Whether you are in your first year out of dental school or have been operating your own dental practice for 30 years, it’s safe to say that your life’s work has been devoted to dentistry to this point. Many dentists depend on the value of the practice to supplement a portion of their retirement savings. But how do you purchase your practice in the first place? Similarly, how do you sell your practice once you are ready to retire while still retaining ownership of your office space? Or, in the worst cases, what happens to your practice if the unexpected occurs and you pass before the sale of the business?
Prior to purchasing a dental practice, there is a fair amount of due diligence that needs to occur. These transactions should never be a “handshake” agreement nor a form document that is simply found and replaced. Both the buyer and seller should have counsel representing them during the transaction to complete the due diligence steps necessary to uncover any information that may lead to one of the parties withdrawing from the transaction. Additionally, you need to know how you will pay for the practice, whether it be financed through a bank or seller-financed. Additionally, will the seller require the buyer to rent their office space for a number of years, or is the buyer purchasing the real estate with the practice?
Many of these same considerations need to be taken into account when selling your business. Once you begin contemplating a sale, the best practice is to start keeping your books and records as accurately as possible to account for add-backs, goodwill, client information, and employment status with the practice. Keeping your records as clean as possible for the two or three-year period leading to the sale will ensure a much quicker and more efficient transaction while avoiding additional headaches that are caused by adlib sales.
Young dentists will often buy into a practice or purchase a practice with another individual. In any event, you want to ensure that you are protected from liability by forming a Professional Limited Liability Company (PLLC). A PLLC will also allow you to take advantage of many tax laws that are vital to operating any business. In the event you enter into a practice with another individual, it’s important to implement a buy-sell agreement for your respective interests in the practice. The buy-sell agreement contemplates how your shares are purchased from you or from your estate in the event of a death, disability, divorce, retirement, and several other circumstances where an exit is on the horizon. Having a plan in place that states an agreed-upon purchase price or a formula to determine the purchase price is important to avoid conflict between you and your business partner or even their family. Without a buy-sell agreement, it’s reasonable to say that you will end up owning your practice with an individual or group of individuals whom you did not agree to enter into business with.
Once you are either a full-time practicing dentist or completely removed from practicing as a retiree, what happens to your practice and your funds from the sale of your practice when you pass away? It is vital that you have your affairs in order from an estate planning perspective to ensure the appropriate parties can manage the sale of your practice and that your preferred beneficiaries receive your assets at that time. After a career of substantial earnings and perhaps additional investments along the way, you don’t want to leave your family with a mess on their hands that takes years to sort through and finalize. By creating a proper estate plan, you can ensure that your family continues to enjoy your life’s work and the fruits of a successful career.