Thinking About Selling Your Dental Practice? Start Preparing Now

Selling your dental practice may feel like something you don’t need to think about until retirement is right around the corner.

But if a practice sale is even a few years away, the decisions you make today can have a significant impact on the value of your practice when it’s time to sell.

Buyers aren’t just looking at production or last year’s tax return. They want to understand the financial health of the practice, the consistency of its profitability, how dependent it is on the owner, and whether its performance can continue after a transition.

Many of those factors take time to improve.

That’s why preparing for a practice sale shouldn’t begin when you’re ready to list. It should begin while you still have time to strengthen the business.

Make Sure Your Financials Tell a Clear Story

When a potential buyer evaluates your practice, your financial statements will be one of the first places they look.

Clean, accurate financials help a buyer understand how the practice is performing and give them greater confidence in the numbers they are using to evaluate the business.

Before a sale is on the immediate horizon, review areas such as:

• Revenue and collection trends
• Practice profitability
• Owner compensation
• Personal or discretionary expenses running through the practice
• One-time or unusual expenses
• Consistency between financial and practice management reports

The goal is to make sure your financial statements accurately reflect the underlying performance of the practice.

Waiting until due diligence to clean up years of financial information can create unnecessary questions at exactly the wrong time.

Pay Attention to the Direction of Your Practice

A strong history is valuable, but buyers are also interested in where the practice is headed.

Recent declines in revenue or profitability can raise concerns, particularly if they occur while a sale is underway. Current market reports indicate that buyers have become increasingly selective about financial trends and practice quality.

If you’re planning to sell in the next few years, monitor:

• Production and collections
• Profit margins
• New patient trends
• Hygiene performance
• Staffing costs
• Overhead
• Provider productivity

If performance begins moving in the wrong direction, identifying it early gives you time to understand why and make adjustments.

Ideally, you want to enter a sale from a position of stability or growth—not after several years of declining performance.

Understand What Is Driving Your Profitability

Revenue alone doesn’t determine the financial strength of a dental practice.

Two practices with similar collections can have very different profitability depending on payroll, supplies, facility costs, payer mix, scheduling, hygiene performance, and other operating expenses.

Before selling, take a closer look at:

• Payroll as a percentage of collections
• Supply and lab expenses
• Facility and operating costs
• Hygiene profitability
• Collection percentage
• Overall overhead
• Profit margins compared with dental industry benchmarks

Benchmarking can help identify where your practice is performing well and where opportunities may exist to improve.

Even modest improvements made consistently over several years can create a much stronger financial picture by the time you are ready for a transition.

Reduce the Practice’s Dependence on You

For many practice owners, years of hard work have made them the primary driver of the business.

That can become a concern during a sale.

If the owner produces most of the practice’s revenue and plans to significantly reduce clinical hours after the transition, a buyer has to consider what happens to that production when the owner leaves.

Provider dependence continues to be an important consideration for buyers, with both reports highlighting owner or provider concentration as a potential transaction risk.
Depending on your practice and transition plans, preparing may include:

• Developing a strong associate team
• Building a productive hygiene department
• Strengthening patient retention
• Creating repeatable practice systems
• Developing team members who can operate effectively without constant owner involvement

A practice that can continue performing successfully after the owner steps away may be much more attractive to a potential buyer.

Look for Issues That Could Create Questions Later

Some of the biggest obstacles to a practice sale have little to do with production.

Lease terms, inconsistent financial records, staffing concerns, compliance issues, or other unresolved business matters can create problems during due diligence. The good news is that many of these issues can be addressed when owners give themselves enough time.

Several years before a potential sale, review:

• Remaining lease terms and renewal options
• Employment agreements
• Financial records and bookkeeping
• Outstanding debt
• Business and compliance documentation
• Major equipment or facility needs

The goal isn’t to make your practice perfect. It’s to avoid discovering a preventable issue after a buyer is already evaluating the business.

Start Thinking About Taxes Before You Sell

The amount you sell your practice for and the amount you ultimately keep are two different numbers.

Taxes can have a significant impact on the financial outcome of a practice transition, and waiting until after a deal has been negotiated may limit your planning options.

Well before a sale, begin discussing:

• Your current entity structure
• Potential capital gains exposure
• Purchase price allocation
• Retirement planning
• The timing of a potential transaction
• Your personal financial goals after the sale

Your CPA, attorney, financial advisor, and transition professionals should work together to help you understand how different transaction structures could affect your overall outcome.

Know What Your Practice Is Worth—And What Could Make It More Valuable

You don’t need to be ready to sell to begin thinking about practice value.

Understanding what drives value can help you make better decisions in the years leading up to a transition.

Current dental M&A reports show that buyers continue to place a premium on practices with durable profitability, clean financials, provider stability, and lower operational risk. They also show that there can be meaningful differences between offers for the same practice.

Knowing where your practice stands today can help you identify what could strengthen its position tomorrow.

Instead of asking only, “What is my practice worth?” consider asking:

“What can I do over the next three to five years to make my practice stronger?”

That question gives you something much more valuable—time to act.

Don’t Wait Until You’re Ready to Sell

One of the biggest advantages you can give yourself when preparing for a practice sale is time.

Improving profitability, strengthening your team, cleaning up financial records, reducing owner dependence, and developing a tax strategy rarely happen overnight.

Starting early gives you an opportunity to address weaknesses while you still have control over the timeline.

And even if your plans change and you decide to own the practice longer than expected, the work isn’t wasted. A more profitable, efficient, financially organized practice benefits you whether you sell in two years, five years, or ten.

At DrillDown Solution, we help dental practice owners understand the financial health of their practices and prepare for important transitions. Through dental-specific accounting, benchmarking, tax planning, practice analysis, and business advisory services, we can help you identify opportunities to strengthen your practice today while preparing for what comes next.

If selling your dental practice is part of your future, you don’t have to wait until you’re ready to sell to start planning.

The earlier you prepare, the more opportunity you have to build a stronger practice—and put yourself in a better position when it’s time to transition.