When the time comes for you to consider selling your practice, there are many factors to consider and several steps to take to be thorough.
The decision to sell your career’s work is a significant one and should not be entered into without care.
But what will it cost you to sell your practice?
The steps that will impact the cost of selling your practice are: valuation, consultancy and legal fees, broker fees, taxes, and real estate fees if real estate is involved. This can vary based on which of the professional services you wish to hire, but it is important to have an experience team of specialist supporting you.
Let’s outline the primary costs in selling a dental practice.
Cost of a Professional Valuation
It’s crucial to understand what your practice is worth, so you know what you have to sell. Your options for valuation include a “formal valuation” and a “brokers opinion of value”.
What is a formal valuation? That’s when an independent professional evaluates your practice for a fixed fee. This valuation takes a comprehensive look at company financials, production results, furniture, fixtures, and equipment. It’s an unbiased opinion of the practice and establishes a fair financial value for the practice regardless of the market.
A Brokers Opinion of Value (BOV) is very similar to a formal valuation but focuses more on the local market results. Brokers review company financials and compare them to similar transactions that have taken place in the specific marketplace. Given the volume of transactions that brokers are involved in, they can adjust the valuation to account for local trends.
A valuation not only benefits the seller, but it also serves to satisfy potential buyers and bankers. While not all banks require a valuation of a medical or dental practice, the existence of one may strengthen the chances that a buyer’s lender will approve a purchase, but ultimately the lender will have their own underwriting criteria that will have to be met by both buyer’s credit and the practices cash flow.
How much will it cost to have a valuation done for my dental practice?
Expect to spend between $2,000 – $4,000 for a formal valuation. A Brokers Opinion of Value is may be included in their commission percentage at transactions close. Some valuation companies will provide you with materials that essentially serve as a “sell sheet” for your dental practice sale. This can be valuable. Ultimately, you’ll need to decide how much detail is important to you.
Practice Broker Fee
Of all the costs you’ll incur when selling your dental practice, taxes will usually be the most expensive. Taxes are a necessary evil, and you can expect to spend a large portion of your sale on taxes. The tax will be broken out between ordinary income tax, and long-term capital gains tax. You can expect the majority of the sale to be taxed at long term capital gains, as most of what you are selling is goodwill. A good Broker or your CPA can advise you on what to expect in taxes given your current income bracket.
The practice broker fee is usually the next largest because a broker does so many things to assist you in negotiating a favorable outcome and is there from the beginning to the end. The practice brokerage or transitions company will be involved in due diligence, creation of marketing material, offering memorandum, recasting of financials, assessing buyers, collecting and executing NDAs with buyers, drafting letter of intents, negotiations, posting the practice listing, coordination of the attorneys, advising of the sales strategy and the overall pushing of the transaction to keep it on track. A typical transaction can take six to nine months to complete and they are their every step of the way.
A good practice broker, a broker who works regularly negotiates with DSO groups or private buyers, understands that the process can be stressful and confusing. That’s why you need to choose a broker wisely and expect to compensate them for their services.
Most practice sales brokers will request between 8% – 10% of the value of the dental practice as their fee. You may be able to adjust this fee depending on the value of your practices, but 10% is an industry average.
What will a broker do for me?
Great question: make sure you find out before signing a contract with a sales broker. Not all brokers do all of the same things. Ask questions, find out how much of the work the broker does in house, and whether they subcontract any of it out. Find out what markets the broker has experience in, and how many transactions they have been involved in during the previous twelve months. A good broker will welcome your eagerness to understand the process and help guide you.
The best advice for using a lawyer for the sale of your practice is: find a lawyer who has experience in the preparation and sale of medical and/or dental practices. We can’t emphasize that enough. Experience matters. A good broker will have a strong referral list for you to interview, that can be a great place to start.
How much will a lawyer cost me?
If you choose the right broker, you’ll save money on a lawyer. That’s because an experienced broker will know how to prepare you for meeting with an attorney. That saves time, and with lawyer’s time equals money. Expect to spend between $7,000 – $10,000 on attorney fee’s, this includes creating and negotiating the Asset Purchase Agreement (APA).
Whether you own or lease the real estate for your practice, it is important to have a practice sales team in place that understand the how and when to handle that component of the asset sale. If you own your real estate, you can either sell it to the dentist buying the practice or keep the real estate and have the buyer sign a lease. Either way you will need a dental real estate specialist that understands the value of the real estate from a lease or sell side and the timing involved in transferring the lease or title. For a lease you will need an assignment that will be approved by the landlord. Depending on the language in your lease this can either be a fairly easy process or very difficult and time consuming. If the landlord will not approve your lease for assignment to the new buyer you could end up being held personally responsible for the lease payments or it could end up being a deal breaker all together. The market fee is 3%-6% in order to have a real estate broker negotiate a lease or sell the real estate on your behalf.
Other Fees Associated with Selling a Dental Practice
Making your practice look as presentable as possible is very important prior to listing your practice. You may incur costs for repairs or upgrades needed to bring your building or property into good standing for a sale. But don’t overlook this detail, same as selling a house, first impressions matter to buyers.
Lastly, you can incur advertising fees if you decide to list your practice for sale on various websites or business journals. Some brokers include these fees in their compensation, and some will charge separately, so be sure to ask.
Are you ready to list your practice?
Talk with the experts at Xite to get the most for your practice. Contact us for a free practice evaluation today.
About Xite Acquisitions
Xite Acquisitions specializes in selling dental practices with the power of its in-house team working together: legal, marketing, demographics, and real estate, which creates optimal and effective dental practice transitions.