Why is it important to plan our exit? How much do we need? For most, our practices represent a large percentage of our wealth and income. When the practice is gone, will we have the finances to pursue the lifestyle we want? At what price do we need to sell our practices to replace income and estate planning needs?
The Practice Valuation Gap
Discussions with practice brokers and valuation professionals help us understand the intrinsic valuation of our practices and comparable valuations in our marketplaces. High valuations result from practices with strong sustained growth and great profitability. If our practices cannot generate the required funds, we have a value gap, and we must take steps now to grow the practice and improve profit margins.
Pulling the levers to maximize practice performance and exit valuation
The Strengths, Weaknesses, Opportunities, Threats (SWOT) analytical tool is a great way to review how well the practice is doing. One place to start is by identifying opportunities that fit with our strengths. Critical weaknesses have to be addressed, too.
High-impact levers include:
- Office managers who are fully engaged
- New technologies that transform processes and make us “local” leaders in services like same-day restorations
- Removal of disengaged team players holding back the practice
- Environment where team engagement is at the highest possible level
- Listening to patient needs and feedback on service
- Partnerships with state-of-the-art laboratories opening up cost efficiencies and high-value services
- Key performance indicator tracking, to drive better performance
- High levels of patient referrals and “net promoter scores”
- Identification of competitive advantage
- Marketing and communication improvements
Emotional readiness to exit
In addition to financial considerations surrounding an exit strategy, another factor is “emotional readiness” to leave the practice. The practice has defined our professional identity for many years making this a bittersweet transition.
“To finish the moment to find the journey’s end in every step of the road, to live the greatest number of good hours, is wisdom.” –Ralph Waldo Emerson
What are your exit options?
Each practice situation is different and will determine options available. Typically they include:
- Sale to a corporate dental services organization
- Sale to a group practice
- Sale to a third-party dentist
- Sale to an associate dentist already in the practice…possibly phased over time
- Closing the practice and selling assets. For example, real estate or “transferable” real estate lease
- Bankruptcy. Chapters 7, 13, or 11 of the Bankruptcy Code offer different mechanisms for protection and help
When should you start working on your exit strategy?
In the four or five years before a planned exit, you should intensify your transition plan and actions for the best possible outcomes.
Where can you find help?
As the baby boomer generation moves towards retirement, there are many dentists at a similar stage. That is good and bad! It’s good because there are many colleagues and advisers to help; but bad because many practices are becoming available at roughly the same time.
I recommend talking to:
- practice brokers, valuation specialists, and practice consultants
- your accounting and tax advisor
- your lawyer
- your financial, investment and estate planning advisor
- dental service organizations, local dentists, and dental groups who may be interested in your practice
- your Henry Schein representatives.
Get that advice and guidance early!
Originally published in Sidekick Magazine
About the Author: Dr. Kaye completed his graduate dental school training at the Columbia School of Oral Medicine in New York City. He is recognized as one of the first general dentists in the US to be certified in Invisalign; is the founder of Kaye Dentistry PLLC, a world class reconstructive, cosmetic, and implant dental practice; and is the founder and director of the New York Center for Digital Dentistry. Dr. Kaye consults with other dentists and dental manufacturers; lectures on topics including ceramics, occlusion, and digital dentistry; and performs live patient demonstrations to dentists. He is a graduate of the Dawson Center for Advanced Dental Training, a member of the International Speaker’s Academy, and is on the guest faculty for Planmeca University in Richardson, TX.