Recently I picked up a national dental industry magazine and noticed an article on selling dental practices. I’ve been involved in dozens of dental practice sales; nonetheless, I’m always looking for a fresh perspective, a new idea on how to make the sale more profitable or go more smoothly. So, I eagerly spread the magazine out on the table before me to read while I had lunch.
Based on the information in the magazine, the author of the article had good credentials and was a speaker at several upcoming dental events across the country. I thought my expectations would be fulfilled; surely this author had some tidbit of useful information to share.
The article started promising enough citing the struggles of selling a practice to a new graduate, who already has student loan debt, and how difficult it is for that person to take over a large practice. That is true. But the solution proposed was for the seller to finance the sale him(her)self, because the seller that way makes as much on the interest as on the sale itself! To prove his point, the author of the article claims that the interest on the loan over a 10-year period is as much as the original loan amount.
Well, the author is obviously not a finance major, because even at the 10% interest rate he uses in his example, the interest you would collect is not even close to the amount of the original principal balance. At a more reasonable rate, say 5%, you would only collect 27.3% of the principal balance in interest over the 10 years – hardly the double-your-money bet the author claims. However, that is not the primary reason this is bad advice. The author goes on to point out: “this way the seller has a vested interest in making the buyer successful” – you bet! In fact, the seller just risked his/her entire retirement on the success of this buyer!
I don’t know about you, but I’d like the odds of my wife and me being financially secure in retirement to be based on more than just the success of one business owner.
Later in the article the author reveals his true bias in his recommendations. He disparages Wall Street and big banks, suggesting that practice sellers avoid letting Wall Street and big banks earn the income. He then goes on to discuss what may happen if all your money is in the market when it crashes (he obviously knows nothing about managing a portfolio for a retiree).
Successfully selling a dental practice involves many factors – finding a dentist that has the skills, personality, management ability and financial resources to successfully take over your practice is not easy. You should obtain advice from different sources, do your homework and engage a good practice broker and an experienced dental accountant. You should have competent legal counsel. If you are a buyer, you need all the above and a bank that helps with the process, not just one that will make you the loan.
Also, unlike the advice given in this article, your practice and the real estate it occupies should not be your only source of retirement income. You should take advantage of the tax laws and save money throughout your career in a diversified, well-managed portfolio which will supplement your income and provide a much-needed increase in your financial security. Your practice sale can be an important part of your retirement planning; however, as the old adage says, don’t put all your eggs in one basket!
Daniel Cook | President