Dr. Mark is 49 and tired of dentistry. About to enter his 25th year in practice, he is ready to “throw in the towel”. Over the years, he has seen dentistry change – Corporate Dentistry has been just one of the new developments that he has witnessed over the past decade. “Dentistry used to be about helping patients. Now it’s all about money,” he confided to me.
As his advisor, I knew he was at a critical juncture. I had watched him try to solve his growing dissatisfaction with is work. Recently, he had cut down to 3 days per week from 4 days. What Dr. Mark didn’t realize was that with each decision, he was reducing the value of the practice he had worked so hard to build.
What follows are some of the considerations I discussed in devising a strategy that would see him build the value of his practice with the objective of maximizing the sale price while taking more time off in the process.
- It takes time to ready your practice for sale. Start planning several years in advance so that you can boost your revenue and maximize the sale price and your proceeds. Also, incorporate your practice as soon as possible – it takes 2 years before you can sell shares. You can also add family members to the corporation to multiply the capital gains exemptions. Discuss the benefits of incorporation with your accountant!
- Discuss your finances with your Accountant or Financial Planner. Are you in a position to retire? What will you do with the proceeds of the sale of your practice? Are you selling the whole practice or shares of the practice?
- Hire an associate to build practice revenues and profits. See our discussion on “Capacity”
- Arrange shareholdings to maximize the qualified Small Business Corporation capital gains exemption with eligible family members (this can save as much as $200,000 in income tax per relative).
- Have your accountant analyze your present practice for inefficiencies which can be corrected.
- Speak to your accountant about possible buyers he/she may know or ask them to look out for future purchasers – this can save in commissions paid to practice brokers.
- Timing considerations: review any assets that your practice owns and discuss the most opportune time to remove them from the practice with your accountant. Timing these transactions will be important because they may prompt a tax bill. Assets may include life insurance policies, pension plans, properties, etc.
- Discuss your plans with your lawyer to identify issues well in advance of selling. This discussion should include:
- Due Diligence – both the buyer and the seller should perform their own checks. Both parties should disclose potential issues so that they may be dealt with.
- Negotiating the Sale – Understand why the buyer is interested in your practice and develop a selling strategy with your lawyer and accountant that will allow you to defend the value of your practice.
- Terms of Sale – Review all terms and conditions of the sale carefully with your lawyer and accountant so that there are no surprises or disappointments later down.
- Property Agreement– If you or a family member owns the building where the practice is housed, ensure that a suitable and secure lease agreement is drawn up. If you would prefer that the practice be moved off this property, make sure that this is included in the terms of sale.
- Equipment Leases – Have your lawyer review all existing lease agreements (e.g. equipment leases). Depending on the terms of the lease, it may be more cost-effective to buy out of the lease or to sign it over to the buyer.
- Retirement Allowance – Employees, including family members, who worked in the office prior to 1996 may qualify for a tax-deductible retirement allowance.
Getting ready to sell your practice may seem like a daunting task, but by thinking ahead and building a strong team of legal and financial advisors, you can save yourself unnecessary time, stress and money in the long run!