Edward C. Challberg, MBA, MST, CPA
Selling as-is will likely bring a relatively low price for the practice but will not require that you make any investment. In a death or disability situation, that might be the only option. If you are in a strong financial position and eager to retire, this is certainly an alternative. But even modest cosmetic changes to a practice can enhance its appeal to buyers. You might attract a dentist who wants an affordable practice, does not want to manage a lot of people, and wants to upgrade the practice over time.
Making small renovations to improve the look and feel of a practice almost always pays off by attracting buyers. If a practice doesn’t look neat, clean, and freshly painted, prospective buyers will be turned off, think that the selling dentist just doesn’t care, and then they will try to drive down the price. Whether and how much to invest in new dental chairs, equipment, and office furnishings is a judgment call, and you’ll want to weigh costs and benefits. Invariably, a total overhaul is impractical and unwise.
Under the right conditions, moving to a new and larger space can be a viable option and can greatly increase the selling price. However, immediate and thorough planning is critical, and you have to be willing to make a big commitment. As the selling dentist, you have to commit to practicing at least five more years and to growing the practice during that period. You’ll need to take great care in choosing a new location. Is there a lot of competition in the area? Will the location likely encourage practice growth? What will the move cost? How will the move affect the dental team and patient base? How much will the buildout cost and how will it be financed? What is the marketing plan? Can the old lease be terminated, and a favorable new lease negotiated?
Whether practice performance is enough to pay for all of the improvements in five years without adversely affecting profitability is a question mark—and a risk. If it’s not, the practice sale proceeds will pay off the improvement loan. However, the benefit of such an ambitious plan can be significant. Greatly increased fee collections and profitability that’s trending upward, a growing patient base, and a “new” office will maximize selling price far above what would have been possible in the old office.
Tom Snyder, DMD, MBA
If your goal is to sell your practice at a maximum value, standing still and not taking any action is not advisable. Since you are considering a five-year time frame that affords you sufficient time to make facility enhancements, as well as possible capital improvements, the first order of business is to take a critical look at your facility to make sure that you’re up-to-date as far as overall decor and appearance.
When it’s time to sell and potential buyers visit your facility, you want to make a great first impression. That may mean fresh paint, wallpaper, enhanced lighting, new or refurbished reception area furniture, new flooring in the treatment area, and other aesthetic improvements. Then consider buying dental equipment to replace any very old units while adding some clinical technology. Recent grads are tech savvy, and most will walk away from a practice that has not at least minimally embraced some clinical technology. For example, consider adding digital x-ray and intraoral scanners to your practice. This will give you adequate time to enjoy the clinical benefits these provide.
If you make these purchases soon, you could also possibly avoid a tax penalty called depreciation recapture. This can occur when you buy capital equipment and use it only for a few years and then sell it. If the ownership period might be less than five years, you should confer with your dental CPA when you purchase capital equipment.
As for a possible relocation, if you are considering increasing the number of operatories and adding leasehold improvements, this decision may not give you a dollar-for-dollar return in future practice value. Physical plant appearance and clinical technology are important ways to enhance practice value, however, you should review your practice finances to ensure that your bottom line is strong. If changes are needed to reduce high overhead, make these changes now so that you can immediately enjoy a higher net profit. You will also make your practice more attractive to potential buyers, who can reward you with high sale price for a well-run practice that has a solid cash flow.
EDWARD C. CHALLBERG, MBA, MST, CPA, has been working primarily with dentists for 32 years, helping them acquire and build their practices, manage their taxes, and plan for financial independence. He is a long-time member of the American Institute of CPAs, California Society of CPAs, and Academy of Dental CPAs. Contact him at (415) 491-1322 or [email protected].
TOM SNYDER, DMD, MBA, is the director of transition services for Henry Schein Professional Practice Transitions. He can be reached at (800) 988-5674 or [email protected].
