Why Dentists Should Plan the Sale Before They Need the Sale

Most dentists start to prepare for a sale after they have already decided to sell. By then, some of the changes that add the most value can take years to finish. A cleaner set of books can be done in a few months. Building a team that runs without you, or fixing a weak lease, usually takes much longer.

What a buyer is paying for

A buyer is not just paying for this year’s collections. They are paying for the profit they expect in the years ahead. They are also paying for confidence that patients and staff will stay after you leave. That makes transferability one of the biggest drivers of what your practice is worth.

Picture two practices with the same collections. In Practice A, the owner manages the staff, sees the complex patients, controls the schedule, and holds every key referral relationship. In Practice B, a strong office manager runs the team. Its systems are written down, its staff has been there for years, and its books are clean. Patient flow is steady, and the owner could step away for a month without a drop in production.

These two practices may report the same revenue, but they are not the same to a buyer. Practice B is easier to run and less likely to lose patients after the sale. So a buyer will usually pay more for it, offer better terms, or both.

A worked example

Here is an example with round numbers. Say both practices collect $1.8 million and earn $400,000 a year in adjusted profit. Adjusted profit is what the practice earns after you add back the owner’s personal costs and set the owner’s pay at a market rate. Suppose a buyer would pay six times adjusted profit for Practice B, which comes to $2.4 million. For Practice A, the same buyer might offer five times, or $2 million, because of the risk tied to the owner. That buyer might also hold back part of the price until patients prove they will stay.

In this example, the gap is $400,000 on the same collections. Closing that gap means lowering owner dependence, and that takes time. Training an associate to handle complex cases, handing staff management to a manager, and moving referral ties to the wider team can each take a year or more.

What to work on and how long it takes

Exit planning should start three to five years before you want to sell. That gives you time to improve the things a buyer will check. A few of them can be fixed within a year. Financial reporting, collections, and legal or compliance cleanup usually fall in that group.

Other items take several years of steady work, including profit margins, payer mix, staff stability, and patient retention. Lease terms depend on when your lease comes up for renewal, so plan around that date. Equipment condition matters too, because a buyer will lower the price for any machine that needs to be replaced soon. Management depth and owner dependence take the longest, because they depend on people learning new roles.

Why buyer and seller goals overlap

A buyer wants to know what they are buying and how hard it will be to run. The seller wants the highest price with the least risk that the deal falls apart. Those goals overlap more than most sellers expect. When the books are clean and the practice runs without you, the buyer can trust the numbers and the seller can ask for more.

The options a ready practice gives you

Quick cosmetic work right before listing does little for value. What helps is building a better business several years before any deal. That work pays off even if you never sell. You can sell when the time is right, keep running the practice, bring in a partner, or negotiate from a strong position. Because you are not forced to exit on a deadline, you can turn down an offer that does not fit.

What to do next

Score your practice on each item in the list below, using a simple scale from one to five. Mark the low scores that take the longest to fix, and start on those first. Ask your CPA for adjusted profit figures for the last three years, so you know the number a buyer will start from. Then review the scorecard once a year and track how each score moves.