By Dr. Paul J. Pavlik, Vice President, Dental Practice Management Consulting at Dentist.Business
When we talk to dentist owners about the value of Exit Planning, we are talking about orchestrating a business exit that fulfills their unique personal and financial goals. More often than not, the practice is the only asset that has the potential to deliver the results that the owner wants and needs. Since tackling a task of this magnitude can be daunting, dentist owners often ask whether devoting the necessary time and money to this project is really worthwhile. Good Exit Planning can be the difference between a successful ownership transition and a complete derailment of all the owner’s goals. As a business owner, your emphasis should be on the Planning, which will in turn, support the Exit. “Planning” is the key.
When Should You Start Exit Planning?
The correct answer is “yesterday.” But, the practical answer is NOW. It doesn’t matter whether you have just started your practice (e.g., going from school to ownership, going from associateship/employee to ownership, going from military service to ownership, etc.), whether you have been in practice for one year or thirty years, or whether you are planning to retire in the near future, you need to have a plan in place.
Why? Well, life happens, and sometimes not in the way we expect. Take me, for example. I owned my own dental practice and was at the top of my career. Patients were seeking my services from all over the country. Income was plentiful. Life was good. I went in for some surgery on my hands on December 1 several years ago; on December 7, the neurosurgeon told me I would never practice again. Aside from the depression that set in, I had the immediate need to sell my practice before its inherent value deteriorated. Was I prepared? Unfortunately, the answer was no. I had no idea what my practice was worth, nor did I know how to work with a broker to sell the practice. Fortunately for me, I learned quickly and sold the practice for more than the broker expected. I made a promise that I would make it a goal to show other dentists how to prepare for the inevitable. Another example was a close relative who owned a very large and profitable group practice in another city. He was at the top of his game, too. A few days before his 60th birthday, he passed away suddenly and without prior warning. His family was immediately tasked with what to do and had no idea what the practice was worth. Don’t let this happen to you.
You should start with the end in mind. Understand your objectives. Get involved methodically and proactively. On an annual basis, I suggest you do an accurate valuation of your practice (I will discuss how to do this in future blogs). Pretend you are getting ready to sell your practice in the next twelve months and then, ask yourself who will be your advisors (e.g., attorneys, accountants, transition facilitators/brokers, potential buyers), how will you value the business, how will you settle accounts receivables and payables, how will existing bank loans be paid, how will equipment and building leases be settled, how will employees be handled, etc., etc.
Other Things to Consider (Reactive vs. Proactive)
Dentist owners (and/or their families) who wait until entering the practice sale process to decide how much cash they want and need from their businesses do so reactively. Often, they make hasty decisions or are blinded by attractive bait held out by less than scrupulous buyers. If a dentist owner has one foot out the door or suffers from the fatigue of ownership, finding out the practice is not worth what he or she had hoped is a painful and expensive experience. Even more painful is the subsequent rededication of effort to building the value of the company to a reasonable level that the owner will find acceptable. Dentist owners often don’t realize that focused attention on building value is an essential part of the exit. Why not do this now instead of waiting for the inevitable?
By utilizing an organized and systematic Exit Planning process, dentist owners can place a realistic value on their practices and keep that value current. By placing a heavy emphasis on Planning, the result is a more successful Exit.
Dentist owners who participate in an intentional Exit Planning process often find that Exit Planning is indeed well worth the time and money devoted to it. If you’d like to learn how Exit Planning might, in turn, actually save you time and money, please contact us.
*A sincere thank you to Mr. Ken Stiefler, a friend and advisor. Hi is the owner of eXITS, LLC, who has kindly allowed me to include excerpts from his newsletters, The Exit Planning Reviews.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.