As a dentist, you have invested significant time and resources into building a practice that provides high-quality patient care and a supportive environment for your colleagues and employees. However, have you considered what your life will look like after retirement? More importantly, have you begun planning for your eventual succession?
A well-conceived and executed succession plan is crucial not only for your financial security but also for the continued success of your practice. It ensures that patients continue to receive uninterrupted care, provides job security for your employees and maintains the practice’s profitability and stability for partners. Even if retirement seems a distant prospect, starting the succession planning process early can help ensure a smooth transition when the time comes.
A dental practice is often one of a dentist’s most valuable assets, representing years of hard work and significant financial investment. By planning for succession, you can capitalise on the equity you have built up over the years.
Where to start?
Succession planning can seem daunting, especially given the day-to-day responsibilities of running a dental practice. However, it doesn’t have to be overwhelming and you can navigate the process effectively with a clear plan, the right professional guidance and the willingness to ask essential questions.
Key succession scenarios
Succession options for dental practices fall into one of four categories:
- Selling to a dental professional within your practice: This could involve selling to an associate or the entire staff by offering a certain percentage of the business to help them be vested in the practice.
- Selling to a corporate entity: This involves selling your practice to a larger dental corporation or group.
- Selling to an unrelated party: This involves finding an external buyer interested in purchasing your practice.
- Terminating the practice and liquidating assets: This may be a last resort, if no suitable buyer is found.
Each option presents unique challenges and considerations. The best choice for you depends on various factors, including the structure and type of your practice. A group practice, for example, you will require a buyout agreement with your business partners, while a solo practitioner may need to find an external buyer or merger partner.
Planning and execution
Effective succession planning involves understanding the range of potential options, developing a structured plan and following through with the help of experienced advisors. Starting to plan at least five to ten years before you intend to retire allows for the smoothest transition and maximises your options.
To guide you through the process, here are the most important steps:
1. Assess and enhance your practice’s value
Begin by evaluating your practice’s financial health and market value. This includes analysing revenue streams, expenses and profitability. A professional valuation can provide a clear picture of your practice’s worth and highlight areas for improvement. It can also help align a potential purchaser with your sale price and provide a negotiation tool. Implementing strategies such as improving financial performance, upgrading equipment and ensuring your practice maintains a fresh appearance can enhance the value of your practice. Documenting the daily procedures and processes is also of great value to an incoming owner.
2. Identify potential successors
If you plan to sell within your practice, identify and prepare potential successors early. This could be an associate, partner or a group of employees and allows them to get more vested in the practice and share the responsibility of management tasks before you sell to them. If you’re selling to someone outside the practice, look for potential buyers who align with your practice’s values and vision.
3. Develop a buyout agreement
For group practices, creating a buyout agreement with your partners is crucial. This agreement should detail compensation, timelines and other essential aspects of the transition.
4. Optimise your practice
Enhance the value of your practice by improving financial performance, upgrading equipment and enhancing patient care services. Ensure that the financial statements and accounting records are tidied up to exclude any personal expenses and assets. A well-run, profitable practice is more attractive to potential buyers.
5. Plan for legal and tax implications
Work with legal and tax professionals to understand the implications of selling your practice. Proper planning can significantly reduce your tax burden by allowing you to take advantage of available tax advantages such as the Capital Gains Tax (CGT) concessions. In order to utilise the CGT concessions, you must meet certain criteria and carefully consider these in advance. Seek advice on what you can do to become eligible for the concessions, especially if you are initially ineligible. When finalising the agreement and contracts, it is important to address legal issues such as lease transfers, employment agreements, ongoing liability obligations and other considerations on sale.
6. Create a timeline
Establish a timeline for the succession process. This includes key milestones such as starting to look for buyers, finalising agreements and the official transition date. Consider how long you are willing to stay on in the practice and whether that is part time or full time. This can help you transition staff relationships, patients and processes of your practice, providing some comfort to the incoming owner.
7. Communicate your plans
Maintain open communication with your staff, patients and potential buyers throughout the transition process. Transparency helps build trust and ensures a smoother transition. It also helps you get buy in from existing staff and patients, to maintain support during a changeover process.
For a high-level case study that explores the smooth transition of a dental practice owner into retirement, including the sale of his practice, read our article here.
Succession planning is a multifaceted process that requires careful consideration and expert guidance. Contact your local William Buck Health Specialist to learn more about how long term succession planning can help you achieve your goals.
