The ABC’s of Good Transition Planning
Originally published on TheDentistsNetwork.Net
By Thomas L. Snyder, DMD, MBA
Establishing a realistic practice transition plan is not just for someone who wants to retire in the next few years, but can apply to numerous situations. For example, if you are a solo practitioner with a steadily growing practice, you may need an additional provider who may be a long-term partner or a candidate for some type of equity transfer, depending on your age and/or career stage. Do you have a vision of owning multiple practices? If so, how many practices are you planning to own? Will your multiple ownership plans lead to your eventually selling to a larger corporate group entity? As you can see transition planning is not necessarily age specific but can occur at varying stages of a dental career. Here are some basic points you need to consider in preparing your transition plan:
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If you are considering a practice sale in the next 5 to 10 years, first ask yourself, “Can I afford to retire, and what type of lifestyle do I want after retirement?” This is a question you may not want to risk answering on your own without some professional guidance. So, we urge you to enlist the services of a fee-based financial planner. Together, you’ll carefully examine your current assets and personal net worth to determine if the timetable to sell your practice is a realistic one. Financial planners will help you set realistic financial targets and advise what is needed to achieve them. Identifying your transition timeframe is very important part of good financial planning as it will dictate your projected retirement age and actual timeframe needed to meet your financial goals.
For those doctors considering expanding your current office to one or more multiple locations, is your balance sheet strong enough to deal with the potential financial stress of owning multiple locations? This becomes particularly important if you require bank financing to fund your expansion plans.
Another key component of transition planning is knowing the current value of your dental practice. If you intend to retain a financial planner, this is critical especially if your plan is to include the value of your practice as a major source of necessary funds for retirement or just another income “bucket” whose funds simply enhance your retirement living!
Secondly, for proper estate planning purposes, every business owner should have a practice valuation prepared in the event of a calamity. Your spouse or family member(s) should know what your dental practice is worth if something unforeseen were to happen to you. Thus, your current age has nothing to do about when you should have your practice valued. The correct answer is NOW. Every doctor should have an Emergency Exit Strategy plus a Letter of Instructions which is a document that lists all of your key advisors and their contact information. This can be a valuable document if your practice needs to be sold in the event if something were to happen to you. Dental Practices that sit on the market for weeks or months can quickly lose their market value.
Building up your practice before retirement is not counter-productive. In fact, increasing your gross receipts as well as net income for those years leading up to the sale of your practice may not only increase the value of your business quite handsomely but provide additional funds for your retirement plan(s). Most practices also benefit from retaining professional management consultants to assist them in growing their practice both from the top and bottom lines.
Where are you on the technology pathway? Do you have up-to-date dental management software? Are you planning to implement electronic patient records? How about clinical technology? Do you have: digital radiography, intra-oral cameras, patient education software, and possibly CAD-CAM and or laser technology? So the question is, “Should you make the investment?” Just as purchasing new dental equipment, the question to ask is how long you will continue to practice and that answer will drive your decision to purchase clinical technology. Keep in mind that the majority of younger practitioners have been trained using this technology. So, it has become part of their daily lives!
In summary, getting ready for any practice transition strategy is one of the most important projects you will undertake in your career. In fact, for some doctors it may occur more than once! Careful financial and practice planning is a must to ensure success at any time frame of your career. For those contemplating retirement, the best planning should begin years well in advance of your proposed career’s end. Time can be your best ally or your worst enemy, so the sooner you get your plan started, the better the outcome. Start planning early, clarify your goals and weigh your options no matter which transition planning strategy you are considering.