Selling a practice should not be taken lightly or hastily according to David Bird, chairman or BizExchange. The successful sale of a practice whereby the owners interests are optimised requires careful planning, preparation and implementation.
Whether you are retiring, or seeking to vary your lifestyle, this checklist is intended to provide some initial thought prompts on the things you will need to cover.
The first of these things is the need to plan. On average it takes at least six months to sell a practice, with a significant part of this time required to prepare the practice for sale.
Personal or family issues
- Do any of your family wish to carry the practice on?
- If so, how will that be financed?
- Do you wish to take all your investment out?
- Are you prepared to stay on after the sale for a period of time or do you want a complete break?
- How long can you reliably contribute to the practice?
Your answers to these questions will have a direct impact on the manner in which you sell the practice. If you are flexible on some of these issues, for example being willing to work in the practice for a period after the sale, this may increase the appeal of the practice to a broader range of potential buyers.
Employee issues
- Do any current employees have equity in the practice?
- Would any of them be interested in taking equity or more equity in the practice?
- Are they specialists and how essential are these people for the practice?
- What is the age mix and experience of the employees?
Employees are one of the most likely sources of potential buyers. Traditionally this has been done via a transition through various levels of partnership. With more practices moving away from partnership structures, the process is technically more complex though similar in intent.
Other professions have found that their non-professional staff are also interested in ownership dentists in particular have a significant number of non-dentists owning part or all of the practice.
Commercial issues
- Can the practice run effectively without the presence of the owner?
- What are the critical financial / commercial features of the practice which affect its profitability and success?
- Is the practice subject to significant competitive pressures or not?
- How sustainable is the profitability?
- What is the realistic growth potential of the practice?
Potential buyers are investing in future income. The price you get for your business will be based on their assessment of the future profitability of your business.
You need to ensure you have answers supported by hard evidence to support these questions if you are going to achieve your best price.
Potential selling options
- sale to family
- sale to family plus management
- sale to management alone
- sale to third party plus management
- industry trade sale customers, suppliers, competitor
As with any business, attracting the maximum number of potential buyers is the key to achieving the best sale price. Often the best way to do this is to use a third party to handle the enquiries and negotiations so that you are not distracted from maximising the performance of your practice.
Timing issues
Vendors realistically should not expect to sell their practice in less than six months.
Most purchasers and their advisers undertake a due diligence process which is effectively like an audit. This necessitates preparation of up to date verifiable accounting and other information.
Information preparation and finalisation of sale documentation can be time consuming. Ensure timing of the sale is under your control and not dictated by external parties and factors.
Taxation issues
Although most practices are inclined to do their own compliance work, it is worth getting an external opinion when preparing for a sale.
Approach your financial (tax) and legal advisers early to help you plan your exit strategy. This is important because the practice may need some restructuring before it is offered for sale.
Furthermore there can be significant capital gains tax issues which should be addressed to optimise the proceeds of sale.
Information checklist
- Compile and summarise financial statements for past two to three years balance sheets, profit and loss statements and tax returns.
- Highlight positive past trends.
- Use independent information / reports, which highlight future potential of the practice, e.g. market growth prospects.
- Monitor market obtain comparisons with other similar practices.
- Highlight any barriers to entry which protect the practice particular licences, skills, etc.
- Identify areas where practice can be improved internally.
The combination of baby boomer inspired generational change and a tight financial market mean that we are currently experiencing a buyers market. With potential buyers able to choose between practices, being well prepared or unprepared may be the difference between a comfortable retirement and no retirement.
This is the third in a series of articles by BizExchange on business valuation issues.
For further information visit the BizExchange website.
