much the practice contributes to the cost, and how much will you contribute going forward?
- Time off/excused absences and financial support for CME: Will the buyer provide time off and a stipend for annual CME?
- Time off/excused absences: This is often one of the most important considerations in a sale. After all, many practice owners are selling so they can spend more time traveling, with family, and pursuing outside interests and activities.
- Holidays: Which holidays are observed by the buyer, and are these holidays in addition to or part of the time off/excused absences?
- Schedule: What will your ongoing practice schedule look like, in terms of which days and hours you want to work? Do you have the ability to influence your schedule and will you have flexibility in the future?
- Retirement age: What are the ramifications of an early retirement on your ownership investment? What is the retirement age or service requirement necessary to realize the full value of your ownership investment?
- Clinical trials: Do you want to be involved in, or continue to be involved in clinical trials? If so, how will you be compensated for your work?
- External speaking: Do you want to be involved in, or continue to be involved in external speaking engagements? If so, how will you be compensated for your speaking?
- Restrictive covenants: What are the non-compete, non-solicitation, and confidentiality requirements your buyer would expect in your sales contract, and in any new employment agreement?
- Capital investment in your practice: Perhaps your primary motivation is to find a partner who has the expertise and capital to help you grow your practice. Is the buyer willing to commit to an investment?
- Contingency: In order to gain the maximum financial consideration, a buyer will often propose a price that’s contingent on some future metric. Due to regulatory issues, the metric is often based on office visits or total RVUs, as opposed to revenue or actual profit. To get a maximum price, are you willing to accept a contingency arrangement?
Working through this exercise will help you to illuminate what is most important, and where you might be willing to compromise. It will also help you communicate your bargaining position to a would-be seller in an attempt to achieve a win-win solution.
CONTACT PRACTICE ADVISORS
Now that you have read some basic tips and things to consider you are ready to start your practice. After you have found a place that meets your needs you will still need to make on offer, secure financing, sign the practice sale agreement and lease, and complete the purchase. As you can see a lot of important factors go into this decision. Make sure you are being properly advised. Practice Advisors 360 is the nation’s leading dental advisory company. Contact us today at (844) 360-8360 or visit us online at practiceadvisors360.com