How to sell your dental practice: 6 steps of selling
How to sell your dental practice: 6 steps of selling
Selling a dental practice doesn't need to be as difficult as it may seem although it is easy to make mistakes that cost £tens of thousands.
January 2, 2023

People often benchmark their life/career trajectory on significant milestones. Personally, it could be buying your first home, getting married, having your first child, retiring etc. Professionally, many dentists follow a similar path in their career lifetime. Qualification, buying your first practice, expanding your practice and eventually, selling your practice.

At Hive, we’ve summarised everything you need to know before you put your practice up for sale. Our comprehensive sales blog will help the process run as smoothly as possible, ensuring you find the right buyer and get the dental practice valuation you deserve. In 6 easy-to-follow steps, you’ll learn the right route to take when the time comes for you to move on.

1. Decide when to sell

When selling your dental practice, it’s important not to cut corners, you must consider every factor before signing your name on the dotted line. Part of this process is to be entirely sure that now is the right time to sell.

Most experts advise planning the sale of your dental practice two years in advance, but we know that, for some people, this isn’t always feasible. The more time you have to prepare, however, the more chances there are to increase performance within the practice or make small improvements to make your dental practice more appealing to potential purchasers, and more valuable for you.

Time also gives you more options to plan to reduce taxes on exit. So ensuring that you have enough time to work through the sale accurately is paramount.

You will also need to schedule a time to plan the dental practice sale. Even though we will work with your broker to handle most of the work involved in going to market, there is still work you must do to gather the necessary data so the process can start.

2. Make sure your financials are up to date

Nothing stalls a sale more than outdated or inaccurate financial information. Like it or not, for as beautiful as you have made the practice look over the years and for how much your patients absolutely adore coming to see you, inevitably the first thing a potential buyer will want to see are the numbers.

It’s therefore absolutely vital that you keep on top of the practice’s financials on a regular, real-time basis so information is readily available to provide to both the broker and the buyer.

You also need to ensure that your numbers are accurate and any questions from a buyer can be easily explained. Corporate buyers in particular will consider inaccuracies in your data, however small you may consider them to be, additional risk. This can then in real terms erode your practice value by additional percentage points. If you put this into the context of a £1m deal, a 5% reduction in value would wipe £50,000 off your sale proceeds.

3. Ensure your tax structure is correct

We’ve had many practices join us over the years with ineffective tax structures that not only mean you are likely paying too much tax on an annual basis (another conversation) but that your taxes on exit could be significant when some advance planning could save tens, if not hundreds of thousands in tax.

Our specialist projects team here have worked with many practices in the years leading up to the sale, restructuring their business to ensure that you retain as much of your wealth as possible on exit.

4. Appoint a broker

When you’ve made your decision and gathered the relevant paperwork, the next step is to appoint a broker. They will be able to help value and market the practice for sale.

It’s worth noting that those interested in buying dental practices will want to know why you’re selling a dental practice, so you must provide them with enough information to secure the sale later down the line.

We’d recommend involving a broker even when planning to sell to an associate or someone you know – they will be able to ensure the correct sale price is achieved and act as a go-between for the various parties involved. Hive recommends using Christie & Co. There can be even more nuanced terms involved with a sale to someone you know, so it is even more important to get expert advice.

here is also the dental corporate market route, which may or may not be suitable as it will force you to remain for several years and postpone a portion of the overall purchase price. Regardless of who you think you will ultimately sell to, using a broker will help ensure you get the best price.

5. Valuation and marketing

Dental practice valuations are traditionally based on a multiple of adjusted profit. Using the most recent 12 months’ results, a standardised profit model is built – i.e. how might the practice perform if run independently by Dr J Bloggs. This is known as the EBITDA and it is this figure which is used to calculate value. Multiples vary depending on business size, the type of profit model (principal-led vs associate-led), and location.

Size and profitability will have the biggest impact on the types of buyers your practice will be suitable for. A valuation assessment will be carried out through both principal-led (or owner-occupied) and associate-led models and a multiple will be applied to each. Each model needs to be considered to see which will give the highest and most realistic value.

There can of course be variances between the two models and this can then consequentially attract more or less of a certain type of buyer (i.e. corporate, an existing owner, or an associate first-time buyer).

Calculating these financial models is complex and should not be underestimated. There are also likely to be lots of adjustments – removing all personal expenditures, items that the new owner may not continue with, and ignored items for the purpose of the valuation. As the profit is then multiplied, getting this wrong can easily cost tens of thousands in value.

6. Negotiation

Once an offer comes along which catches your eye, your broker must structure the right deal, taking into account what you expect from the sale.

For NHS dental practices, there is the additional nuance of the contract to be structured, that is why we always recommend seeking experienced dental advice, also including solicitors. There are a few routes you can take, which we have outlined below.

  • Upfront payments for NHS-driven profits.
  • Deferred payments when taking into account performance-based criteria.
  • Find an agreement when a buyer is not willing to meet the sale price now but payment can be made at a later date.
  • Negotiated UDA rates for a seller who will continue to work at the dental practice.

After the deal has been negotiated and agreed upon, your terms should be put in writing to avoid any miscommunication or errors later down the line. They should always be marked as “subject to contract”. Always seek legal advice before you issue or sign anything.

Once you and your buyer have agreed on Heads of Terms, your buyer will likely carry out due diligence in the 3 key areas: legal, clinical and financial. This is often a tough and lengthy process which requires you and the vendor, to be organised when providing key information and paperwork. Prior planning can go a long way in this regard.

In summary

Overall, selling a dental practice doesn’t need to be as difficult as it may seem although it is easy to make mistakes that cost £tens of thousands. To ensure you get the price you deserve, you must decide if now is the best time to sell, appoint a broker, negotiate with a buyer, and finesse doing the deal.

With all that being said, it’s always a good idea to seek professional advice when it comes to selling your dental practice. At Hive, we have the expert team you need to make the process run as smoothly as possible.

_18285 - Hive Infographic Selling your dental practice v2.2
The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Team Hive
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