December 11th, 2013 8:11am
The Buy In Discussion
When looking for a successor for your practice, there are a few approaches that can be taken. One approach is simply hanging a “For Sale” sign on your door when you are ready to sell. Whether you do it yourself or you use a broker, this approach can be convenient, turn-key and initiated whenever you are ready. However, the down-side is you have less time and sometimes no capability to screen and pick your buyer. This is important to some sellers — they want to have confidence their patient base and team is in trustworthy hands.
Alternatively, the focus of our blog series involves identifying a successor will in advance of your sale date. Our previous discussions include goal setting for this type of transition, identifying the financial portion of a transition and the timing of looking for a potential successor. Once you identify your potential successor, you’ll want to consider how quickly you want to move and how to bring them in to the practice.
When a transition will be taking place over a period greater than a year, the time element can be very favorable. This time can be used to know and learn more about the successor candidate. A good approach is to have the doctor work in your practice on a regular schedule. When possible, even have some overlapping scheduled hours to truly get a feel for how they operate and interact with your team and your patients. When time is available, three to six months provides a good window to observe and become comfortable that the identified person will be a suitable successor.
When bringing on this person in an associate capacity, to the extent you’ve identified them as a successor, you’ll want to have some very preliminary discussions as to their interest in practice ownerships and whether they have that as a goal. Beyond that, there are a few approaches. Typically, the three to six month timeframe can be discussed up front. The doctor can provide that they desire to eventually sell the practice and they are looking for the right person to whom to sell. They are hiring an associate to groom for this transition but won’t be laying out the plan for three to six months (define this more specifically as it applies) — once there is enough time to make sure it will be a good fit for both. This approach alleviates either party from making a firm commitment.
Once the trial period is conquered and both parties agree it’s a good fit, the wheels for the transition can be set in motion. If details of the transition have yet to be defined, that would then be the next step. If they have been defined, they can be put together.
There is no one way to transition a dental practice. In fact, there are hundreds. Properly planning and defining what you want out of a practice transition is key. When this includes ensuring your successor meets your criteria — planning in advance and having a strategy when you meet the candidate is key!
October 30th, 2013 10:51am
Finding the Successor
Now that you’ve gone through a goal setting exercise as explained in Part I and have performed preliminary due diligence on your plan in Part II in planning for your practice transition, you’ve put yourself in a position to have some confidence about moving forward with your strategy. Don’t skip steps one and two! These are very crucial to giving your transition objectives. When the first two steps are skipped, these transitions tend to be more chaotic, there is more doubt on your part (the part of the seller) and your confidence in the financial plan and the future of your practice will be low.
Part III (or step three) is where you strategize and begin finding the successor. Sometimes this step is done in advance of even considering a transition. Perhaps you’ve had an associate dentist on the team for awhile and it makes sense to offer your associate the ownership. Maybe a relative is lined up to be the successor. If you don’t have a specific successor in mind, you need to plan to find one.
The timing of locating a successor is important. If you’ve determined your practice doesn’t need an associate, and you don’t plan on selling for several years, it may be premature to begin a successor search. Your location and the market will determine a lot of this. If your practice is in a more rural area, you’ll want to begin your search sooner than you would in a more populated area. Keep in mind, however, someone searching to buy or join a practice likely isn’t going to want to wait four (or more) years.
If your practice needs an associate because of growth, or if you plan to cut back a day and have an associate fill in, then you’ll want to begin the search now. There are a number of ways to go about finding an associate. Networking seems to be one of the more popular approaches. By connecting with your local dental societies, vendor reps and other dentists, you know you can get the word out. This is much easier and smother to do when “looking for an associate” than when “looking for a buyer,” which will put everyone on alert that you are selling, which you don’t want. Contacting dental schools in your region is a good option because putting the word out in the school can enable you to connect with the next round of graduates and sometimes the most recent graduates, as well. Look for message boards and dental classifieds where you can post your opportunity, such as DentalTown or your state dental society. If you want to take a lot of the legwork off your plate, there are also recruiting firms and brokers who will do the searching for you.
The search can be a process. You want to find a solid, qualified, talented candidate — especially if they will be associating with you for some period of time. Once you find the candidate who is a good fit, it’s time to bring them on board. You’ll want to put together a good associate contract for their employment. In the next post in our series, we’ll explore when to discuss ownership possibilities and when to get serious about the details of the candidate.
October 21st, 2013 9:25pm
Identify Financial Parameters & Preliminary Due Diligence
Performing the due diligence prior to transitioning out of your practice can be time consuming. There are many variables you need to consider and areas you need to analyze prior to transitioning your practice.
- Timing & Desire to Sell
You need to know when is the right time to actually sell. If you are looking to bring in an associate to whom you want to transition the practice, you need to think not only from a clinical standpoint but also you need to know if the practice can sustain two doctors in the interim. Are there enough patients for two doctors? Can the cash flow of the practice support two doctors’ salaries? Once you identify the answers to these questions, you need to determine if additional team members will also be needed with another doctor. These are costs to be considered.
