4 Things to Consider When Selling a Dental Practice

In the current economic climate, there are a lot of questions from dental professionals preparing to retire about whether a qualified dentist will be available to take over their practice. In light of an increase in student loan debt and the number of young dentists choosing to work for corporate dental firms, it is becoming more difficult to find dentists willing and financially able to take over existing dental practices.

However, with the assistance of an experienced attorney and a practice broker, selling a dental practice can be done successfully. Over time, most successful practices can find a willing and qualified buyer. After locating a potential buyer, the process of selling a dental practice can move very quickly, and there are a number of complex issues, which need to be resolved. Making sure you have the right team in place, including an attorney experienced in sales of dental practices, can make the sale, the closing, and the transition to the new dentist as painless as is possible for all parties involved.

If you are a dentist who is considering selling your practice, there are four key issues you may not have considered but should be carefully explored before you move forward with the sale of your practice.

1. Real Estate Sale or Assignment of an Existing Lease

Because a key issue for maintaining a client base is consistency in the location of the practice that is transferred, one of the first issues you want to consider is the location where the practice is currently located. Do you own the real estate and the building of your dental practice, or are you leasing the location from another owner? If you own your own real estate and are planning on selling the real estate as part of the sale of the practice, a good starting point when you begin planning for the sale of your practice is to have the real estate appraised by a qualified appraiser. Your appraiser will provide you with the information you need to help arrive at a realistic price for the real estate, which will be a key part of the equation when determining the overall value of your practice.

If, on the other hand, you are leasing the property, that houses your dental practice, you should begin by having your attorney closely scrutinize the existing lease to determine what your rights under the lease agreement are when it comes to assigning your interest in the lease. If your purchaser is taking a loan out to cover the cost of purchasing your practice, it is likely the lender for the buyer will require that the remaining lease term is, at a minimum, long enough to cover the period of the loan repayment. If the initial term of the lease is not long enough, the lawyer can determine if the lease allows for extension periods, and if so, what is required to exercise your right to extend the lease.

A third option exists if you own your property but wish to lease it to your predecessor rather than sell the real estate with the practice. Your attorney can assist you with drafting a lease agreement that is sufficient to protect your interests while remaining an attractive prospect for potential purchasers.

2. Practice Transition Period

In a dental practice, much of the client base is likely concerned with the trust and confidence in the skills and ability of the dentist who treats them. If you have been practicing in the same office for an extended period of time, you may have clients who have established a personal rapport with you and may be nervous about transitioning to a new provider. Because of the importance of the patient-client relationship, the amount of time the selling doctor will remain at the practice following the sale for a “transition period” can be a major consideration for the agreement between you and a potential buyer.

It is important, as the selling doctor, to be clear about what your intentions are regarding a transition period and to set forth in your agreement any obligations you have to meet during the period. Transition periods can vary from the selling doctor remaining only a few weeks or months to simply introducing the new doctor to patients to selling doctors who plan to remain in an office for a number of years, typically working a reduced schedule as an independent contractor.

Either approach is perfectly viable so long as the parties are clear on their expectations and obligations. Your attorney will assist you in drafting and negotiating, as part of the overall agreement, the parameters of the transition period and what is required of both parties during the period.

3. Covenants Not to Compete

As a part of the overall agreement, most selling doctors will be restricted from practicing dental medicine within a certain geographic area around the existing practice for a specified period of time. Your attorney can help review any requested restriction on your right to practice to ensure it is reasonable under the circumstances and can secure any exceptions to the restriction you may need, such as an allowance for teaching, charitable work, or public health-related work.

4. Staff Concerns

One of the most important things for many retiring practitioners is ensuring that the staff that has worked with them over the years is taken care of in any arrangement to sell the dental practice to another dentist. Luckily, most dentists depend on purchasing a ready-to-run office with an experienced staff already in place. The new dentist relies on the staff relationships with existing customers to help bridge the gap that might be created by the exit of the selling dentist while the new dentist takes time to build relationships and trust on his or her own. It is important to work with your attorney to tie up all loose ends that may be related to your former staff, including closing out a pension or 401k plan and paying out built-up paid vacation days (where applicable). Your attorney can also assist in transferring any outstanding employment agreements.

Summary

The four items discussed above are far from an exclusive list of the number of considerations that should be carefully reviewed if you are thinking of how to sell your dental practice. Work with a qualified attorney who has experience selling dental practices, a broker, and an accountant to ensure that all of the special considerations of your specific practice are carefully weighed before you move forward with any sale. If you take time to plan with a qualified team, you can help ensure the sale and transition are seamless, not only for you but for your predecessor and staff as well.