How to Sell a Dental Practice: Where to Start

Get the answers you need to begin your practice transition with our comprehensive guide on how to sell a dental practice in three steps.

If you’re a dentist considering selling your practice, you may be feeling overwhelmed. This guide details the first steps in how to sell a dental practice, helping you minimize stress and maximize your valuation. 

Before You Sell: Define Your Goals

Selling your dental practice is likely to be your life’s most significant financial decision. Before you begin the complex process of selling your practice, consider your core “why” for desiring a transition. Having a clear goal will help focus your efforts throughout the process and make finding the right transition path easier. 

Planning for Retirement

After a long and rewarding career, many dentists desire a comfortable retirement. You’ve likely spent decades building your practice, so finding a buyer who will continue your legacy and help you meet your timeline for a seamless retirement is crucial.

Guiding Questions:

• How much longer do I want to continue practicing before I retire?

• Will I be leaving my team and patients in good hands?

• Do I want a partner who will preserve my existing brand after I exit?

• Will the buyer honor my patient care philosophy?

IMPROVING WORK/LIFE BALANCE

Practice owners must regularly come in early and stay late to knock out the colossal pile of administrative duties that come with running a successful private practice. If you’re looking for more balance in your day-to-day routine, be sure to consider buyers with the resources to manage time-consuming business burdens, like IT, HR, and Accounting. With a goal like this in mind, you can find a partner who frees you to spend more time with patients and with loved ones outside the office.

Guiding Questions:

• What level of support am I looking for in a partner? 

• When I sell, will I be able to maintain my clinical autonomy in regards to patient care?

• Can I confidently hand off marketing, inventory management, human resources, and billing tasks to a team of trusted industry experts?

The above questions will help you determine if you are struggling with work/life balance and could benefit from a transition. 

SCALING YOUR DENTAL PRACTICE

When growth feels like the natural next step, it helps to have an experienced partner by your side to help guide and support you. Whether you’re looking for a physical expansion, new technology, or growth with an added associate, you’ll need to find a buyer who is open to your ideas and has the right resources to help you scale.

Guiding Questions:

• Do I need a partner who can afford to invest in new technology, equipment, or an expansion? 

• Does the potential partner’s approach to patient care align with mine? 

• Will a potential partner support the recruiting, onboarding, training, and new patient goals that come with growth so it won’t affect my bottom line?

• Does the potential partner have demonstrated success managing and growing other practices?

These questions will help you narrow down the list of potential partners you should consider for your transition.

how to sell a dental practice in 3 steps

Once you’ve defined your goals, you can search for a partner who meets your criteria and helps you realize your professional and financial objectives. The right buyer will ensure your practice thrives while helping you successfully transition into life after ownership.

Here’s what selling a dental practice looks like in three basic steps:

step 1: decide between a brokered or private transaction

There are two ways you can approach the sale of your dental practice: a brokered transaction or a private sale.

A brokered transaction involves enlisting the help of a dental broker to evaluate and negotiate the terms of your potential sale—which often adds costs and pressure to the process. Dentists who choose a brokered process often do so for the peace of mind they get; trusting they’ve hired someone to advocate on their behalf. On the other hand, a direct private sale can be less expensive and give you more breathing room to adequately assess potential offers on your own timeline.

During this phase, you’ll also consider whether you want to sell to an associate dentist or a dental support organization (DSO).

Selling to an associate dentist

When selling to another dentist, we recommend working with an experienced broker to ease the recruiting and interviewing process. As you work with and train the associate, you can ensure their values align with the future you imagined for your practice. However, be wary— the valuation and timeline for your new associate may be difficult to coordinate with your goals for exiting.

Selling to a dso

If you’re considering a dental support group, working directly with your future partner instead of hiring a broker is best. By avoiding the middle man, you can establish the pace for getting to know your potential buyers to ensure they can offer the support and services your practice needs. DSOs are popular because they provide support from business professionals, and some premium DSOs allow you to continue working at your practice for as long as you desire.

Additionally, DSOs tend to offer competitive valuations and equity opportunities. Use this time to delve deep into the company culture and values for an understanding of what your team and patients will experience after you’re gone.  

When considering DSOs as an option, ask the following questions to get a true sense of how your practice will operate once your partnership begins:

What to ask: “Tell me about your doctor turnover.” 

What it really means: The answer is a massive indicator of the level of support or pushback the doctors may experience by their organization. If doctor turnover is high, you can likely expect strict protocols, unrealistic treatment goals, and low clinical autonomy. 

What to ask: “Can you send me a list of doctors I can talk to? Great— now can you send me another list?” 

What it really means: DSOs will want to represent themselves in the best light possible. When you ask for references, they’ll likely send you a list of doctors they can count on to give a glowing review. The second list you request will invite a more well-rounded and truthful representation of what doctors are experiencing. 

What to ask: “How do you approach partnership?” 