- Cash Flow
Cash flow is king! Financial projections need to be prepared in order for you to determine the cash flow needed for you to transition out of your practice. This may determine when you actually decide to transition out of your practice. This will also help you determine what you will actually take home from a practice sale after paying taxes, paying your advisors (CPA, financial advisor, broker, attorney, etc.) and any outstanding debt you may have. Some sellers have not consulted with their CPA by the time they have already decided to sell and are not prepared for the tax impact or the advisor fees involved. It may not make sense to sell right away, or your CPA may tell you now is the best time to sell. Definitely consult with your CPA and financial advisor prior to moving forward to any type of transition discussion with a potential buyer. You do not want to get too far into the process without having a meeting with your CPA and financial advisor as you can start incurring fees, or the word could get out that you are looking to sell before you are actually ready to do so.
- Areas for Improvement
You want to perform a thorough review of your practice prior to selling. Look for areas of improvement — clinically, financially and operationally – so you are in the best position when you enter into a transition discussion. You want to avoid any areas the buyer may consider red flags or deal breakers from buying your practice.
- Key Benefits of Your Practice
Be familiar with all the key benefits of your practice. Identify these opportunities to a buyer in your practice. This is when you want to focus on the value and why someone would be inclined to pay asking price for your practice. You should know your practice inside and out, and be prepared to answer any questions from a potential buyer.
These steps all should happen prior to entering into a discussion with a potential buyer. You want to have performed your due diligence so you are confident and ready to enter into your transition plan!
October 14th, 2013 9:49pm
Goals & Vision
Preparing to transition out of your practice is something best done over time and not overnight. However, frequently the overnight transition happens. When a doctor decides, “Hey, I want to be out of here in 3 months,” transition options become limited. Planning and goal setting well in advance (say, 5 years) can help provide a vision of all the possibilities for a transition and allow the flexibility to steer toward an option that is best fit for you as the senior departing doctor.
When goal setting, it helps to have someone or something to facilitate this process. It’s much easier to have a framework to help with goal setting than to sit down with a blank sheet of paper. An expert in transitions, your CPA, your attorney, an article or even this blog can be a tool to guide you through it. When goal setting, start with answering these questions about yourself:
- When do I want to cut back working hours?
- How many hours do I want to cut back to?
- When do I want to completely stop working in dentistry?
- Can I work for someone else? For how long?
- Do I want to work after I sell my practice?
- Am I willing to work after I sell my practice if I have to?
- Am I mentally prepared to move on from practice ownership? What will I do with the extra time?
- Am I financially ready to sell my practice? What sort of retirement lifestyle can I live with my current retirement savings?
- What are two things that must be present in a successful practice transition?
- What are two things that, if present, would represent a bad transition for me?
The answers to these questions will go a long way toward shaping and identifying your transition goals. This is where the help of an experienced transition planner can help — their perspective on the many options available can be useful in guiding a solution and strategy toward your transition goals. There are many ways a transition can happen — the variations are limitless. Considering your plan now (well in advance) allows you to plan toward these many variations and increases your flexibility to utilize them. The closer you near retirement date without a plan, the more limited and less flexible your options become.
September 24th, 2013 9:49am
Initial Steps to Gear Up for a Transition
Preparing to bring in a partner can be intense. You’ll need to start with some basic steps to make sure you are prepared for a buy-in! Get started with these 5 steps to determine if you are ready for a partner.
Step 1: Team
- Build your professional team! Meet with an advisor who understands the dental industry as well as transitions and start the conversation with them first. They will point you in the right direction to help reduce anxiety and stress as well as help you avoid making the biggest mistakes.
Step 2: Transition Plan
- Make sure a partnership is truly what you want to do. You need to understand the financial, tax and operational impact to you and the practice. If you are unsure if a partnership is the route you want to take, then you need to continue to explore other transition possibilities. A partnership is one of the most complex, so you want to be 100% sure this is the path for you!
Step 3: Timing
- Determine the timing of when you need another dentist. Is it 3, 5, or 10 years from now? If you do not plan on bringing someone in until later, then you should be planning for what is to come in the future by reviewing your practice inside and out to ensure it will be ready for a transition.
Step 4: Internal Due Diligence
- Perform your own due diligence to determine if the practice is able to support two or more doctors. And determine what type of sale will this be. Do you want this to be an outright sale or a delayed sale? What is the tax impact to you?
Step 5: Identify the right person
- Find the right person that will fit within your practice. If you do not have someone lined up, start doing your homework and research. Make sure you spend time outside of the office and look for all of the things that are going to make a parternship successful! Establish expectations for all parties on day one. If you cannot agree here, keep looking! Do not settle if you cannot line up expectations. Once you find the right person, there is much due diligence to be done to ensure it is going to work clinically, operationally and financially.
Veros can assist you with all of these steps! Give us a call (317) 452-4580.