Ask Scott: How long will I need to stay on after I sell my practice?
As a Practice Valuation Manager for MediEstates, Scott Gidman undertakes practice valuations as large as £9 million providing the vendor with a comprehensive business and property report. One of the most common questions he gets asked is “How long will I be expected to stay on, after I have sold my practice?”. The answer is always different and depends on a range of different criteria – and can be as short as a few weeks to as long as five years.
In this article Scott covers some of the key areas to think about when planning your retirement or exit from practice ownership.
The amount of time an incoming buyer might ask you to remain is highly dependent on the type of practice. The retention period requested on a private practice is often much longer than that for an NHS or a mixed practice. Private dentists often have a more loyal patient base whose main reason for staying with the practice is the level of trust that has been built with their dentist. When a practitioner moves, there is less certainty that their patients will remain after the sale, so a buyer often stipulates a longer retention period in the sale contract in order to give the patients the reassurance they need to stay loyal.
What are your motives for selling?
If you are selling because you plan to retire and therefore leave the practice almost immediately, you need to be prepared for the incoming buyer to ask you to take a deferred payment of a certain percentage of the purchase price, maybe for as long as two or three years after the sale, again to ensure a smooth handover.
On the other hand, if you are selling simply to get away from the management side of owning the business and you are planning to stay on another 10 years, there is a vested interest on both sides to ensure the practice handover is successful.
Type of buyer
Some buyers are not keen for the outgoing dentist to stay on after the sale; for instance, a dentist who is interested in buying a three-surgery practice and take on the existing patients for themselves might prefer a clean break.
At the other end of the scale, a large corporate might have very stringent requirements on retention periods and deferred payments as often they wish to protect their investment as much as possible, to reduce the risk of decline.
Safeguarding your inheritance
Depending on the type of practice you have built, you may want to put measures in place to ensure its future. For some, a practice is a life’s work and it is very important that it continues to flourish and that the staff and patients are well looked after by the incoming owner. In this instance, a longer handover might ensure that staff and patients do not feel your loss too keenly.
Plan your exit early
The key to planning an effective exit strategy from practice ownership is starting early; in my experience that means about six or seven years ahead, if you consider that it can take about a year to sell a practice and you might be asked to work for another five years. In addition, it’s important to make sure that your practice is as attractive a proposition as possible to potential buyers. At MediEstates we can give a free evaluation of your practice at any time, pointing out where you might need to make improvements so there is time to implement those changes before a sale commences.
It’s also at this point that you can plan a staged reduction of your hours of work so that you can slowly extricate yourself from the day-to-day running of the practice and make it less likely that the buyer will request a long retention period after sale.
In my opinion, it’s never too early to start planning for the future. What better place to start than with a free valuation from MediEstates. We can not only give you an informed estimate of the value of your practice, but also an idea of what a future buyer might ask of you when you do come to sell.
Posted by: Scott Gidman on 14 Aug 2018