What it really means: You’re asking how well the organization communicates with and supports its dental teams in a partnership that should be mutually beneficial. The goal is to understand how the administrative tasks they take over will improve your ability to treat patients.

For additional information related to selling to a DSO, click below to schedule a conversation:

step 2: reach an agreement

Once you narrow down your buyers, it’s time to seek a valuation and reach an agreement on the terms and conditions of your practice sale.

factors that affect your dental practice valuation

Your primary valuation is most commonly calculated based on your practice’s EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). This metric is used to measure how efficiently and effectively a practice is managed without taking into account the current debt or financing structure of the practice. Further, it provides a clear picture of a practice’s financial health by focusing only on ongoing expenses and doctor compensation to identify the expected return on investment.

Once EBITDA is calculated, we apply a valuation multiple to arrive at the final appraisal. Valuation multiples move over time based on market demand, industry dynamics and macro factors. Since a practice’s value is ultimately whatever someone is willing to pay, valuation multiples even vary among buyers based on the specific situation.

The six factors that most affect your practice’s multiple are:

1) Staff Compensation – a typical buyer looks for an employee expense ratio that falls within a range of 22% – 28%, which includes salary, payroll taxes and all other benefits.

2) Rent – this fixed expense often represents one of the largest overhead costs and can greatly impact your EBITDA. Ideally, rent should fall within 4% – 8% of your practice revenue.

3) Patient Base – a declining patient base requires greater effort and investment buy a buyer to ensure the historical performance of the practice is sustainable. This is an important factor to a buyer when forecasting the future profitability of a practice.

4) Hygiene Program – a healthy hygiene-to-doctor production ratio in the practice is an indicator that the practice is capable of continuing to generate long-term revenue.

5) Payor Mix – some buyers operate FFS/PPO-exclusive models, while others are built around an HMO and/or Medicaid patient base.

6) Faculty – this considers the age, location, and square footage of the building your practices occupies.

The right partner will see the value that you and your practice have to offer. Each potential buyer will have unique interests and preferences regarding what they want, so don’t worry if you don’t get the valuation you want from everyone.

Learn how you can get the best valuation for your practice by downloading our free ebook here:

letters of intent

As potential partners consider your practice, you will receive a letter of intent. While these are not legally binding agreements, they should be seriously considered as a set of stipulations that both parties agree upon for a harmonious partnership.

A solid offer will come after the work has been done to inspect your practice’s overall financial health and potential.

What to look for in a letter of intent:

• Details about the compensation and benefits of you and your team, including buy-in equity options.

• The timeline for the practice transition, including your commitment period after close. 

• Commitment to a solid valuation, rather than one that may change later.

• Performance contingencies and requirements – as well as the ramifications if performance standards aren’t met. Resist signing anything that stipulates these numbers may change.

step 3: dental practice transition

Once you narrow down your buyers, it’s time to seek a valuation and reach an agreement on the terms and conditions of your practice sale.

negotiation of legal documents

During this stage, most dentists should seek the counsel of a trusted dental attorney to help with essential documents, such as your asset purchase agreement. Be cautious of using attorneys who may not specialize in the nuances and jargon of our industry. Using the proper third-party to review your legal documents and advocate on your behalf will ensure the terms of your contract match your goals. 

leading your team through a transition

A flawless transition starts with excellent communication, including sharing the transition plan with your team. With an experienced partner like Apex to help guide you through this process, your messaging will ensure your team feels confident and secure as you move forward. 

how to sell a dental practice faqs

how long does it take to sell a dental practice?

The timeline for selling a dental practice will vary depending on the complexity of the transaction and goals of the transitioning parties. Generally speaking, it can take anywhere from 3-6 months or longer to prepare your practice for sale, get to know potential buyers, negotiate terms, and finalize paperwork.

when is the best time to sell a dental practice?

The best time to sell your practice is when you’ve decided a transition is the next step for achieving your long-term goals. 

how difficult is it to sell a dental practice?

Though this is a major financial decision that you’ll likely only make once, if you choose the right partner, the process should feel painless. An experienced partner will answer questions so you feel comfortable and confident about your practice transition. If you notice any red flags early on, communicate your concerns and consider looking elsewhere.

how much does a successful dental practice sell for?

It’s not uncommon for practices to be valued in the upper six-figures to low seven-figures range. The value of your dental practice depends on many factors, including its annual collections, location, and overhead costs.

what is the most common way to value a dental practice?

An income-based valuation is the most common way to value a dental practice. This looks at the current annual earnings of the practice and factors in ongoing expenses, overhead costs, and doctor compensation when determining a fair price. If you’re ready to learn the value of your practice, we can help. Complete our simple form to request your complimentary valuation today.

how to know if you are ready to sell?

Learning how to sell a dental practice is an important first step towards securing your future. Whether you are ready to begin the process is a personal decision but there are a few indicators you can look to for reassurance. Namely, if you are nearing retirement, crave more balance, or are looking to scale, you may be ready, and more importantly may benefit, from starting a transition.  Learn more about practice transitions with Apex here.

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