When working on behalf of a dentist that is selling their practice, it’s not unusual to find several buyers expressing interest in the practice. And like homes listed for sale in the real estate office, the dentist will often receive multiple offers.
The mistake most business owners make – and dentists are not an exception – is to take all the proposals and jump to the last page to look at “the number”. I’ve never seen an occasion when doing this didn’t set up the dentist for massive disappointment. Here’s why:
Most dentists never set a realistic number that they want to sell the business. Now, “realistic” does not mean “fantasy”. And this is where having expert assistance becomes critical. There are a multitude of “rules of thumb” when it comes to determining a business’s value. There is the “multiple times pre-tax earnings method”. There is also a method of factoring future earnings based on the current trajectory. These may be perfectly adequate for determining a rough idea of where you think you are but they are wholly inadequate for determining the present – and future – value of the practice.
At a very minimum, you need to consult with experts that regularly assist dentists in selling their practices (note: most business brokers are generalists that sell everything from auto repair shops to professional practices. Most of these brokers are not specialized enough to get you maximum value from your practice). The truth is that a fresh set of knowledgeable eyes can point out overlooked opportunities in the practice that can significantly improve the dentist’s payday after the sale.
The other reason to consult an expert is to create that “reasonable expectation”. Then, once the dentist is happy with that “reasonable expectation”, I encourage them to write the number on a piece of paper inside the sentence “I will be happy with $XXX,XXX.00. Any amount above that is gravy and would make me extra happy.” I emphasize “write the number”, not type it into a computer. Then, you take the paper, put it in a sealed envelope, and hand it to your advisor. Here’s why:
- When you write a number by hand, it creates deeper meaning in your mind, thus giving the “more life”
- Second, when a company makes an offer to buy your practice, they will add clauses for “due diligence”. These clauses give them the right to look at your practice in extreme detail to ensure that they're getting the value they are paying for.
- You will then look at the different offers and determine which makes the most sense for your situation, and advise the successful bidder that you would like to proceed. This does not mean the practice is sold.
- The successful bidder will then begin to perform the items specified in the offer for their due diligence.
- After a buyer completes their due diligence, they may (and this is quite common) adjust their offer based on what they found during their detailed assessment of the practice.
And this is where deals run into jeopardy…
Remember when I said most business owners “look at the final” number? They see a number that’s bigger than they expect and in their mind, start spending that money. A second home in Mexico? Pffft – with this offer we can have a second home in Provence! I had planned on a nice Ford Mustang, but with this offer I can buy a Lamborghini!
When the adjusted offer comes in, the dentist is – at best – disappointed. At worst, they get angry and scuttle the deal.
This is where the number on the paper comes in. When the adjusted offer comes back from the buyer, we open the envelope and compare it to the number the dentist wrote on the page. Often, if the deal has been presented properly, the initial offer was WAY more than the number on the page and the adjusted offer is above as well.
This brings clarity to the dentist and allows the deal to close with all parties happy.
And remember - there’s a lot to consider when selling your practice. It makes sense to have the best advise passible.
Will you be thinking about selling or stepping away from your practice in the near future or sometime down the road? To discover all your options, call 703.298.1690 or click HERE to schedule a Discovery Call NOW with Stan Kinder for the best options whether selling or retiring.